European stock markets suffered a fourth day of losses on Tuesday after news of a sharp plunge in the US housing sector and a profit slide at investment giant Goldman Sachs hit confidence.

Share prices began the day in positive territory but lost momentum as investors absorbed disturbing new data from the United States and disappointing results on Monday from corporate giants IBM and Texas Instruments.

"The mood has not improved as the day has gone on with investors hit with reminders that business recovery across all sectors is going to have a few bumps along the way," said David Jones, chief market strategist at IG Index.

In London, the FTSE 100 index of leading shares fell 0.17 percent to finish at 5,139.46 points while in Paris the CAC 40 lost 0.53 percent at 3,468.02 points. The Frankfurt DAX dropped 0.69 percent to 5,967.49 points.

Elsewhere there were declines of 0.66 percent in Milan and 0.54 percent on the Swiss Market Index. Madrid managed a gain of 1.22 percent.

Weighing heavily was a report that US housing starts fell 5.0 percent in June, far more than expected and reviving fears for the health of the already fragile US recovery.

The Dow Jones Industrial Average was down 0.51 percent at 10,103.04 points at mid-day as the Nasdaq composite shed 0.63 percent to 2,184.46 points.

US construction starts on privately owned homes fell to a seasonally adjusted annual rate of 549,000 in June, the second consecutive month of decline and the slowest rate since October 2009, the Commerce Department said.

"The housing market continues to wander aimlessly," said Joel Naroff of Naroff Economic Advisors.

The report was the latest sign of weakness in the housing market, the epicentre of the financial crisis that push the economy into recession.

The National Association of Home Builders reported on Monday that its index on builder confidence in the market for new, single-family homes fell for the second month in a row in July to its lowest level since April 2009.

Adding to investor unease was news that Goldman Sachs sustained an 82 percent fall in second quarter net earnings after paying a huge fine to the Securities and Exchange Commission.

That result helped depress European banking shares.

Analysts said nervousness ahead of the publication this Friday of European bank "stress test" results made for choppy trading. The tests are designed to reveal a bank's capacity to withstand fresh economic or financial shock.

"A succession of statements from the European Central Bank suggests there will be no bad surprises in the stress tests but they could reveal signs of fragility at certain (Spanish or Portuguese) institutions," said Franklin Richard of Barclays Bourse in Paris.

US economic worries also held back Japanese stocks on Tuesday but cautious optimism about China gave a lift to other markets around Asia-Pacific.

Tokyo shares closed down 1.15 percent but Hong Kong and Shanghai ticked higher on hopes that Beijing will ease back on tightening measures aimed at slowing the country's breakneck growth.