Europe closes down 2%; Greek stocks crash

European shares closed sharply lower on Tuesday as a slide in Chinese and Greek equities weighed on investor sentiment.

The pan-European Euro Stoxx 600 Index closed over 2 percent lower with the German DAX, the French CAC 40 and the FTSE 100 all showing losses of around 2 percent.

Greek stocks closed nearly 13 percent lower, after the country's president shocked investors by announcing a snap presidential vote for next week. Greece's bank stocks were among the worst hit by the rout, with the National Bank of Greece closing down around 20 percent and Attica Bank down 26 percent.

Read MoreGreek stocks crumble on political strife


Europe's losses followed volatility in China, where the country's benchmark index fell by as much as 6 percent in the last hour of trade, after rallying to a three-and-half-year high earlier in the session.

Analysts attributed the Shanghai Composite selloff to profit-taking, concerns about growth prospects in 2015 and newly announced corporate bond market restrictions.

Read MoreGlobal stocks decline; Shanghai slides

U.S. stocks also declined on Tuesday, extending losses into a second session. The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite all shed around 1 percent before paring some losses.

Tesco tanks...again

Shares of Tesco fell to the bottom of the FTSE 100, ending down around 6.6 percent, after the embattled supermarket chainissued its latest profit warning for 2014.

U.K. rivals WM Morrison also posted heavy losses on the news.

Read MoreTesco warns on profit...again