The pan-European FTSEurofirst 300 Index provisionally closed flat at 1,337.55 points, after an economic survey for Germany gave a mixed picture for the euro zone's largest economy. The forward looking economic sentiment index showed a fall to 55.7, lower than estimates and below last month's figure of 61.7.
However, the current conditions index rose to 50.0, against expectations of 44.0. This component of the widely-watched ZEW index reached its highest level since the summer of 2011.
Elsewhere in Europe, China's Dongfeng Motor Group and PSA Peugeot Citroen were said to be close to agreeing a 3 billion euro ($4.1 billion) capital tie-up that will help buy the French carmaker more time to turn its business around.
Analysts warned that Dongfeng's cash did not address some of the Peugeot's underlying problems. However, shares of the French car maker pared losses on the news to close down 2.2 percent.
Meanwhile, Europe's car sales rose for the fifth consecutive month, up by 5.5 percent in registrations in January, according to the European Automobile Manufacturer's Association. Euro zone peripheral nation Ireland led the recovery in the auto market, with car sales rising 32.8 percent and 31.8 respectively from a year ago.
Bright news from the UK
The U.K.'s FTSE 100 outperformed its European peers, closing higher by 1 percent, erasing its losses for the year as it rose for a third straight session.
The index was supported by miner BHP Billiton after strong results. Shares in the company closed higher by around 2.1 percent after the mining firm reported a 31 percent rise in first-half profit on Tuesday and signaled it would consider a dividend hike in August.
(Read More: BHP Billiton boosts profit, paves way for buyback)
Meanwhile, U.K. inflation fell below the Bank of England's target in January to its lowest annual level since November 2009. Consumer prices rose 1.9 percent year-on-year last month, below the 2 percent target set by the central bank. Month-on-month prices declined 0.6 percent.
(Read More: UK inflation falls to lowest since November 2009)
Italy still in focus
Meanwhile, Italy remained in focus for European investors. Democratic Party (PD) Secretary Matteo Renzi, who is set to become Italy's youngest prime minister, is working to seal a coalition deal before a formal vote of confidence in parliament later this week.
Renzi has said he will present a program for the reform of the country's electoral system before the end of February. This would be followed by changes to the labor, tax and public administration laws by May.
(Read More: Italy's Matteo Renzi to begin coalition talks)
U.S. stocks fluctuated on Tuesday, as an index of construction confidence fell dramatically, adding to another downbeat report on manufacturing in the New York region.
Japan's benchmark index rallied on Tuesday following the Bank of Japan's monetary policy announcement, but most other Asian markets fell.
In China, investors booked profits on the mainland's benchmark Shanghai Composite, after it hit a two-month high on Monday. Caution also set in ahead of Thursday's HSBC flash purchasing managers' index (PMI) for February.
(Read more: Yuan takes another step forward as a world currency)
Shares of climbed 3.9 percent after the Belgian retailer received an upgrade by Morgan Stanley to "overweight".
Shares in hotel group closed lower by around 3.2 percent, following full-year results. Numis Securities downgraded its recommendation on InterContinental to "hold" from "add", due to the lack of news on further returns of cash to shareholders.
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Correction: An earlier version of this story referred to the wrong day for this market report.