By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- Major red flags of the possible fallout from tougher sanctions on Russia came on Tuesday, when U.K. oil producer BP PLC warned that further economic restrictions would hurt its business. European stock markets, however, advanced against a background of solid earnings reports.

Sanction details: The U.S. and Europe already agreed on Monday to adopt what would be the toughest restrictions on the Kremlin so far in an effort to force Moscow to cut support for the pro-Russia separatists in eastern Ukraine. European Union ambassadors from the 28 members finalized the details on Tuesday.

After more than seven hours of deliberations Tuesday, the EU -- Russia's largest trading partner -- agreed on a deal to impose wide-ranging restrictions against Russia, including limiting financial transactions with Russia's state banks, according to the Financial Times. The new sanctions also target the Russian oil industry, defense sector, and sensitive technologies.

Market reactions: Shares of BP (BP) dropped 2.5% after the U.K. oil major warned that additional measures imposed on Russia and Rosneft would have a material impact on its business. Read: BP among losers in Europe on Russia sanctions woes

Most other European stocks, however, were rising with some solid earnings reports overshadowing the sanction fears. The Stoxx Europe 600 index added 0.3% to close at 342.27, its first close in positive territory in three days. The benchmark pared gains a bit after the news about the fresh EU sanctions on Russia.

Germany's DAX 30 index climbed 0.6% to 9,653.63, while France's CAC 40 index gained 0.5% to 4,365.58. The U.K.'s FTSE 100 index rose 0.3% to 6,807.75.

Comments: Analysts appeared to be concerned with three things on Tuesday: Russian sanctions, earnings reports and the upcoming deluge of U.S. events and data.

In relation to Russia, Naeem Aslam, chief market analyst at AvaTrade, said the question really is "how far we are willing to stand the pain which will emerge due to these sanctions."

"Similarly, if Russia is going to pay any attention to these sanctions and acknowledge that enough is enough and they are throwing the towel," he said in a note.

The U.S. Federal Open Market Committee began its two-day policy setting meeting today, with the decision due Wednesday at 2 p.m. Eastern Time. Economists at Deutsche Bank said in a note that the Fed is unlikely to say anything it thinks will move the markets this week.

"Neither the overall economic activity picture nor the inflation data have been firm enough recently to move the Committee to signal that they are moving closer to lift-off," they said.

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