After shedding as much as 0.5% at one point, the pan-European STOXX 600 index gradually erased the losses to close 0.1% higher.
Europe's banking index <.SX7P> hit its highest level in almost three weeks, as rising U.S. Treasury yields - a benchmark for global borrowing costs - hit multi-month highs, supporting lenders on both sides of the Atlantic.
Aside from banks, sectors considered more exposed to the economic cycle, namely travel & leisure, oil & gas, automakers and insurers, rose between 1% and 2.9%.
Global markets saw a relief rally on Monday on reassurances about U.S. President Donald Trump's improving health after he tested positive for COVID-19 last week, as well as political progress towards more fiscal stimulus measures.
"Stock markets have been dominated by indecision this week, with the U.S. indices following their European counterparts in what looks like a distinct end to the 'Trump left hospital' bounce," wrote IG's Joshua Mahony.
Technology <.SX8P> and healthcare stocks, among the top performers in Europe this year, slid about 0.9%, weighing on the STOXX 600.
Wall Street technology majors also came under pressure after news that the U.S. House of Representatives' antitrust report on Big Tech firms contained a "thinly veiled call to break up" the companies.
Germany's DAX jumped 0.6% as data showed orders for German-made goods rose 4.5% in August, more than expected, boosting hopes for a robust third quarter in Europe's largest economy after the coronavirus shock.
Britain's midcap index, composed of stocks exposed to the UK economy, jumped 1.2% after sources told Reuters that Britain and the EU were close to agreement on reciprocal social security rights for their citizens after Brexit.
Puma slid 1.1% after French luxury group Kering said it had completed the sale of a 5.9% stake in the German sportswear group.
Swiss technology accessories maker Logitech fell 5.1% after Apple stopped selling headphones and wireless speakers from rivals.
French waste and water firm Suez jumped 4.6% after rival Veolia succeeded in buying a large stake in the company from power group Engie.
(Reporting by Sruthi Shankar in Bengaluru; Editing by Uttaresh.V and Pravin Char)
By Sruthi Shankar