European stock markets retreated on Tuesday, giving back some of the prior day's gains, after ZEW data showed German investor confidence declined for a seventh straight month and added to concerns about the country's economic growth.

The Stoxx Europe 600 index fell 0.2% to 339.26, on track to break a two-day winning streak.

Shares of Software AG led losers in the pan-European index and tanked 16% after the German software maker cut its 2014 outlook for sales growth at its biggest business.

Banco Espírito Santo SA declined for a seventh straight day, down 12%. The slide started last week when parent company Espirito Santo International missed a debt payment, triggering concerns about Portugal's banking system and prompting a sharp selloff in the wider European market.

Portugal's PSI 20 index slid 1.1% to 6,113.34 on Tuesday, extending its monthly loss to almost 16%.

Among other country-specific indexes, Germany's DAX 30 index fell 0.5% to 9,735.25, building on losses after ZEW said its indicator of economic sentiment in Germany fell for a seventh straight month.

"Germany has experienced a slight dent in economic activity recently," said ZEW President Clemens Fuest in the data release.

The economic sentiment report comes after a string of weak German data out over the past weeks, including disappointing industrial production, worrying unemployment numbers and unexpectedly weak trade figures. Read: Is Germany leading the euro zone toward the no-growth cliff?

The euro (EURUSD) weakened after the ZEW report, trading at $1.3596 from $1.361 ahead of the data.

Elsewhere, France's CAC 40 index lost 0.5% to 4,330.08 while the U.K.'s FTSE 100 index rose 0.2% to 6,734.89. The pound (GBPUSD) rallied to $1.7140 in the U.K. after inflation data for June climbed much more than expected and spurred calls for a rate hike. At 1.9%, inflation is now inching close to the Bank of England's 2% target.

"The news will further fuel expectations that the Bank of England will start rising interest rates sooner rather than later, with November looking the most likely month for the first hike," said Chris Williamson, chief economist at Markit, in a note.

BOE Governor Mark Carney also addressed the speculation on interest rates at his testimony to the Treasury Select Committee, saying he doesn't know when the first increase will come, but that it will be data dependent.

In the U.S., Federal Reserve Chairwoman Janet Yellen will kick off two days of testimony to Congress later Tuesday. Read: Yellen's goal before Congress: Sound optimistic -- but not too optimistic

Among movers in Europe's stock markets, shares of Danone SA in Paris picked up 2% after Morgan Stanley lifted the food producer to overweight from equal weight.

Shares of SKF AB put on 1.2% in Stockholm after the ballbearing maker reported a 7.4% jump in second-quarter profit driven by higher sales.

Shares of H&M Hennes & Mauritz AB (HNNMY) climbed 1.3%. The Swedish fashion retailer said total June sales rose 12% on the year, but that the figure was negatively impacted by calendar effects of about 3 to 4 percentage points.