European Stocks Fall

LONDON—European stocks fell Monday as investors grew increasingly nervous about the lack of a Greek debt-restructuring deal.

The Stoxx Europe 600 Index closed down 1.1% at 252.52. The U.K.'s FTSE 100 Index ended 1.1% lower at 5671.09, Germany's DAX closed down 1% at 6444.45 and France's CAC 40 Index ended down 1.6% at 3265.64.

Banks suffered the brunt of the selling and the Stoxx Europe 600 Index for the sector closed down 3.1%. In London, Royal Bank of Scotland Group dropped 3.5% after its chief executive, Stephen Hester, decided to waive a controversial bonus of just under £1 million ($1.6 million).

With talks between Greece and its private creditors still unresolved, investors' confidence waned and worries about debt contagion set in. Against this backdrop, investors shifted their attention to Portugal, worried it may be the next in line for a second bailout package. Portugal's borrowing costs surged Monday, with the 10-year government bond yield reaching euro-era highs. At the time of the European stock market close, the 10-year Portuguese government bond yield stood at 17.39%.

At the same time, Germany's relationship with Greece was in focus, following weekend reports suggesting Germany would like the EU to have veto powers over the Greek budget.

Earlier in the day, Italy sold a total of €7.475 billion ($9.88 billion) out of a targeted €8 billion of Treasury bonds. "All in all, demand wasn't too bad but some caution seems to have prevailed, given the recent tightening of Italian spreads versus Germany and the recent downgrade by Fitch, which was expected but still not much welcomed," said Newedge.

Late Friday, ratings agency Fitch downgraded Italy, Spain, Belgium, Slovenia and Cyprus and cut its outlook in Ireland, noting concerns about further monetary shocks in the euro zone and the divergence of monetary and credit conditions in the region.

Meanwhile, in terms of economic data, there was little to get excited about on either side of the Atlantic. The euro-zone Economic Sentiment Indicator for January came in at 93.4 and although this was a slight improvement on December's of 92.8, it still fell short of expectations for a reading of 93.6. Newedge pointed out that the increase remains consistent with sluggish activity in the region in the first quarter of 2012. "We would not read it as a sign of a sharp rebound," it said. In the U.S., data on personal income and spending for December were a mixed bag, showing investors chose to save more, although income was a little ahead of expectations.

As European markets closed, the EU summit was getting under way in Brussels, with the endorsement of the European Stability Mechanism and agreement on the new 'fiscal compact' top of the agenda. Greek private sector involvement will also be up for discussion. However, market participants weren't billing it as any great event.

By the time of the European stock markets close, the common currency was trading at $1.3103 from $1.3219 late Friday in New York. Sterling last traded at $1.5672 from $1.5734. Elsewhere, the dollar was at 76.39 yen from 76.69 yen.

Among commodities, light, sweet crude for March delivery was down 39 cents at $99.17 on the New York Mercantile Exchange. Gold for February delivery was down $2.00 at $1730.20 per troy ounce late in Europe on the Comex division of Nymex.