With trading in London closed for a bank holiday on Monday, trading was particularly light with only a downbeat durable goods report from the US moving sentiment.
“The market is at a level that will be hard to beat without some good news,” said Olivier Noel of Turgot Asset Management in Paris.
Frankfurt’s DAX 30 added 0.22 percent to 8,435.15 points, while the CAC 40 in Paris dipped 0.06 percent to 4,067.13 points.
Madrid slid 0.42 percent to 8,649.00 points while, the main index on the stock exchange in Milan dived 2.10 percent to 16,977.76 points.
The tumble came after US economist Nouriel Roubini warned that instability in Italy over the future of Silvio Berlusconi could trigger early elections next year and weigh on the country’s standing on financial markets from this week.
Prime Minister Enrico Letta’s government needs to decide by Saturday how to reform a hugely unpopular property tax that Berlusconi’s People of Freedom party wants scrapped altogether. Berlusconi supporters have said they could bring down the government if they do not get their way.
“Our most probable scenario is elections in early 2014 but we do not exclude even sooner than that. The markets are reasoning in a similar way,” Roubini said in an interview with La Repubblica daily.
The difference, or spread, between the rates on Italian and German 10-year bonds widened to 241 basis points (2.41 percentage points) — a sign of increased concern.
Last week, emerging market currencies and sovereign debt came under renewed pressure as traders bet on an end to the Fed’s $85 billion (63.5 billion euro) a month monetary easing.
The Indian rupee, Indonesian rupiah, Turkish lira and South African rand all fell last week, and Brazil announced new action to support the real.
In foreign exchange activity Monday, the euro dipped to $1.3368 from $1.3381 late on Friday, while the dollar dropped to 98.66 yen from 98.71 yen before the weekend.
Sterling strengthened against the euro, with one pound buying 1.1642 euros from 1.1631 euros on Friday, but slid against the dollar, to $1.5574 from $1.5584.
The Russian ruble was broadly steady — but was still low — against the US currency after last week’s tumble, with one dollar costing 33.0148 rubles from 32.9918 rubles on Friday,
On Monday, the Russian government cut its forecast for growth this year to 1.8 percent from an estimate of 2.4 percent.
Meanwhile the Turkish lira fell, with one dollar costing 1.9938 lira from 1.9914 lira while the South African Rand slumped to 10.3249 per dollar from 10.2438.
The turbulence affecting emerging currencies prompted South Africa’s Finance Minister Pravin Gordhan to call for greater international action to get to grips with the turbulence.
– Currency volatility to be short-lived: analyst –
“There’s no doubt that the multilateral institutions… need to desperately try to come up with new answers…,” he said in an interview with the Financial Times.
Mark Williams, chief Asia economist at Capital Economics, said however that the strains “pose a much smaller risk to emerging markets now than in the past”.
He pointed to a lower foreign currency debt burdens, but warned that “cross border capital flows to many parts of the emerging world are larger now than in the 1990s”.
He said: “It is important to stress that we continue to believe that the current bout of currency volatility will prove short-lived and that a prolonged reversal of capital flows is unlikely.”
US stocks climbed Monday with traders shrugging off a disappointing durable goods report.
The markets turned solidly higher after opening near the flat line. In midday trade, the Dow Jones Industrial Average was up 0.17 percent, the broad-market Standard & Poor’s 500 index advanced 0.27 percent and the tech-rich Nasdaq Composite gained 0.58 percent.
Asian markets mostly closed modestly higher on Monday, echoing modest gains on Wall Street and in Europe at the end of last week after a slump in US housing market sales reduced fears of an early tapering.
Sydney closed up 0.23 percent and Seoul gained 0.95 percent, while Tokyo stocks ended the session 0.18 percent lower which dealers blamed on profit-taking.
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