European stocks close mostly higher

London - European stock markets mostly rose on Tuesday as investors snapped up bargains after the previous day's slump but poorly-received British data drove London shares lower, analysts said.

Meanwhile the euro traded around nine-year low points as investors wait to see what action the European Central Bank will take to stimulate the eurozone economy that is being undermined by slowing inflation.

Frankfurt's DAX 30 won 0.93% to 9 561.17 points in afternoon trading and the CAC 40 in Paris gained 0.32% to 4 124,40.

Bucking the trend, London's benchmark FTSE 100 index was down a slight 0.12% to stand at 6 409.76 points.

Losses somewhat overdone

European equities had tumbled on Monday on renewed fears of a Greek exit from the eurozone and as the euro struck near nine-year lows against the dollar with the European Central Bank appearing on course to further prop up the single currency.

Europe's sharp losses were felt by US markets on Monday and across Asian and Middle East indices on Tuesday.

"Some traders considered Monday and Tuesday's losses as somewhat overdone," said Markus Huber, senior analyst at broker Peregrine & Black.

"The reason for London lagging a bit their European peers is that the services PMI for the UK came in quite a bit worse than expected," he said. 

Britain's services sector grew at its slowest rate for 19 months in December.

US stocks followed the main European trend, opening higher on Tuesday after the previous day's rout.

The Dow Jones Industrial Average rose 0.24% in the first five minutes of trading to stand at 17 543.87 points.

The broad-based S&P 500 gained 0.25% to 2 025.67, while the tech-rich Nasdaq Composite Index advanced 0.32% to 4 667.25.

Threat to the eurozone

The first full week of the new year got off to a traumatic start for dealers as they bet that a 25 January general election in Greece would see a victory for the left-wing Syriza party.

Markets fear the party will roll back austerity measures required under the IMF-EU bailout of the country, which could in turn lead to Greece leaving the eurozone.

In foreign exchange trading on Tuesday, the euro dropped to $1.1893 from $1.1933 late in New York on Monday. The single currency had begun the week by tumbling to $1.1864 - the lowest level since March 2006.

Remarks by ECB chief Mario Draghi that deflation was a threat to the eurozone and that the ECB must be prepared to counter it caused the euro to slide in recent days.

The central bank is currently examining the possibility of large-scale purchases of sovereign debt, so-called "quantitative easing" or "QE", to help jump-start the eurozone economy.

But the euro outlook remains weak "as poor eurozone growth, the implementation of quantitative easing and fears for the region's indebted economies suggest that the currency is set for a sustained period of weakness that will probably see it fall to levels not seen since shortly after its introduction," said Jennifer McKeown, senior European economist at Capital Economics.

With the ECB primed to act and amid fears over the prospect of Greece leaving the eurozone, investors tried to lock into relatively safe-haven investments such as French and German government bonds.

That sent French and German government borrowing rates to new all-time lows on Tuesday.

The yield on French 10-year bonds stood at 0.772% on the secondary market, while the yield on the 10-year German note fell to 0.484%.

Market sentiment was being dragged down also by plunging oil prices, according to analysts.

"While in the medium to long term lower energy prices are positive for growth, in the short term many see the ongoing collapse in oil prices as a sign that economic growth, especially in the eurozone and China, won't recover anytime soon," said Huber.