After rising as much as 0.9%, the pan-European STOXX 600 ended 0.2% higher, fading as oil prices slumped 5% on a worsening demand outlook as coronavirus cases rise.

Total, BP and Royal Dutch Shell fell between 2.4% and 3.8%, while the oil & gas index slid 1.7%, the biggest decliner among sectors.

European countries have seen a resurgence in COVID-19 cases, with Madrid set to become the first capital to go back into lockdown, while British health minister Matt Hancock introduced more coronavirus restrictions across a wider area of England.

"Second wave effects carry a lot of uncertainty about the growth environment," Bert Colijn, senior economist for the euro zone at ING, said in a note.

"A new round of more national lockdowns could have a serious impact on the labour market again, which is not our base case, but cannot be ruled out either."

The European Union's statistics office, Eurostat, said unemployment in the bloc rose to 8.1% of the workforce in August from 8.0% in July, continuing an upward trend caused by the economic downturn triggered by the pandemic.

A separate survey showed the recovery in euro zone manufacturing activity was largely as expected in September.

Globally investors clung to hopes of a fresh round of stimulus to prop up the U.S. economy amid growing uncertainty about the November presidential election.

German stocks slipped 0.2%, weighed down by a 13.1% slump in Bayer after it flagged that adjusted profit may slip next year and it may have to write down the value of agriculture assets by close to 10 billion euros.

Among the bright spots, H&M surged 6.1% as it beat third-quarter profit forecasts and announced plans to close hundreds of stores next year as the coronavirus crisis drives more shoppers online. The retail index rose 2.5% to lead sectoral gains.

STMicroelectronics jumped 6.9% after it forecast 2020 sales above previous estimates and said a sharp rise in automotive and microcontroller demand helped preliminary results.

Banco BPM gained 4.2% after sources told Reuters that France's Credit Agricole was exploring a possible deal to buy Italy's third biggest bank.

By Sruthi Shankar