Reuters - European shares inched lower on Tuesday, extending recent steep falls and pegged back by disappointing earnings reports from the likes of chip designer ARM and telecom company KPN.

ARM plunged 5.9 percent after royalty revenue came in below forecasts. Although this was offset by an increase in new licence sales to deliver broadly in-line results, analysts at Liberum raised concerns over the trend.

"We no longer think licensing is necessarily a driver of future royalties for ARM ... Overall, these results will continue to stoke fears of a further slowdown in ARM's royalty trends," Liberum said in a note.

Dutch KPN fell 4.8 percent after reporting lower-than-expected profit on the back of a revenue squeeze.

Out of the 18 percent of companies on the DJ STOXX Europe 600 to have reported earnings so far, 45 percent have missed expectations, with telecoms among the sectors posting the biggest negative surprises, Thomson Reuters data shows.

Banks bucked the market slide after UBS announced a higher-than-expected profit and dividend, sending its shares up 5.4 percent.

The pan-European FTSEurofirst 300 closed down 0.2 percent at 1,270.74 points, well off a session low of 1,263.36, though still down around 6 percent from a late January peak.

Investors have been unnerved by signs of slower Chinese growth and the withdrawal of U.S. monetary stimulus, concerns that have spread from emerging markets to the world's big stock markets.

But, in a sign of some returning calm among investors, volatility - a gauge of "fear" in sentiment - retreated from a seven-month closing high despite ticking up at the opening.

Analysts highlighted that the emerging markets' slump is driving flows of money into western Europe, where some of the region's main economies are slowly recovering from the effects of the euro zone's prolonged sovereign debt crisis.

"This emerging market crisis is a good reminder that boring old Europe is actually a pretty good place to be invested in," fund manager Ollie Beckett at Henderson Global Investors, which has 70.8 billion pounds ($115.6 billion) in assets under management, said.

Investment inflows from U.S. investors into European equities remained brisk in the seven-day period ending on Jan. 29 despite the market pullback, Thomson Reuters Lipper data showed. In sharp contrast, massive outflows rocked emerging market funds.

"I don't think investors should worry at this stage. We're far from risk aversion where people (would be) saying I just want to hold cash," said Andrew Milligan, head of global strategy at Standard Life Investments, which has 179.6 billion pounds of assets under management.