Stock indices closed lower on the yuan devaluation. The yuan devaluated almost 2% against the U.S. dollar on Tuesday. The People's Bank of China set Tuesday's daily fixing at 6.2298 per U.S. dollar, down from 6.1162 on Monday.

A weaker yuan should help to boost the activity in the manufacturing sector and exports, which dropped 8.3% year-on-year in July.

The Greek government said on Tuesday that it reached a deal on the third bailout programme with its international lenders.

The European Commission has confirmed that a deal on a third Greek bailout programme has been reached.

"We have achieved an agreement in principle on a technical basis and talks are still ongoing on details… What we don't have at the moment is a political agreement and that's what we need," the European Commission spokeswoman Annika Breidthardt said on Tuesday.

Meanwhile, the economic data from the Eurozone was mixed. Germany's ZEW economic sentiment index declined to 25.0 in August from 29.7 in July, missing expectations for a rise to 32.0.

"The German economic engine is still running smoothly. However, under the current geopolitical and global economic circumstances a substantial improvement of the economic situation in Germany over the medium term is improbable. That is why economic sentiment has declined," the ZEW President Clemens Fuest.

Eurozone's ZEW economic sentiment index increased to 47.6 in August from 42.7 in July.

Indexes on the close:

Name Price Change Change %

FTSE 100 6,664.54 -71.68 -1.06 %

DAX 11,293.65 -311.13 -2.68 %

CAC 40 5,099.03 -96.38 -1.86 %