European shares trimmed their losses and closed higher as a number of U.S. banks reported positive earnings, counteracting some of the negative data from the euro zone.
The U.K.'s FTSE 100 closed 0.6 percent higher, Germany's DAX was up 0.3 percent and the French CAC gained 0.4 percent as European markets tracked a sharp rally in U.S. shares.
U.S. stocks traded higher on Tuesday, rebounding from Wall Street's worst three-day rout since 2011, as investors considered earnings from banking powerhouses JPMorgan Chase, Citigroup and Wells Fargo. The results also offered European markets some relief.
The pan-European Euro Stoxx 600 Index closed slightly higher after the latest release of the German ZEW index for October - a gauge of economic sentiment in the country - showed a fall to minus 3.6 points versus a figure of 6.9 in September.
"The continuation and magnitude of the decline, which went beyond our expectations, is reason for concern. If uncertainty is the source for the decline, then the level of uncertainty is very similar to the one observed during the peak of the euro zone crisis," Evelyn Herrmann, an economist at BNP Paribas said in a note after the release.
Data for euro zone industrial production also showed a fall. The figure for August sunk 1.8 percent from the month before and was worse than expected in a poll of economists by Reuters. Capital goods output was the major laggard within the new figures and showed their biggest fall since January 2009.
Read MoreGerman investormorale tumbles as contraction looms
Meanwhile, inflation readings were also released on Tuesday morning. French consumer prices rose 0.4 percent from the year before in September, meeting estimates, and Spanish inflation figures slipped 0.2 percent.
In the U.K., yearly inflation fell to 1.2 percent in September and was below a forecast of 1.4 percent in a Reuters poll. Earlier in the day, the British Retail Consortium (BRC) reported that retail sales in the country had fallen to the lowest levels last month since December 2008.
Iliad soars; Burberry falls
Oil and gas stocks saw some of the largest declines with a continued slide for oil prices and the mining sector posted its second day of gains with some metal prices ticking higher again on Tuesday.
Household goods were lower with shares of Burberry weighing on the sector. The British luxury brand posted a 14 percent rise in first-half revenue, although the company warned of a challenging external environment.
French telecoms company Iliad saw its shares soar as much as 13 percent after an announcement that it had dropped its bid to buy T-Mobile U.S.
Greek stocks down 4%
In Greece, the Athens Stock Exchange lost over 4 percent with political uncertainty in the country after the Prime Minister won a confidence vote last week, which called for lawmakers to back plans to exit an international bailout program early.
Read MoreGreek PM wins confidence vote in parliament
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