The British pound rebounded above $1.23 on Tuesday after Prime Minister Theresa May declared that any Brexit deal would be voted by parliament.
The London stock market fell further as the stronger pound weighed on share prices of multi-national firms.
Frankfurt and Paris both flirted with positive territory before slipping back into the red.
"The prime minister has adopted a more pragmatic approach to Brexit than expected, providing some much needed relief for the pound," NFS Macro analyst Nick Stamenkovic told AFP.
"Indeed, the surprise decision to allow parliament to decide on the final Brexit deal signals a more flexible approach."
Britain's parliament will be able to vote on any final Brexit agreement, Theresa May said Tuesday following pressure from lawmakers to have more say over leaving the European Union.
"I can confirm today that the government will put the final deal to a vote in both houses of parliament before it comes into force," she said in a hotly-anticipated speech.
The news sent the pound rallying to $1.2340 -- the highest level for ten days.
That compared with $1.21 just before the speech and $1.2055 late in New York on Monday.
- Sterling rockets -
"The pound took off like a rocket today on what amounts to a far less hawkish Brexit speech from Theresa May than many had feared," said ETX Capital analyst Neil Wilson.
Sterling had slumped Monday on reports that May was ready to take the country out of the EU in a so-called "hard" Brexit.
May said Tuesday that Britain will leave the EU's single market to restrict immigration in a clean break from the bloc.
"The bulk of what May said today had already been leaked so we actually learned very little from the speech," noted Oanda analyst Craig Erlam.
"The one point of interest was the revelation that parliament will vote on the deal which sent the pound higher and in turn, the FTSE lower given the inverse correlation between the two that has been so clear since the Brexit referendum.
"The pound has continue to rise since the speech."
The pound had collapsed on Monday to $1.1986, its lowest level since October's "flash crash" that had sent it to a 31-year low of $1.1841.
A hard Brexit would see Britain's departure from the single market or tariff-free zone, while also ending the free movement of people.
May insisted on Tuesday that Britain would seek a trade deal giving "the greatest possible access" to the market on its departure.
Britain has two years to negotiate a break-up deal once May triggers Article 50 of the Lisbon Treaty, officially declaring the country's intention to quit, or face leaving with no agreement.
Article 50 will be triggered by late March at the latest.
Asian investors meanwhile moved warily Tuesday before May's speech on and ahead of Donald Trump's inauguration on Friday.
While world markets soared in the months after Trump's November election win, he has yet to flesh out precise details of his spending and tax plans for the world's number one economy.
- Key figures around 1300 GMT -
London - FTSE 100: DOWN 0.8 percent at 7,271.20 points
Frankfurt - DAX 30: DOWN 0.1 percent at 11,546
Paris - CAC 40: DOWN 0.1 percent at 4,877.30
EURO STOXX 50: DOWN 0.1 percent at 3,291.7
Tokyo - Nikkei 225: DOWN 1.5 percent at 18,813.53 (close)
Shanghai - Composite: UP 0.2 percent at 3,108.77 (close)
Hong Kong - Hang Seng: UP 0.5 percent at 22,840.97 (close)
New York - Dow: Closed for a public holiday
Pound/dollar: UP at $1.2321 from $1.2055
Euro/dollar: UP at $1.0689 from $1.0602
Dollar/yen: DOWN at 113.35 yen from 114.04 yen
Oil - West Texas Intermediate: UP 84 cents at $53.21 per barrel
Oil - Brent North Sea: UP 65 cents at $56.53