The pan-European STOXX 600 index closed down 0.3% as Monday's gains ran out of steam, putting the benchmark comfortably within its trading range since mid-May.

It had gained on Monday after the United States authorised the use of blood plasma from patients who have recovered from COVID-19 as a treatment.

Heavyweight British resource stocks were among the biggest drags on the index, due to strength in the pound weighing on their export margins.

The STOXX 600 is still some 15% off a pre-pandemic record high, as a recovery from March lows stalled in the face of resurgent COVID-19 cases and sluggish economic growth. Data last week had shown business activity faltering in the region.

"Although we expect the Euro area economy to recover rapidly from the downturn, the scale of the output decline raises the risk of long-lasting 'scars' to the economy's productive capacity," Goldman Sachs analysts wrote in a note.

Markets had initially gained as top U.S. and Chinese trade officials reaffirmed their commitment to the Phase 1 trade deal despite diplomatic rifts between the two countries.

The trade-sensitive German DAX closed flat after data showed Europe's largest economy contracted by a record 9.7% in the second quarter, but marked a minor upward revision from an earlier estimate of minus 10.1%.

Other data showed German business morale improved more than expected in August.

An unexpected drop in U.S. consumer confidence also weighed, as it pointed to a likely stalling in the world's largest economy.

Among individual movers, shares of AstraZeneca rose 0.2% after the British drugmaker said it had started testing an antibody-based cocktail for the prevention and treatment of COVID-19.

Technology stocks <.SX8P> were among the biggest gainers on the day. Aveva Group rose 7.2% after announcing a deal to buy OSIsoft, a privately held maker of industrial software, for an enterprise value of $5 billion.

LVMH gained 0.9% after a source told Reuters the French luxury goods giant and U.S. jewellery chain Tiffany will give themselves another three months to complete their $16.2 billion tie-up.

SAS jumped 10.1% after the airline said it was expecting to complete a 14 billion Swedish crown recapitalisation plan to counter the effects of the pandemic by November.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Anil D'Silva and Ken Ferris)

By Sruthi Shankar and Ambar Warrick