[LONDON] European stock markets dropped on Tuesday after some weaker-than-expected corporate updates, with mining equipment group Atlas Copco and Commerzbank among the hardest hit.

European equities were also impacted by weak US consumer confidence data while Iran's interception of a Marshall Islands-flagged cargo vessel added to market jitters.

Commerzbank fell 5.7 per cent after the German bank launched a share sale to raise 1.4 billion euros (US$1.5 billion) from institutional investors to bolster its capital.

Atlas Copco slumped around 9 per cent after warning that demand for its mining equipment and large compressors had dropped further in the first quarter.

UPM-Kymmene also fell around 10 per cent after its quarterly core profit missed expectations, making it and Atlas Copco the biggest losers in the pan-European FTSEurofirst 300 index.

The FTSEurofirst closed down 1.5 per cent at 1,618.26 points, giving up gains made in the previous session.

The FTSEurofirst remains up 18 per cent since the start of 2015. Economic stimulus measures from the European Central Bank (ECB) have pushed investors into the better returns available from stocks compared with bonds and cash, whose returns have been hit by record low interest rates.

But some traders said the advance may be starting to stall. "We have seen some mixed earnings reports today, however disappointing results from companies such as UPM-Kymmene have eclipsed some positive results," said Christian Stocker, equity strategist at UniCredit.

"The broader stock market's recent uptrend remains intact, but we need to see a further improvement in company earnings for the trend to remain firmly in place in the coming weeks."

Trading was also cautious ahead of the start of the Federal Reserve's two-day policy meeting. Analysts expect recent soft US data will nudge the US central bank towards a dovish stance on monetary policy, while investors will scrutinise statements for hints about the timing of a rate hike.

Across Europe, Germany's DAX, which hit a record high this month, retreated 1.9 per cent and France's CAC fell 1.8 per cent.

Greece's ATG index extended the previous session's gains of 4.4 per cent to rise 1.4 per cent after Prime Minister Alexis Tsipras on Monday reshuffled his team handling talks with European and IMF lenders.

Nevertheless, some traders remained wary about Greece, and the risks that a lack of progress on finding solutions for Greece's debt problems could hit European markets. "There is plenty of potential for downside here. I'd be looking to sell on rallies," said Berkeley Futures' associate director Richard Griffiths.

REUTERS