LONDON: European equities ended in the red on Tuesday after the head of the Federal Reserve warned it could raise rates faster than expected, adding to gloom over poor German data.
Paris's CAC 40 fell 1.03 percent compared to Monday's closing levels to settle at 4,305.31 points.
London's FTSE 100 index lost 0.53 percent to close at 6,710.45 points while Frankfurt's DAX 30 dipped 0.65 percent to 9,719.41.
Shares lost ground after Fed Chair Janet Yellen told Congress the improving US labour market meant the central bank could raise rates earlier than thought, pointing to high stock valuations.
"European markets were drifting into positive territory after more major US corporations beat earnings expectations but soon dropped back into the negative again after Fed Chair Yellen," said Jasper Lawler, an analyst at CMC Markets UK.
The first rate hike could come "sometime in 2015," Yellen said, potentially meaning the Fed could act before the middle of the year as the market expects.
The comments, which helped to push Wall Street into the red, added to gloom in Europe's equity markets already digesting weaker-than-expected data from powerhouse Germany.
Investment sentiment in Germany fell to the lowest level for 19 months in July amid signs of a dent in activity in Europe's top economy, a survey showed.
The widely watched investor confidence index calculated by the ZEW economic institute fell by 2.7 points to 27.1 points in July, its lowest level since December 2012.
The news adds to concerns that the eurozone is still facing the hangover of years of grinding debt crisis as a holding company behind Portugal's biggest listed bank struggles to avoid bankruptcy.
"Market uncertainty triggered by troubles at one Portuguese bank and more disappointing economic data from Germany and the eurozone in May could herald a further cooling of confidence," said Christian Schulz at Berenberg.
In reaction, the European single currency dipped to $1.3580 from $1.3619 late in New York on Monday.
US shares turn red:
Yellen's comments turned Wall Street lower after markets got an early boost from upbeat earnings.
In mid-afternoon deals, the Dow Jones Industrial Average lost 0.28 percent to 17,007.35.
The broad-based S&P 500 dropped 0.49 percent to 1,967.37, while the tech-rich Nasdaq Composite Index lost 1.12 percent to 4,390.70.
US investment banking titan Goldman Sachs said earnings rose 4.7 percent to $1.95 billion from a year ago thanks to big jumps in both equity and debt underwriting.
JPMorgan, the biggest US bank by assets, said earnings dropped 7.9 percent to $5.99 billion compared with the second quarter last year.
"With both JP Morgan and Johnson & Johnson beating both top and bottom line estimates, the Dow pushed on to another all-time high," said Lawler. Tech giants Intel and Yahoo! will report after the closing bell.
Shares in European aircraft maker Airbus ended down 1.34 percent percent despite news it has secured about $60 billion of orders at the Farnborough airshow.
Imperial Tobacco dropped 3.69 percent after it agreed to buy cigarette brands including Salem and Winston from US tobacco giant Reynolds American for $7.1 billion.
In Lisbon, shares in Portugal's largest listed lender Banco Espirito Santo slumped for the seventh day on concerns that one of the bank's holding companies is at risk of default.
"My priority is to recapture the confidence of the markets, put an end to speculation and open a new chapter" for the bank, new chief Vitor Bento told employees.
Asian equities mostly rose Tuesday, taking their lead from a second straight advance on Wall Street.
Hong Kong added 0.49 percent, Tokyo rose 0.78 percent, Seoul jumped 0.94 percent and Shanghai 0.18 percent, while Sydney was flat.
The British pound weakened to $1.7158 from $1.7083 on Monday, as investors shrugged off a surprise jump in inflation. The euro eased to 79.14 pence from 79.71 pence.
In commodity deals, gold advanced to $1,310 per ounce from $1,306 on Monday.
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