Europe close: Stocks off lows despite acrimonious debate between EU and Rome
Stocks on the Continent finished off their worst levels of the session even after the selling pressure on Italian government debt picked-up again towards the end of the trading day.
Commenting on the price action on Tuesday, IG's chief market analyst, Chris Beauchamp, said: "Equities continue to drift lower, and once again it is European markets that are hardest hit. Rome seems determined to ignite ‘eurozone crisis mk 2’, as the two sides issue increasingly strident denunciations of the other.
"Faced with a potential crunch point at the end of the year, Rome should eventually blink first, but with the current Italian government it would not be wise to be too confident of such an outcome."
By the end of trading, the benchmark Stoxx 600 had traded lower by 0.52% or 2.0 points to 381.94, alongside a 0.42% or 51.45 point fall for the German Dax to 12,287.58, while Milan's FTSE Mibtel had managed to reverse most of its losses, finishing down by just 0.23% or 47.68 points to 20,562.31.
In parallel, the yield on the benchmark 10-year Italian government note was higher by fifteen basis points at 3.45%, with that on similarly-dated German debt down by five basis points to 0.42%, leaving the risk premium or difference between both at 303 points.
Banks were among the weakest areas of the market, with the Stoxx 600's sector gauge 0.97% lower at 154.11.
EU Commission vice-president Valdis Dombrovskis said on Tuesday that Rome could be penalised if it went through with proposals for a deficit-to-GDP target of 2.4% in 2019 and European Central Bank governing council member, Olli Rehn, said Italy's budget plans posed "serious concerns".
For his part, Italian deputy prime minister and leader of the Five Star movement, Luigi di Maio, said the government would not go back "a single millimetre", ANSA reported.
In remarks to RTL 102.5, Di Maio also said he did not believe the Commission's criticism was "a plot" but added that they "must not give blows below the belt".
Euro/dollar meanwhile was slipping 0.15% to 1.15614.
At Monday evening's so-called Eurogroup meeting, several finance ministers raised concerns around Italy's proposed budget deficit target of 2.4% of gross domestic product for 2019 announced on 28 September.
On a related note, earlier on Monday, the economic head of Italy's League party, Claudio Borghi, said in a radio interview that his country would be better outside of the euro.
Also on Monday evening, the US Navy accused China's military of "unsafe and unprofessional" behaviour at the weekend around one of the reefs occupied by the Asian giant in the South China Sea.
On the economic front, Eurostat reported that a 0.9% month-on-month rise in energy costs had pushed factory gate prices in the single currency bloc up by 0.3% month-on-month and 4.3% year-on-year in August (consensus: 3.8%).
Excluding energy prices, wholesale inflation in slowed from a 1.7% clip year-on-year in July to 1.5% for August.
Meanwhile, in Ireland, CSO reported that the rate of unemployment declined from 5.6% in August to 5.4% for September.
Later in the session, US Federal Reserve vice-chairman Randal Quarles was set to testify before a Senate committee with his boss, Jerome Powell, set to deliver a speech a few hours afterwards.
Ubisoft shares were on the up after Google said it would partner with it to test its video game streaming service.
BMW was higher too despite a warning from its chief, Harald Krueger, that a hard Brexit would leave it with no option but to ramp-up production of Minis in the Netherlands.
Speaking at the Paris Motor show, Krueger reportedly put the odds of a 'no deal' Brexit at 50:50.
Akzo Nobel recovered towards the end of the session, earlier the paint-maker said it would return €5.5bn to shareholders following the sale of its speciality chemicals unit.
Farther afield, reports were that Australia's Latitude Financial, which was part-owned by Deutsche Bank, had decided to postpone an initial public offering, partly on account of market conditions.