Slides in Deutsche Bank and DaimlerChrysler toppled European shares off their highs yesterday afternoon, despite opening gains on Wall Street.
Firm telecoms underpinned bourses, with British duo BT Group and Vodafone Group up well over three per cent, but food and beverage stocks were hit by profit-taking.
News that Britain's Logica and Anglo-Dutch rival CMG were in talks to create Europe's third-largest computer services firm kept the technology sector above water.
CMG rocketed 46 per cent, but Logica, although the dominant partner in any merger, gained a more modest 5.6 per cent, analysts see the group as the more desperate of the two for a deal.
By 1339 GMT, the FTSE Eurotop 300 index of pan-European blue chips was up 0.33 per cent at 818 points, after being up more than one percent in morning trade.
On Monday, the benchmark closed just above its five-and-a-half-year closing low of late September.
The DJ Euro Stoxx 50 index of euro zone blue chips rose 0.6 per cent to 2,221 points.
On Wall Street, the Dow Jones industrial average rose 1.4 per cent to 7,528 points, while the Nasdaq Composite gained 0.9 per cent.
Shares in Deutsche Bank, Germany's biggest bank, sank 5.3 per cent, hit by rumours its 2002 profits might come in lower than expected.
The auto sector was the industry group hardest hit, down about three per cent after Credit Suisse First Boston bank cut its weighting on the sector in the United States.
Separately, General Motors, the world's biggest automaker, said the US vehicle market will shrink next year, and the size of the fall could be even worse if there is a war against Iraq. DaimlerChrysler, whose Chrysler operations are based in the United States, dropped 3.4 per cent.
Among the day's other standouts, UK retailer Marks & Spencer rose 5.8 per cent after announcing that its second-quarter sales had risen 10 per cent, double what analysts had expected.
Insurers were up for the second straight session as worries about further capital raising by companies in the sector eased for the time being, with higher stock markets also helping sentiment.
Dutch insurer Aegon led a strong pack, gaining 5.3 per cent.
Fund managers said there was little to support a sustained advance in stocks.
"We are in a sticky period and liable to remain in it. I don't see any trigger to break out of the range," said Richard Champion, European fund manager at Pavilion Asset Management.
"Those triggers would be a cut in interest rates, a major package of reflationary measures in Japan, or some corporate numbers surprising on the upside," Champion said.
Hope for a rate cut by the European Central Bank on Thursday were all but dashed after the ECB's President Wim Duisenberg said the central bank's rates were at the right level.
But there was some relief that US President George W. Bush said late on Monday that military action against Iraq was not imminent.