By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- After the strongest rally in two months, European stock markets showed broad-based losses on Tuesday, as investors stayed cautious ahead of the outcome of the U.S. Federal Reserve meeting on Wednesday.

The Stoxx Europe 600 index dropped 0.4% to 312.49 after rising 1.3% on Monday.

Posting the biggest loss in the index, shares of CGG tanked 15% after the oil-services firm said it is "operating in difficult market conditions" and fourth-quarter earnings will be impacted by project delays.

Shares of Admiral Group PLC gave up 1.9% in London after the U.K.'s Competition Commission said it is looking into ways to lower car insurance costs. The move comes after a report on the 11 billion-pound ($17.93 billion) industry showed motorists were shouldering unnecessary costs.

Shares of Zurich Insurance Group AG gained 1.9% after the Swiss firm appointed the chief financial officer from fellow insurer Swiss Re AG , George Quinn, as its new financial boss. Swiss Re shares fell 0.7%.

More broadly, investors were still waiting for the all-important two-day Federal Reserve meeting kicking off later Tuesday. The main question remains whether the central bank will start cutting its asset purchases at this point or leave the tapering until next year.

After a recent string of solid data and a budget deal in Washington, analysts say the possibility of tapering at the December meeting has gone up, although they are still divided as to whether the stronger economic outlook will be enough for the Fed to reduce its bond buying. The decision is out Wednesday, after the European markets close.

Another central bank, Sweden's Riksbank, was in the spotlight after it cut its main interest rate by 25 basis points to 0.75%, in an effort to stave off lower inflation.

On the data front in Europe, German economic expectations smashed forecasts in December, hitting their highest level since April 2006, according to the ZEW survey of analysts and institutional investors. The sentiment survey rose to 62.0 points from 54.6 points in November, beating economists' expectations of an increase to 55.0 points and indicating economic growth will speed up next year.

In the euro zone, the European Union's statistics agency said the annual rate of inflation rose to 0.9% from 0.7%, in line with its preliminary estimate, but well below the European Central Bank's target of just below 2.0%.

Inflation in the U.K. fell in November to 2.1% from 2.2% in October, marking its lowest level for four years. The slowdown brings inflation closer to the BOE's target of 2% and should reinforce the bank's commitment to keep interest rates low until unemployment falls.

Among major country-specific, the U.K.'s FTSE 100 index dropped 0.3% to 6,501.14, while France's CAC 40 index slid 0.8% to 4,087.38. Germany's DAX 30 index lost 0.3% to 9,134.24.

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