- The pan-European Stoxx 600 rose 0.8%, with banks leading the gains while tech shares fell.
- Investors are bracing for an update from the Fed and remain focused on tensions over Ukraine.
- Ericsson gained almost 8% after beating fourth-quarter earnings expectations.
European stocks closed higher on Tuesday, recouping some losses from a sharp sell-off on Monday as investors sifted through a fresh batch of corporate earnings.
The pan-European Stoxx 600 closed up by 0.8% provisionally, with banks adding 2.9% to lead gains as most sectors and major bourses finished in positive territory. Tech stocks, on the other hand, fell around 0.8%.
Traders are growing wary about the prospect of interest rate hikes and a winding down of central banks' massive monetary stimulus packages. Higher rates are viewed as good for sectors such as financials but bad for high-growth areas of the market like tech.
In terms of individual share price movement, Ericsson gained almost 8% after beating fourth-quarter earnings expectations, with profits bolstered by high demand for 5G network equipment.
And Swiss software manufacturer Logitech climbed 6% after beating quarterly sales expectations and raising its full-year outlook.
At the bottom of the European blue chip index, French care home operator Orpea plunged 19% as a trading suspension was lifted ahead of the publication of a book alleging mistreatment of elderly residents, extracts of which were published in France's Le Monde newspaper on Monday.
Fed decision in focus
The broad gains for European stocks come after they tumbled on Monday, following wild volatility on Wall Street. Investors are now bracing themselves for an update from the U.S. Federal Reserve and remain focused on tensions between the West and Russia over Ukraine.
The Federal Open Market Committee starts its two-day meeting on Tuesday at which it will decide on the next steps for U.S. monetary policy. An interest rate decision is slated for Wednesday at 2 p.m. ET.
Rising inflation is a major concern for the U.S. central bank and investors will listen closely to hear how worried the Fed actually is. Chairman Jerome Powell is due to brief the media after the FOMC releases its statement. The Fed is not expected to begin hiking rates just yet, but the central bank is expected to maintain a path toward tighter policy this year as it fights the highest inflation in decades.
Markets are also nervous that there could be an imminent military conflict between Ukraine and Russia although high-level talks to avert a confrontation are ongoing.
President Joe Biden spoke with European leaders Monday afternoon as the U.S. considers deploying military personnel and equipment to the region as the security situation at Ukraine's border with Russia deteriorates.
On Wall Street, the major U.S. averages declined again Tuesday after having rebounded a day earlier, as volatility continued to plague the market.
In terms of data, Germany's Ifo business climate survey showed business morale rose in January to 95.7 from 94.8 in December, slightly ahead of expectations.
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— CNBC's Ryan Browne, Weizhen Tan, Abigal Ng and Pippa Stevens contributed to this report.