European stocks shed early gains Tuesday as ongoing fears about the health of the banking system, particularly in Britain, offset hopes that the world's leading central banks will follow Australia's lead and cut interest rates aggressively.

Wall Street's late recovery helped European stocks recoup some of the massive losses experienced Monday but sharp falls in British banking stocks, notably Royal Bank of Scotland PLC, contributed to the turnaround.

We're getting uncertainty in the banking sector on an almost daily basis, and it's difficult to see light at the end of the tunnel,' said David Jones, chief markets strategist at IG Index.