European earnings season got off to a rocky start on Tuesday with profit warnings from BT Group and Aryzta sending their shares sharply lower, with weakness offset by gains in Italian financials and mining stocks. Overall, the pan-European STOXX 600 index was up 0.2 percent.
While basic resources were the biggest sectoral risers, gaining on the back of a weaker dollar, shares in Generali were the biggest gainers, up 9 percent on speculation that Intesa Sanpaolo's could make a bid for the Italian insurer.
Italy's index was the standout performer, up 1 percent as Generali's biggest shareholder Mediobanca also rallied 7.4 percent. Intesa declined to comment on a possible share swap offer on Generali.
BT fell as much as 19 percent after the telecoms firm cut forecasts for 2017 and 2018 after finding that inappropriate accounting behaviour in its Italian business went far deeper than previously thought. Tuesday's losses were poised to wipe out more than $8 billion off BT's market value.
"I think companies have been punished ... over the last year for misleading statements, for false accounting," Jonathan Roy, advisory investment manager at Charles Hanover Investments, said. "The worries are, is there anything else that isn't being managed as it should be?" Charles Hanover Investments' Roy added.
Swiss bakery firm Aryzta was the biggest faller, set to lost almost a third of its market value after issuing a profit warning. Budget airline easyJet was another top faller, down 7.7 percent after reporting its first quarter earnings.
"While Q1 could be viewed as a positive start to the year we expect the fuel/currency impact (which is beyond the company's control) will weigh into the shares negatively (especially given the recent strong performance)," analysts at UBS said in a note.
A miss in fourth quarter earnings also weighed on Philips, which dropped 2.6 percent. The medical equipment maker also disclosed a conflict with the US government over defibrillators it sold in 2015 and before.
Britain's blue chip FTSE 100 index turned slightly higher, up 0.3 percent after the UK Supreme Court ruled that Prime Minister Theresa May needed parliament's approval before triggering Britain's formal exit from the European Union.
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