Europe's main stock markets slid Tuesday despite news that Finnish telecoms giant Nokia was in advanced talks to buy Franco-American rival Alcatel-Lucent.

The benchmark CAC 40 index in Paris dropped 0.71 percent to 5,216.50 points, while Frankfurt's DAX 30 shed 0.64 percent to 12,259 points.

London's FTSE 100 nudged 0.01 percent lower to 7,063.80 points, as investors digested news that British annual inflation held at a record-low zero in March.

The euro eased to $1.0552 from $1.0571 in New York late on Monday, before the European Central Bank's interest rate decision on Wednesday.

Nokia revealed Tuesday it was in talks to purchase Alcatel-Lucent, with the aim of creating a telecoms and Internet technology behemoth. No price was given.

In reaction, Alcatel-Lucent was the top riser in Paris, surging by almost 17 percent in initial trade. It later stood at 4.33 euros, up 12.06 percent.

In Helsinki, however, Nokia's share price plunged 6.37 percent to 7.29 euros.

"Investors have not reacted the way Nokia likely would have hoped following the announcement that the company might buy Alcatel-Lucent," said Spreadex trader Connor Campbell.

"Roughly 12 months after it sold its dismal handset business to Microsoft, the move for Alcatel does not appear to be the consolidation Nokia potentially needs, with investors' reactions suggesting the risk of the takeover is unwanted," added Campbell.

"Alcatel on the other hand, unsurprisingly for the minor partner in this deal, has seen its shares rocket; the French company is worth three times less than Nokia, and will likely welcome its enhanced role in the sector."

Finland's Nokia was the world's biggest mobile phone maker for more than a decade until it was overtaken by South Korea's Samsung in 2012.

Then in 2014, Nokia sold its mobile phone and tablet division to US software giant Microsoft, and the company now develops mobile and Internet network infrastructures for operators.

"This potential acquisition (by Nokia) could signal a couple of things," Kantar Worldpanel telecoms analyst Imran Choudhary told AFP.

"The combined entity could have a platform to re-enter into the smartphone sector at some stage down the line.

"The more likely reason, however, would be to combine resources, gain market share and cut costs at the same time. Alcatel-Lucent would definitely be able to help Nokia compete with Ericsson in networking infrastructure -- but cutting costs is not that simple.

"Add to that the potential involvement of the French government and regulators, it doesn't come as a surprise that this could be very tricky for Nokia to pull off and to deliver gains on -- which would explain why investors have not reacted positively, with their share price sliding since the announcement."

Across in Asia on Tuesday, Hong Kong retreated on profit-taking after a near-15 percent rise over eight days, while Tokyo was hurt by a stronger yen as Asian investors await the release of key data later in the week.

The tepid performance among most Asian markets follows losses on Wall Street as US investors prepare for the corporate earnings season to get under way.

Hong Kong ended down 1.62 percent but Shanghai closed up 0.34 percent and Tokyo finished on a flat note.

Later this week, traders will also digest key US retail sales data and Chinese growth figures.