Stocks had earlier made tentative gains, but momentum soon swung to the downside as Italian Prime Minister Giuseppe Conte announced he would resign from the government. It comes after Lega party leader Matteo Salvini pulled the plug on his coalition with the anti-establishment Five Star Movement (M5S).
Conte spent a large portion of a speech to the Senate on Tuesday slamming Salvini for pushing for a vote of no confidence in the government. Italy's FTSE MIB tumbled 1%, hitting the day's low as Conte spoke. Shares of Italian banks Ubi Banca and Banco BPM fell over 2%.
Finnish central bank governor Olli Rehn said on Monday that the European Central Bank (ECB) was determined to act if the medium-term inflation outlook continues to miss its target of below but close to 2%. This followed the German finance minster indicating over the weekend that the government is prepared to deploy fiscal stimulus to boost its ailing economy,
Meanwhile, the People's Bank of Chinapublished new loan prime rates intended to lower borrowing costs for companies and stimulate the economy.
On Wall Street, stocks slipped following a sharp rebound in the previous session. The Dow Jones Industrial Average fell 30 points while the Nasdaq and S&P 500 indexes were also negative.
The U.S. extended a reprieve permitting Chinese telecommunications giant Huawei to purchase components from U.S. companies to supply existing companies for 90 days. However, Washington's Bureau of Industry and Security (BIS) also added another 46 Huawei affiliates to its blacklist, a move the tech company called "unjust" and "politically motivated."
Johnson faced a rebuke from European Council President Donald Tusk regarding the Irish backstop on Tuesday. Tusk responded to a letter from Johnson urging alternative arrangements in a tweet, reiterating the EU's position that the backstop is an insurance policy to avoid a hard border "unless and until an alternative is found."
"Those against the backstop and not proposing realistic alternatives in fact support reestablishing a border. Even if they do not admit it," he added.
Prior to that meeting, Johnson will meet with German Chancellor Angela Merkel on Wednesday. Merkel caused a brief spike in the pound on Tuesday when she told reporters that she would think about options to prevent Britain crashing out of Europe with no deal.
Stocks on the move
Belgium's largest telecoms company Proximus was among the worst performers, sliding 6% after Goldman Sachs cut its stock to "sell."
British postal service Royal Mail saw its shares slide 5% after a union accused the company of reneging on an agreement with workers which ended a strike last year.