That was partly offset by strength in banks after Britain's Barclays announced hefty job cuts.

Michelin sank 3.7 percent, the worst performer on the FTSEurofirst 300 index, as its results missed forecast and its outlook for 2013 operating income fell short of analysts' consensus.

Auto parts maker Faurecia dropped 1.1 percent after saying it is scrapping its dividend as it struggles to counter Europe's auto slump.

The grim state of the European auto sector has had a knock-on impact on other sectors.

Shares in Germany's biggest steelmaker ThyssenKrupp AG shed 1 percent after saying a slump in steel prices and weak car markets caused a sharp drop in profit.

Navigation device maker TomTom tumbled 7.5 percent after warning that earnings would halve in 2013 because of weak car sales and competition from providers of free maps.

The FTSEurofirst 300 was trading down 0.1 percent at 1,153.01 by 1001 GMT after a 0.7 percent drop on Monday, having slipped around 2 percent from a two-year closing high reached on Jan. 29.

A leading gainer was Barclays, which rose 4.2 percent after unveiling new cost-cutting measures in a strategy update. Other banks also rose.

Fund managers and strategists indicated that the recent retreat by stocks looked more like a pause than the start of a serious correction, with the asset class attractive against a backdrop of low interest rates and below-inflation bond yields.

"Markets have run out of steam with the short base exhausted, which leaves little room for a short squeeze rally. Having said that, my feeling is that the dip will be bought as people need a place to put their money," said Lex van Dam, hedge fund manager at Hampstead Capital, which manages around $500 million assets.

Barclays market strategist Henk Potts said: "It's a reminder that stock markets don't go up in straight lines... there's an opportunity for investors to take advantage of the significant pullback to enter at lower levels an asset class that's going to outperform in the medium to long term."