The leading German index stalked up 0.3 percent to 16,999.58 points on Tuesday before the gains crumbled again. The EuroStoxx50 rose by 0.6 percent to 4667 points.

"The Dax is being pulled along by the positive Wall Street," said Thomas Altmann, portfolio manager at asset manager QC Partners. "The euphoria is also growing in Europe." At the start of the week, investors in the US had piled in ahead of the Fed's interest rate decision on Wednesday, driving the broad-based S&P 500 index to its sixth record close this month.

However, no further big jumps are to be expected before the Fed's decision, stock market analysts said. "The markets now have a sense of paralysis," said Marc Ostwald, economist at ADM Investor Services. "They obviously want to see what the Fed will say this week and how wide the door will be opened for rate cuts." Ahead of the news, the dollar index rose 0.1 percent to 103.60 points.

Meanwhile, yields on ten-year US Treasuries fell to as low as 4.036 percent from 4.091 percent previously. Yields fell after the US Treasury Department announced that it would have to borrow less than previously assumed. Yields on government bonds had recently risen because traders had withdrawn their bets on rapid interest rate cuts.

CONCERNS ABOUT CHINA'S REAL ESTATE SECTOR REMAIN

In the Far East, the collapse of China Evergrande, the world's most indebted real estate developer, once again weighed on the stock markets. Investors were concerned about the consequences of the liquidation of the real estate giant ordered by a court in Hong Kong at the start of the week for the country's weakening real estate market. Fears of falling demand in China, the main consumer country, also affected iron ore. The Chinese futures contract fell by 1.8 percent to 979.5 yuan (136.46 dollars) per ton.

Other raw materials for steel production also fell in price. "Many construction sites have shut down operations and some steel traders have left the market as the Lunar New Year approaches," said analysts at Everbright Futures.

Meanwhile, among individual stocks, a jump in profits at major Spanish bank BBVA drove the share price up by around four percent. A new share buyback plan also attracted investors. The European banking sector rose by around one percent.

In contrast, Delivery Hero shares plummeted by up to eleven percent to a record low after the food delivery service sold its stake in British rival Deliveroo after two and a half years at a loss. When Delivery Hero surprisingly acquired a stake in Deliveroo in the middle of the coronavirus crisis, the shares were still worth more than three times as much. "It's not exactly a convincing signal that Delivery Hero had to sell its shares at this price," said one trader.

Hapag Lloyd shares also fell after a slump in profits. Germany's largest container shipping company plunged by more than ten percent in Frankfurt after the Group felt the effects of the end of the coronavirus pandemic last year. At the end of the year, the conflict in the Red Sea also had a negative impact on transport volumes, as the rerouting of ships around the Cape of Good Hope extended travel times, the company said.

(Report by Stefanie Geiger, edited by Christian Rüttger. If you have any queries, please contact our editorial team at berlin.newsroom@thomsonreuters.com (for politics and the economy) or frankfurt.newsroom@thomsonreuters.com (for companies and markets)