Britain is the first country to seek a divorce from the European Union, just days after the EU's 60th birthday
Global stock markets mostly faltered Tuesday as the International Monetary Fund cut its global growth forecasts after Britain's EU exit, which also appeared to be casting a shadow over Germany's outlook.
"European markets were lower on Tuesday amid a downgrade to economic growth from the IMF and lingering concerns over political turmoil in neighbouring Turkey," analyst Jasper Lawler, of CMC Markets, said in a note to investors.
"The market's focus has shifted from hopes of central bank easing to company earnings and geopolitics," he added.
Uncertainty created by Britain's vote to leave the European Union will slow the global economy into next year, the IMF predicted.
The world economy is set to grow by 3.1 percent this year and by 3.4 percent in 2017, the IMF said, revising downward its previous April forecasts.
The IMF also downgraded its 2016 growth forecast for the British economy by 0.2 percentage points to 1.7 percent.
Nevertheless London's benchmark FTSE 100 index appeared to shrug off the gloomy prediction, closing almost flat.
In the eurozone however, both Frankfurt and Paris were firmly in the red.
The euro and pound were both lower against the dollar.
"Interestingly the FTSE took this news in its stride, leaving the pound to absorb most of the blow," said Connor Campbell, of Spreadex in a note.
Brexit fears also loom large over Europe's biggest economy. A leading survey showed Tuesday that investor confidence in Germany fell to its lowest level in nearly four years in July on concerns about the Brexit fallout.
- Impact of weak pound -
Britain's annual inflation rate meanwhile rose last month from May, separate data showed, and faces further gains as a weak pound caused by the Brexit vote raises import prices.
The 12-month Consumer Price Index rose by 0.5 percent in June, the Office for National Statistics said in a statement.
"Sterling's weakness means higher import prices, and this is expected to feed through to significantly higher inflation figures in the coming months," said Ben Brettell, senior economist at stockbroker Hargreaves Lansdown.
The pound slumped to 31-year lows against the dollar after Britain voted on June 23 to exit the European Union. The currency has since recovered slightly.
Italian bank shares took a hit following a ruling by the EU's top court upholding rules that require investors to accept losses before state aid is used to shore up lenders.
Shares in Banca Monte Paschi di Siena closed 3.3 percent down.
With a key referendum on political reforms months away, Italy's government wants to avoid inflicting losses on the many small investors who bought up unsecured bank debt.
- SoftBank shares drop -
Wall Street dropped as traders caught their breath after a week-long stretch of records for the Dow, with earnings disappointments in Netflix and Philip Morris spurring selling among a raft of earnings reports.
Elsewhere Tuesday, Asian stock markets mostly fell on profit-taking following a week-long rally -- but Tokyo headed for a sixth straight gain as a weak yen boosted exporters, traders said.
The rally in Japan's export sector was enough to offset a more than 10-percent plunge in mobile giant SoftBank, which was hammered after announcing a $32-billion deal Monday to buy British chip designer ARM Holdings.
- Key figures at 1545 GMT -
London - FTSE 100: UP 0.03 percent at 6,697.37 points (close)
Frankfurt - DAX 30: DOWN 0.8 percent at 9,981.24 points (close)
Paris - CAC 40: DOWN 0.6 percent at 4,330.13 points (close)
EURO STOXX 50: DOWN 0.7 percent at 2,929.05
New York - DOW: DOWN 0.03 percent at 18,526.92
Tokyo - Nikkei 225: UP 1.4 percent at 16,723.31 (close)
Hong Kong - Hang Seng: DOWN 0.6 percent at 21,673.20 (close)
Shanghai - Composite: DOWN 0.2 at 3,036.60 (close)
Euro/dollar: DOWN at $1.1015 from $1.1075
Pound/dollar: DOWN at $1.3145 from $1.3257
Dollar/yen: UP at 106.18 yen from 106.14 yen