European stock markets rose on Tuesday as solid US housing data outweighed Moody's stripping France of its coveted triple-A rating.
The Paris CAC 40 index shook off early lows and rallied to close 0.65 percent higher at 3,462.06 points even as Moody's cut the country's bond rating by one notch to "Aa1", citing structural weaknesses in the French economy, slow reform, and French exposure to troubled eurozone countries.
London's FTSE 100 index of top companies gained 0.18 percent to 5,748.1 points and Frankfurt's DAX 30 rose 0.69 percent to 7,172.9 points.
"Global headline shares moved off earlier lows as better than expected housing starts data from the US provided bulls with enough ammunition to slowly wrestle some control back from the bears," said Spreadex trader Shavaz Dhalla.
"Despite this, investors are finding it difficult to shake news that Moody’s has stripped France of its top credit rating and that coupled with yesterday’s giant gains within the global equities market was enough of an incentive for investors to shy away from risk-on assets," he said.
US home construction rose again in October following September's strong surge, the Commerce Department said Tuesday in a further sign of recovery in the housing market.
Housing starts rose 3.6 percent from October, surprising analysts who had expected a fall after the big September jump.
But US stocks moved lower Monday after Hewlett-Packard reported a quarterly loss due in part to a massive writedown, offsetting the housing recovery.
The Dow Jones Industrial Average fell 0.15 percent in midday trade, while the S&P 500-stock index remained unchanged and the tech-rich Nasdaq Composite slipped 0.10 percent.
Wall Street had surged on Monday on the upbeat housing data and hopes that politicians will find a way to avoid the so-called "fiscal cliff" of automatic tax hikes and spending cuts in January.
European equities had also soared on Monday on rising prospects that Washington can reach a deal, but sentiment soured following the France downgrade.
"After yesterday's temporary respite, equity markets are looking strained once again after that Moody's downgrade of France served to heighten fears surrounding the eurozone crisis once more," said analyst Fawad Razaqzada at traders GFT.
"With the Eurogroup meeting today to discuss Greece's position, this latest development is something of an unwanted distraction, although perhaps some solace should be taken from the fact Paris has only received a one notch demotion."
In foreign exchange activity, the European single currency eased to $1.2815 from $1.2816 late in New York on Monday. Gold prices rose to $1,732.25 an ounce from $1,730.50 on the London Bullion Market on Monday.
France meanwhile insisted on Tuesday it was still a good investment destination.
"I would like to put in perspective the impact of this decision," said government spokeswoman Najat Vallaud-Belkacem.
"France still represents sound value, it is in second place just after Germany," she told France Inter radio.
Moody's was the second of the three major ratings agency to cut France's gilt-edged triple A rating. Standard and Poor's did so in January but Fitch has maintained its assessment of French debt so far.
Eurozone finance ministers began talks in Brussels over a likely agreement to hand debt-plagued Athens the latest instalment of cash it needs to avoid bankruptcy.
The head of the Eurogroup, Jean-Claude Juncker,said eurozone finance ministers have a good chance of reaching agreement on payment of long-awaited aid to Greece.
"Greece has delivered. (There are thus) good chances of an agreement," he said.
The ministers will also try to heal a split with the International Monetary Fund (IMF) over a key debt reduction target.
Meanwhile, Asian equity markets traded mixed earlier in the day.
Tokyo ended the day 0.12 percent lower, Hong Kong fell 0.16 percent, while Sydney rose 0.56 percent and Seoul gained 0.64 percent.