By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- European stock markets nudged lower in choppy trade on Tuesday, with banks leading the way south, as encouraging German consumer-confidence data failed to lift sentiment.

The Stoxx Europe 600 index was slightly off at 289.30 after snapping a three-day winning streak on Monday.

"The markets have had a good run for a couple of months, but I think the euro area still has more problems. Markets need to remember that a lot of the euro-area countries are in recession and that will have an impact on company earnings," said John Redwood, chief of the investment committee at Evercore Pan Asset.

"Some countries have done a good job of meeting requirements, but there are still large deficits and it's difficult to get the economies growing again. It makes sense to pause after this rally," he added.

Shares of William Hill PLC posted one of the biggest gains in the index, up 2.4%, after the online-betting site said operating profit for the 14 weeks to Jan. 1 grew by 20%.

Royal Philips Electronics NV (PHG) gained 1.6% after the Dutch firm said it expects sales to pick up in the second half of the year.

Pointing in the other direction, shares of Sandvik AB lost 1.1%. The Swedish engineering group reported fourth-quarter profit, which was slightly lower than a year ago, and said production rates declined in a reflection of weaker demand.

Shares of Sanofi SA (SNY) lost 0.9% as Barclays cut the French drug maker to equal weight from overweight. The bank also downgraded Germany's Bayer AG to underweight from equal weight, sending its shares 1.8% lower.

GlaxoSmithKline PLC (GSK), up 1%, was lifted to overweight from equal weight.

Fed meeting under way

Elsewhere, European stock markets were broadly negative, keying off a downbeat session on Wall Street Monday, when the S&P 500 index (SPX) broke an eight-session winning streak. U.S. stocks also opened lower on Tuesday, as a two-day Federal Reserve meeting was due to get under way. The central bank is expected to keep monetary ultra loose in efforts to boost the labor market and economy, but a statement isn't expected until Wednesday afternoon.

On the data front in the U.S., the S&P/Case-Shiller 20-city composite showed home prices declined in November on seasonal weakness.

Closer to home, data from Germany showed consumers became more confident at the start of 2013. The GfK consumer-climate study improved to a 5.8-points forecast for February, up from 5.7 points in January and better than expected by analysts.

The report, however, wasn't enough to cheer investors. The German DAX 30 index lost 0.1% to 7,826.84, with shares of Deutsche Bank AG (DB) off 1%.

Outside the main index in Frankfurt, shares of Software AG sank 16%, after the IT-firm said 2012 revenue and earnings before interest and taxes declined compared with a year earlier.

In France, the CAC 40 index gave up 0.3% to 3,770.77. Shares of Credit Agricole SA slumped 3.9%, Société Générale SA dropped 3% and BNP Paribas SA lost 1.5%.

Shares of oil group Total SA (TOT) gained 0.9%, as oil prices climbed above $97 a barrel.

Oil firms were also on the rise in the U.K., with shares of BP PLC (BP) adding 0.8% and Royal Dutch Shell PLC up 0.9%.

Shares of Royal Bank of Scotland Group PLC (RBS) slumped 6.6%, after The Wall Street Journal reported that U.S. authorities want the bank to face criminal charges over allegations of rigging interest rates. A representative from RBS said "discussions with various authorities in relation to Libor setting are ongoing. We continue to cooperate fully with their investigations."

The FTSE 100 index traded 0.2% higher at 6,309.06.

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