Europe Stocks Fall

LONDON—European stocks pared earlier losses and the euro climbed against the dollar as Greek lawmakers looked close to concluding an agreement needed to qualify for a second bailout.

Greece's major political parties have been struggling to finalize details on another round of austerity measures, including wage cuts, intended to pave the way for another package of aid.

Analysts remained doubtful about Greece's long-term prospects. Citigroup raised its estimate of the likelihood that Greece will abandon the euro over the next 18 months to 50%, from 25%-30% previously. "We argue that the implications of a Greek exit for the rest of the euro area and the world would be negative but moderate, as exit fear contagion would likely be contained by policy action, notably from the European Central Bank," said Citigroup.

The benchmark Stoxx Europe 600 index closed in the red for a second consecutive session, finishing down 0.3% at 263.55. The U.K.'s FTSE 100 closed marginally lower at 5890.26. Germany's DAX fell 0.2% to 6754.20 but France's CAC-40 came out of the red and ended up 0.2% at 3411.54.

As European equity markets closed, the Dow Jones Industrial Average was 0.3% higher and the Standard & Poor's 500-stock index was up 0.2%.

Corporate earnings provided few bright sparks for investors Tuesday. Shares of UBS, the Swiss bank, fell 1.4% after it reported a steep fall in fourth-quarter net profit, as trading in shares and bonds slowed.

BP shares dropped 0.6% although the oil company posted a better-than-expected 14% rise in adjusted net profit for the fourth quarter and said it would raise its dividend. The company still faces significant questions about its liabilities from the Gulf of Mexico oil spill in 2010.

Luxury stocks came under pressure after full-year earnings from Swiss watchmaker Swatch failed to impress the market, although analysts welcomed the company's strong outlook. Swatch shares fell 3.95%. Burberry declined 1.8% and LVMH Moet Hennessy Louis Vuitton was off 2.6%.

Xstrata was among the biggest declinera in London, falling 4.9% after the Anglo-Swiss miner formally announced plans to merge with commodities giant Glencore International . Also Tuesday, Xstrata said its full-year net profit increased 12% to $5.8 billion, slightly more than expected. Glencore declined 3.8%.

Randgold Resources declined 3.6%, Eurasian Natural Resources pulled back 2.6%, Antofagasta lost 2.05% and Kazakhmys shed 2.5% in London.

Stocks fell in Germany in response to news that industrial output in the largest European economy unexpectedly fell by a seasonally adjusted 2.9% in December. Economists had forecast a 0.2% monthly increase.

Shares of Daimler lost 1.8% and BMW pulled back 2%.

In late afternoon in London, the euro was at $1.3240, up from $1.3131 late in New York on Monday. The currency edged steadily upward throughout the session as hopes of a Greek debt deal escalated.

Light, sweet, crude for March delivery was up $1.70 or 1.8% at $98.61 on the New York Mercantile Exchange by the close of European equity markets. Gold for April delivery on the Comex division of the New York Mercantile Exchange was up $16.30 per ounce, or 0.9%, at $1741.20.

Write to Andrea Tryphonides at andrea.tryphonides@dowjones.com