London's FTSE 100 lost 0.3% as the pound gained on a report that British and European Union negotiators may be closing in on a deal. [.L] [GBP/]
Meanwhile, London moved into England's highest tier of COVID-19 restrictions, with a new variant of the coronavirus likely causing increased infection rates. This comes as data showed existing curbs caused Britain's jobless rate to rise in October.
"Tier 3 lockdown measures being implemented in London will deal yet another blow for the UK retailers, with festive shopping likely to shift online," said Joshua Mahony, senior market analyst at IG.
The EU said on Tuesday it was on course to approve its first COVID-19 vaccine before Christmas after its drug regulator brought forward a deadline for review following the start of immunisation campaigns in the United States and Britain.
This helped investors look past new curbs in Germany and Italy as well and pushed the pan-European STOXX 600 index up 0.3%, while Germany's DAX jumped 1% for its best day in three weeks.
Volkswagen led gains on the index, up 7.6%, after its supervisory board said Chief Executive Herbert Diess had its full support as he leads a new team, averting a leadership crisis. This sent Europe's auto sector up 3%.
The basic material sector rose 2.1% with ArcelorMittal surging following an upgrade from Societe Generale, while Umicore rose after raising its annual guidance.
Investors also await the outcome of the U.S. Federal Reserve's two-day meeting set to begin on Tuesday as Washington struggles to pass a fiscal stimulus.
Among other stocks, H&M shares dropped almost 3% after the world's second-biggest fashion retailer said local-currency sales fell 10% in its fourth quarter, with a big slowdown in the final month due to the pandemic.
But retail sector losses were tempered by a 3% jump in JD Sports after the sportswear retailer said it bought U.S. retailer Shoe Palace for $325 million.
(Additional reporting by Amal S in Bengaluru; Editing by Arun Koyyur and Richard Chang)
By Susan Mathew
