U.S. data pull Europe stocks from intraday high

LONDON (MarketWatch) — Europe's benchmark stock index briefly dipped into negative territory Tuesday afternoon after data showed a drop in U.S. consumer confidence, but most indexes headed for a positive close after upbeat figures on German business sentiment.

The Stoxx Europe 600 index (XX:SXXP)  gained 0.2% to 313.18, after closing on Monday with the biggest one-day loss in September.

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KB Home and Lennar report quarterly results and the market prepares for the Case-Shiller home price index before the open. Red Hat is on the move after the bell, and overseas economies look to German confidence and output surveys.

"We're in a bit of a holding phase before we get the Q3 results. There's only economic data to move the market right now, and there's not a lot of that at the moment. But the economic data that has come out is still mildly positive. The Ifo today was mildly positive and the PMIs yesterday were a bit better," said Kevin Lilley, head of European equities at Old Mutual Global Investors.

"I think the market can grind higher before the end of the year, but we will get pockets along the way where markets get worried," he added.

"The Chinese economy seems to be showing some signs of picking up again, the U.S. steadily improves and Europe is coming out of the recession. Things are pointing in the right direction."

Among notable movers in the pan-European index, shares of Total SA (FR:FP)   (TOT)  climbed 3.1% after Barclays lifted the oil giant to equal weight from underweight. The analysts said that the company's capital markets day was "enough to convince us that it can control capex more than we had previously anticipated."

Shares of Telecom Italia SpA (IT:TIT) added 2.8% and Telefonica SA (ES:TEF)  fell 0.2% after the two companies reached a deal to allow the Spanish firm to take control over Telco, which is the largest shareholder in the Italian telecom firm.  

On a more downbeat note, shares of Stora Enso Oyj (FI:STERV)  lost 1.7% after Credit Suisse cut the pulp-and-paper firm to neutral from outperform on valuation grounds.

MarketWatch/William Watts European stocks rise on Tuesday. U.S. consumer confidence drops

More broadly, the markets trimmed earlier gains in afternoon trade after data showed U.S. consumers were less confident in September than in August on renewed worries about stagnant wages and the availability of jobs. The Conference Board's consumer confidence index fell to 79.7 in September from a revised 81.8 the previous month.

Additional data out on Tuesday showed a slowdown in home-price growth for July, as higher mortgage rates appeared to hit the housing market.

Investors are closely watching data from the U.S. to see if it'll strengthen or weaken the case for the Federal Reserve to start tapering its $85-billion-a-month asset purchase program. The central bank surprised the markets last week by keeping its bond buys intact because of soft U.S. growth, prompting a short-term rally in stock markets on the prospect for continued cheap liquidity.

New York Fed President William Dudley said Monday that the economy currently is too weak to scale back the bond-buying program and that "there has been no pickup in its 'forward momentum'".

"As far as I am concerned, the Fed tapering is inevitable and it's something that will only happen on positive economic activity. On the one hand, it will force interest rates a bit higher, which is partly negative for the stock market, but it will happen in an environment where economic conditions have improved," said Lilley.

U.S. stocks were mostly higher on Wall Street.

German Ifo data

Investors also looked to data coming out of Europe, where the Ifo institute said German business confidence rose for a fifth straight month in September. The Ifo business-climate index rose to 107.7 from a revised figure of 107.6 in August, slightly below expectations of a 108.0 print.

"Although companies assessed their current business situation slightly less favorably, their business expectations were once again more optimistic. The German economy made a confident start to the autumn," Kai Carstensen, director at Ifo, said in the release.

Germany's DAX 30 index (DX:DAX)  put on 0.3% to 8,657.61.

France's CAC 40 index (FR:PX1)  gained 0.6% to 4,195.37, while the U.K.'s FTSE 100 index (UK:UKX)  added 0.2% to 6,569.56.