Strong earnings on Wall Street helped revive European equities on Tuesday after they sank in early trading on gloomy German sentiment and a cut in growth forecasts.
London's benchmark FTSE 100 index ended the day up 0.42 percent at 6,392.68 points, while in Paris the CAC 40 gained 0.23 percent to 4,088.25 points and in Frankfurt the DAX 30 added 0.15 percent to 8,825.21 points.
"The bad news kept on coming today for the German economy but with European markets trading at yearly lows, decent earnings from the US banks... saved shares (from) another huge sell-off," said CMC Markets UK analyst Jasper Lawler.
Europe's main stock market indices had been down sharply in midday trading after German investment sentiment turned negative and fell to its lowest level in nearly two years.
That news came amid concerns about the economic fallout from geopolitical crises and lower-than-expected growth at home and abroad.
The German government then slashed its 2014 growth forecast to 1.2 percent from 1.8 percent. For 2015, it now forecasts 1.3 percent growth instead of 2.0 percent.
Despite this implicit admission that Germany, the motor of the eurozone economy, will not get back into gear in the near future, the government refused to consider changing policy to ease austerity and implement stimulus measures as its European partners have urged.
But European indices bounced back after strong earnings reports by US banks and Johnson & Johnson.
Citigroup also reported higher third-quarter quarterly earnings, up 6.6 percent to $3.4 billion, on a big 9.9 percent jump in revenues to $19.6 billion.
Meanwhile Wells Fargo came in at the estimated level and JPMorgan Chase came in just shy.
Johnson & Johnson raised its annual earnings forecast after a 59.3 percent jump in its third quarter earnings to $4.7 billion, surpassing analyst expectations.This helped Wall Street stage a rally, with the Dow Jones Industrial Average rising 0.82 percent to 16,454.10 points in midday trade.
The broad-based S&P 500 advanced 1.14 percent to 1,896.05, while the tech-rich Nasdaq Composite Index jumped 1.46 percent to 4,275.32.
Briefing.com analyst Patrick O'Hare said that Tuesday's market is likely benefiting from "a budding sense that the stock market is oversold on a short-term basis and due for a rebound of some kind."
However shares in Athens took a 5.7 percent beating as investors frowned on Greece's intention to terminate its IMF assistance early.
"The adverse market reaction to the Greek government’s plans to exit its IMF bailout early has underlined the fragility of market sentiment towards the country and presumably made it very unlikely that Greece will be able to carry through its plans," said Sarah Pemberton at London-based Capital Economics.
- Euro and sterling slump -
In currency trading, the euro slumped to $1.2658 from $1.2753 late on Monday in New York, on the disappointing German data.
The euro has shed nearly a tenth of its value since May as stalling European growth keeps interest rates low while in the United States they should go up next year as the recovery there takes hold.
Sterling suffered on receding expectations of a rise to British interest rates over the next few months as official data revealed a surprisingly sharp drop to British inflation.
The euro rose a three-week high against the British pound at 79.61 pence. The European single currency later stood at 79.45 pence, up from 79.26 pence on Monday.The pound touched an 11-month low against the dollar at $1.5905, before recovering to $1.5932, down from $1.6083 on Monday.
The price of gold meanwhile climbed to $1,234.75 an ounce on the London Bullion Market from $1,229 on Monday.
The German data and forecast cut also helped push down the yield on 10-year bonds to a new record low of 0.835 percent in trading on the secondary market.
The rate of return on 10-year French bonds also hit a record low of 1.195 percent.
Asian stocks closed mixed on Tuesday following Monday's heavy sell-off on Wall Street, with Tokyo taking a 2.38 percent thumping as traders returned from a long weekend to a much stronger yen.
Shanghai lost 0.28 percent and Hong Kong fell 0.41 percent.
But Seoul ended 0.11 percent higher and Sydney rallied 1.01 percent to close at 5,207.4.