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Banks Lead European Shares Up, Deutsche Bank Rallies

European shares closed higher on Tuesday as Deutsche Bank led a rally among euro zone banks after it said it would not ask shareholders for more cash to strengthen its capital base.

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CAC 40
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DAX
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The broader STOXX 600 euro zone banking index gained 1.7 percent to fresh six-month highs as investors continued to be reassured by the European Central Bank's (ECB) pledge last week to buy the sovereign bonds of struggling countries if they apply for a bailout.

"We see some American activity today on the European markets after... the (ECB chairman Mario) Draghi move," a Brussels-based trader said. "Everybody agrees in the short term we're a bit out of the woods because there is a floor."

Deutsche Bank shares traded higher on Tuesday after the bank announced a cost cutting drivewith a planned 4.5 billion euros ($5.8 billion) in annual savings by 2015.

(Read more: Euro Will Not Collapse: Deutsche Bank Co-CEO)

Investors remained cautious however ahead of a German Constitutional Court ruling on the legaility of the permanent European bailout fund, the European Stability Mechanism (ESM), which is due on Wednesday.

The pan-European FTSEurofirst 300 index provisionally closed 0.3 percent higher at 1,107.11 points.

European luxury brands traded lower on Tuesday after fashion label Burberry said its sales would be at the lower end of market expectations.

Shares in Burberry dropped 18 percent after the company flagged weaker sales in recent weeks due to more challenging market conditions. Shares in Christian Dior , Swatch and LVMH all fell sharply on the news.