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Europe shares close higher as Italy rallies

European market closes higher

European shares closed higher on Tuesday as investors shrugged off the U.S. government's first partial shutdown in 17 years, and as fears eased of a government collapse in Italy.

European Markets: FTSE, GDAXI, FCHI, IBEX

The pan-European FTSEurofirst 300 Index closed provisionally up 0.6 percent at 1,254.36 points, after U.S. lawmakers failed to reach an agreement on the federal budget by the October 1 deadline. This triggered a partial government shutdown that left an estimated 800,000 federal employees facing temporary unpaid leave.

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"The risk tone improves somewhat as investors take the view that a partial shutdown, if resolved quickly, will do little damage to the overall health of the U.S. economy. That does however mean that we will need to hear the right sounds out of Washington to feel confident enough that the shutdown will not damage economic growth," Joe Rundle, head of trading at ETX Capital said in a research note.

In the U.S., stocks extended their gains on the first trading day of the month and quarter, with all key S&P 500 sectors in positive territory. On the economic front, the U.S. manufacturing sector in September, according to the Institute for Supply Management (ISM).

In Europe, the Italian FTSE MIB closed provisionally up 3.1 percent after the previous session's heavy selling, as investors predicted the government would survive a confidence vote on Wednesday.

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Manufacturing output in the euro zone fell in September, according to the latest data from Markit. The manufacturing purchasing manager's index (PMI) fell to 51.1 in September, down from 51.4 in August. The figure was just above the 50-point mark separating expansion from contraction in the sector.

Euro zone unemployment remained unchanged for the month of August at 12 percent, according to Eurostat.

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In stocks news, shares of fell after the company issued a profit warning on Monday highlighting that it now expects a slip in underlying sales growth. Unilever's weak performance helped to push the down, which closed around 0.2 percent lower.

Fresnillo was the top FTSE faller, closing down 4.9 percent, as gold extended losses in late session trade.

(Read more: Unilever warns emerging markets slowdown has accelerated)

Howeve,r shares of U.K. homebuilder rose by percent after it reported forecast-beating earnings on Tuesday morning.