The pan-European STOXX 600 closed 0.2% lower at 482.71 points, holding just below its record peak hit last week.
Insurers were among the biggest drags on continental European markets, falling 0.8%. German group Munich Re fell 2.5% after warning of more COVID-related losses in its reinsurance business.
British insurer Direct Line also slipped 4.2% after reporting lower-than-expected growth in quarterly premiums.
Bank stocks tracked declines in bond yields, while basic resources stocks shed 1.1%.
Renault rose 3.8% to the top of France's CAC 40 after its Japanese partner Nissan reported a quarterly profit and hiked its full-year forecast.
The STOXX 600 had marked eight straight sessions of gains, with France's CAC 40 and Germany's DAX breaching new records in the first week of this month on the back of strong corporate earnings and the European Central Bank's dovish stance.
A survey showed investor sentiment in Germany, the euro zone's biggest economy, rose unexpectedly in November on hopes that inflation will ease next year and economic growth will pick up.
"The equity rally has been impressive," said Ankit Gheedia, head of BNP Paribas' equity and derivatives strategy for Europe.
"How long companies can keep profit margins elevated is going to be the key indicator for when the bull market is over, and, so far, all signs suggest profit margins should stay supported in the medium-term."
Investors are now awaiting inflation data from the euro zone's largest economy, as well as industrial production data for the bloc, later in the week.
Retail stocks were the best performers for the day, rising 1.2%, while declining bond yields helped real estate stocks gain 0.6%.
Among gainers, German agriculture and pharmaceutical firm Bayer climbed 1.5% after posting higher quarterly adjusted earnings that beat analysts' forecasts.
French supermarket group Carrefour rose 2.9% after pledging 3 billion euros between 2022 and 2026 for its digital push.
Wall Street stocks also retreated from recent highs, as caution kicked in ahead of the release of U.S. inflation data on Wednesday. While the Federal Reserve has already outlined plans to taper stimulus, a high inflation reading could prompt it to bring forward policy tightening. [.N]
Polish e-commerce platform Allegro fell 11.2% after reiterating its 2021 targets despite reporting a quarterly profit beat.
(Reporting by Anisha Sircar in Bengaluru; Editing by Subhranshu Sahu, Anil D'Silva and Giles Elgood)
By Anisha Sircar and Ambar Warrick