Germany's ZEW indicator of confidence among professional investment analysts sagged to a 20-month low in August.
The ZEW institute said Tuesday its index fell to 8.6 from 27.1. Market observers had expected a fall to only 17.0.
Fears about a possible escalation of the crisis in Ukraine have weighed on Germany business confidence in recent weeks.
Analyst Christian Schulz at Berenberg bank said the slump confirms "near-term downside risk" from the Ukraine crisis "but does not change the fundamentally positive outlook" for Germany and the 18-country eurozone as a whole.
Some analysts think that Germany's economy, Europe's biggest, was flat in the second quarter that ended June 30 but is picking up in the third quarter.
Official second-quarter figures are out Thursday.
U.S. stocks moved were mostly unchanged in early trading Tuesday following two days of gains. Investors continue to focus their attention abroad on problems in Ukraine and Iraq.
The Dow Jones industrial average rose three points, or 0.02 percent, to 16,573 as of 10:15 a.m. Eastern. The Standard & Poor's 500 index rose less than a point to 1,937 and the Nasdaq composite fell a point to 4,340.
Fears of a Russian invasion of Ukraine have subsided over recent days, but geopolitical issues are likely to remain one of the key drivers in financial markets over the coming weeks. Investors also have an eye on oil-rich Iraq. On Tuesday, Iraq's embattled incumbent Prime Minister Nouri al-Maliki struggled to remain in power as Iraqi politicians and the international community rallied behind a political competitor.
Kate Spade rose $3.96, or 10 percent, to $42.80 in early trading. The handbag maker's quarterly results were way ahead of what analysts were forecasting. Kate Spade said it had an adjusted profit of 5 cents a share while analysts were expecting break-even results.
Electronic Arts rose 70 cents, or 2 percent, to $35.77. The video game publisher announced it would expand a popular video game subscription service to international markets. Subscriptions and downloadable products have become a popular business model in the video game industry in recent years, which used to be almost entirely based on one-time sales at stores.
Oil prices drifted lower, with benchmark New York crude down 89 cents at $97.20 a barrel. The yield on the 10-year Treasury note was 2.43 percent, unchanged from the prior day.
Other markets around the world did well Tuesday, especially Asian markets. The Hang Seng in Hong Kong closed with a 0.18 percent gain on the day, and Japan's Nikkei 225 was up 0.20 percent. India's Mumbai Sensex had the best day, up 1.42 percent at closing.