Bargain-hunting and talk of a financial aid deal for Greece pushed European shares into a positive close, despite gloomy German data and negative corporate news.
The ZEW think tank's monthly index of economic sentiment fell to -15.7 in November from -11.5 in October. Analysts had expected a reading of -9.8.
A raft of weak economic data from Germany in recent weeks has strengthened economists' belief that Germany is starting to feel the impact of the euro zone debt crisis. Some argue the country is heading towards a recession.
Fears that the euro zone crisis could flare up again were reignited by a clash between Greece's international lenders on Monday although a news report on Tuesday that Greece was going to get 44 billion euros in aid in one payment helped European shares trim losses slightly in late morning trade.
The Eurogroup of finance ministers which met in Brussels on Monday decided to give Greece two more years to make budget cuts.
The 17-strong group of finance ministers delayed a decision on a next tranche of aid for Greece until November 20. Speaking after the meeting, euro group leader Jean-Claude Juncker told reporters that by that date, the group expected further aid to be given to Greece.
But a feud has broken out between the IMF and the EU over Greece, heightening market uncertainty.
The euro zone is facing pressure to ink a deal on Greece as Athens has to redeem 5 billion euros ($6.35 billion) worth of treasury bills on November 16 and was dependent on funds from the next aid tranche to tide it over.
As a near-term fix, Greece will offer 3.125 billion euros ($3.98 billion) worth of Treasury bills to help repay around 5 billion euros of debt held by the European Central Bank that matures on Friday.
A successful Treasury bill auction may help ease investor concerns. Indeed, renewed jitters about the future of Greece knocked the euro to a two-month low against the dollar earlier on Tuesday.
In a busy day for corporates, Austria's Wienerberger, the world's biggest brick maker, reported a 43 percent rise in third-quarter sales. The numbers were boosted by the group's recently acquired pipes company, which offset declines in the bricks business.
Shares in German firm E.On ell over 10 percent after the group issued a profit warning. The group warned of weakening electricity demand in Europe and said it may no longer be able to reach its outlook for 2013.
In the U.K., Vodafone shares were down over 3 percent after the group wrote down the value of its business in Spain and Italy by 5.9 billion pounds and cut its outlook for 2012.