Europe's main stock markets Tuesday showed "resilience" following the collapse of Greek bailout talks, while Athens shares slumped on fears the country could be forced out of the eurozone.
Athens' main index lost 2.45 percent to end the day at 838.61 points, while the main exchanges closed mixed but little changed.
London's benchmark FTSE 100 index rose 0.60 percent to stand at 6,898.13 points at the end of trading.
Frankfurt's DAX 30 slipped 0.25 percent to 10,895.62 points while the CAC 40 index in Paris was stable, gaining a slight 0.04 percent to 4,753.99 points.
The euro gained to $1.1394 from $1.1355 late in New York on Monday, when the single currency and Greek borrowing costs soared after the hard-left government in Athens refused a demand by eurozone partners that it apply for an extension to its EU bailout.
"The resilience of the markets suggests investors are confident that a (Greek) deal will eventually be reached, perhaps as soon as this week," noted Fawad Razaqzada, analyst at dealers Forex.com.
Greece and its eurozone partners raced to scrape together a last-minute debt deal for Athens and avoid a Greek exit from the single currency bloc a day after talks ended bitterly.
Eurogroup head Jeroen Dijsselbloem, who is also Dutch finance minister, on Monday gave an isolated Greece the rest of the week to request the extension to the bailout programme that expires at the end of the month, a demand that Athens refuses.
The chaos surrounding the debt talks alarmed analysts, with economists at Commerzbank now predicting that a Greek exit from the euro was 50 percent likely, up from 25 percent.
That view was shared by analysts at Capital Economics who estimate that global markets are unprepared for a "Grexit".
"We think this failure (of the Greek talks) has raised the risk of a Greek exit from the eurozone significantly. What's more, the mechanisms in place to prevent contagion are not as bullet-proof as many think," the London-based consultancy said in a research note.
US stocks were slightly lower over concerns about the unresolved debt deal with Greece. Around mid-day in New York, the Dow Jones Industrial Average was down 0.11 percent at 17,999.64 points.
The broad-based S&P 500 slipped 0.08 percent to 2,095.37, while the tech-rich Nasdaq Composite Index was off a mere 0.01 percent at 4,893.27.
- German investor confidence rises -
Despite the high tensions, investor sentiment in Germany is at it highest level in 12 months, buoyed by the feel-good effects of the European Central Bank's latest policy moves and positive growth figures, data showed on Tuesday.
The widely watched investor confidence index calculated by the ZEW economic institute rose by 4.6 points to 53.0 points in February, its highest level since February 2014, ZEW said in a statement.
"Over in the economic nightmare some call the eurozone, things are looking ever so slightly brighter, as Germany's ZEW economic sentiment hit a 12-month high, whilst the overall figure for the region also beat expectations, allowing the eurozone (stock) indices some breathing room to grow," said Connor Campbell, analyst at Spreadex trading group.
In Britain, the annual inflation rate slowed to a record low of 0.3 percent in January on the back of plunging oil prices and lower food costs.
Inflation in Britain could meanwhile turn negative within months and interest rates could be cut further, Bank of England governor Mark Carney said last week, signalling fresh risks to the economy before the country's election.
While a sustained period of falling prices may sound good for consumers, deflation can trigger a vicious spiral in which businesses and households delay purchases, throttling demand and causing companies to lay off workers.