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Frankfurt's DAX 30 index and the Paris CAC 40 both shed 0.7 per cent as the euro gained against the dollar.
Leading indices in the single-currency area had risen by around 1.5 per cent on Monday as US President Donald Trump's tax-cutting plans moved a step closer.
On Tuesday in Germany, Europe's top economy, the Ifo economic institute revealed that its business climate index hit 117.2 points in December, slightly below November's historic 117.5.
It comes as Germany remains mired in a political stalemate, with Chancellor Angela Merkel still trying to form a new government after coalition talks collapsed last month.
Outside the eurozone, London's benchmark FTSE 100 climbed 0.09 per cent compared with the close on Monday.
Most Asian stock markets extended gains on Tuesday, taking a lead from fresh record-highs overnight on Wall Street where a long-awaited US tax-cut bill is expected to be passed this week.
After months of uncertainty, the controversial fiscal reforms could be on Trump's desk for signature before year-end, giving the president his first major legislative victory.
"As the US government could be voting on the tax proposals this week, dealers are starting to doubt how much economic growth will added by the tax cuts," causing the dollar to fall back, said David Madden, market analyst at CMC Markets UK.
The dollar, which rallied Friday on news that Republican senators had the votes to pass the tax bill, struggled against the euro and pound in trading on Tuesday.
Wall Street stocks also turned lower in trading on Tuesday, with the Dow down 0.2 per cent in late morning trading.
"Today's slight losses, especially in the US, are more of a pause for breath before the rally moves on once more; the reform bill still seems certain to pass, and this still means that investors are going to be buying stocks as year-end nears," said Chris Beauchamp, chief market analyst at online trading firm IG.
Elsewhere, bitcoin dropped to US$18,128.71 from US$18,669.80 around 2200 GMT on Monday.
"Bitcoin is having a rare day in the red on Tuesday, paring excessive gains that came as CBOE and CME prepared to launch futures contracts," said market analyst Craig Erlam at currency trading firm Oanda.
"It's possible that the 3-4 per cent declines being seen this morning is just some profit taking as bitcoin prepares to overcome another milestone - US$20,000 - only weeks after having overcome US$10,000 for the first time," he added.
Meanwhile, a South Korean exchange trading bitcoin and other virtual currencies declared itself bankrupt on Tuesday after being hacked for the second time this year, highlighting the risk over cryptocurrencies as they soar in popularity.
The Youbit exchange said it had lost 17 per cent of its assets in the attack on Tuesday.
Key figures around 1630 GMT:
London - FTSE 100: UP 0.09 per cent at 7,544.09 points (close)
Frankfurt - DAX 30: DOWN 0.7 per cent at 13,215.79 (close)
Paris - CAC 40: DOWN 0.7 per cent at 5,382.91 (close)
EURO STOXX 50: DOWN 0.8 per cent at 3,582.22
New York - DOW: DOWN 0.2 per cent at 24,753.26
Tokyo - Nikkei 225: DOWN 0.2 per cent at 22,868.00 (close)
Hong Kong - Hang Seng: UP 0.7 per cent at 29,253.66 (close)
Shanghai - Composite: UP 0.9 per cent at 3,296.54 (close)
Euro/dollar: UP at US$1.1814 from US$1.1755 at 2200 GMT
Pound/dollar: UP at US$1.3336 from US$1.3323
Dollar/yen: UP at 112.96 yen from 112.63 yen
Oil - Brent North Sea: UP four cents at US$63.45 per barrel
Oil - West Texas Intermediate: UP 12 cents at US$57.34 per barrel
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