Europe's main stock markets reversed earlier gains on Tuesday after European ministers ended talks in Brussels and set a new date for another push towards a banking union.
Sentiment had been boosted by a Greek debt-buyback programme and the approval by eurozone finance ministers of a bailout for Spain's troubled banks.
In cautious afternoon deals, London's benchmark FTSE 100 index dipped 0.05 percent to 5,868.45 points, on the eve of the British government's budget update and latest economic growth forecast.
Frankfurt's DAX 30 slipped 0.02 percent to 7,433.48 points, the Paris CAC 40 won 0.32 percent to 3,577.96 points and Madrid's Ibex 35 added 0.26 percent to 7,909.90 points.
The European single currency meanwhile rallied to a seven-week peak at $1.3107, before easing back to $1.3093, compared with $1.3051 late in New York on Monday. Gold prices however dipped to $1,706.75 an ounce on the London Bullion Market, from $1,720.
US shares also wavered early on Tuesday as a budget impasse in Washington continued to weigh on Wall Street sentiment.
The Dow Jones Industrial Average rose 0.10 percent in the first few minutes of trade, while the broad-market S&P 500 edged down 0.05 percent and the tech-rich Nasdaq Composite fell 0.17 percent.
"With the economic calendar empty, the unresolved fiscal cliff is likely to continue to command the lion's share of the Street's attention," said Charles Schwab & Co. analysts.
US politicians have until the end of the month to agree a deal on cutting the country's huge deficit and avoid a fiscal cliff of huge tax hikes and spending cuts widely expected to tip the economy into recession if allowed to take effect.
Finance ministers from the 27-member European Union met on Tuesday to discuss policing the banking sector more effectively from September 2013 to prevent another global financial crisis.
After nearly four hours of talks EU ministers said more time was needed and called for a fresh gathering on December 12.
Proposed new safeguards are part of wider moves towards fuller economic and political integration deemed necessary to break the vicious circle between government and bank debt that has brought the European economy to a standstill.
In London, Royal Bank of Scotland shares gained 0.92 percent to 295.30 pence and Lloyds Banking Group added 0.70 percent to 46.06 pence.
Over in Frankfurt, Commerzbank stock jumped 1.46 percent to 1.386 euros and Deutsche Bank shares rallied 1.66 percent to 34.56 euros.
And in Paris, lenders Credit Agricole and Societe Generale saw their share prices soar by 2.28 percent and 1.70 percent, to stand at 6.055 euros and 28.42 euros respectively.
On Monday, Greece launched a bid to buy back privately held debt at a big discount, freeing eurozone finance ministers to nod through 39.5 billion euros ($51.3 billion) to recapitalise Spanish banks next week.
Eurogroup chairman Jean-Claude Juncker also announced he would step down come year-end, although his successor remains far from clear, with France long resisting moves to hand the post to German Finance Minister Wolfgang Schaeuble.
The debt buyback is the underlying condition for Greece to receive a crucial 43.7-billion-euro instalment of bailout funds from the European Union and International Monetary Fund.
Asian markets were mixed Tuesday following weak US manufacturing data and fears over the US budget talks, while Hong Kong and Shanghai rebounded from the previous day's losses.
Tokyo fell 0.27 percent, Sydney eased 0.62 percent and Seoul lost 0.25 percent, while Hong Kong was 0.15 percent higher and Shanghai rose 0.78 percent.