European benchmarks closed higher on Tuesday, continuing a modest rally after heavy losses last week, although gains were capped by weakness seen in the Italian and Spanish markets.
Volatility has risen in the region after a state bailout for Portugal's troubled lender Banco Espirito Santo, and some traders warned that investors could be cutting their exposure to the euro zone's weaker nations.
On the data front, the final composite PMI (Purchasing Managers' Index) - which measures both the manufacturing and services sector - for the whole euro zone came in slightly below expectations. The figure for the region hit 53.8, which still marked a expansion in the two industries, but was below market expectations of 54.0.
Retail sales for the euro zone saw a monthly rise of 0.4 percent in June, managing to meet estimates in a Reuters poll of analysts. In the U.K., services PMI data for July rose to its highest level this year. Sterling rose against both the euro and the dollar after the news.
The fresh data comes ahead of two central bank meetings later in the week. The European Central Bank and the Bank of England are both due to announce any policy changes on Thursday.
Earnings boost sentiment
Credit Agricole reported a slump in second-quarter net profit on Tuesday, hit by the crisis facing Portuguese lender Banco Espirito Santo (BES), in which Credit Agricole owns a stake. It shook off the bad news to finish 2 percent higher as investors responded positively to its efforts to ringfence any losses.
German automakers were also in focus, after results from BMW, and confirmation that Daimler is assisting Chinese authorities in investigations, after local media reported its Mercedes-Benz office in Shanghai had been raided by anti-monopoly officials. BMW's second-quarter operating profit rose 26 percent, above forecast, boosted by strong China sales and new models. Its shares traded higher on the news but finished the session flat.
French telecoms were also back in the news, after Spain's Telefonica offered 6.7 billion euros ($9.0 billion) for Vivendi's Brazil unit on Tuesday. Telefonica shares finished around 1.7 percent on Tuesday; Vivendi shares finished higher by nearly 4 percent.