UKX FTSE 100 Index

By William Watts, MarketWatch

European stocks traded lower Monday, with Italian banks under heavy pressure as continued worries over a budget clash between Rome and the European Union contributed to a continued selloff in the country's government bonds.

The pan-European Stoxx 600 Europe index fell 0.6%, with European markets seen, in part, taking a cue from Asia, where Chinese stocks dropped more than 3% (http://www.marketwatch.com/story/asian-markets-lag-as-chinese-stocks-fall-after-weeklong-layoff-2018-10-07) after returning from a weeklong holiday.

In London, the FTSE 100 shed 0.6% to 7,273.23. In Germany, the DAX was off 0.8% at 12,016.70, while in Paris, France's CAC 40 shed 0.9% to 5,311.16.

A weak reading on German industrial output (http://www.marketwatch.com/story/german-output-falls-for-third-straight-month-2018-10-08), which saw a 0.3% fall in August and defied expectations for a rise, may also have contributed to the weaker tone, analysts said. But a sharp selloff for Italian bonds and stocks was also in focus.

Read:Italy bond yields jump as investors brace for budget clash (http://www.marketwatch.com/story/italy-bond-yields-jump-as-investors-brace-for-budget-clash-2018-10-08)

"The selloff in Asia may have been enough to weigh on risk appetite in Europe but as it turns out it doesn't need much help, with the coalition Italian government's determination to collide with Brussels over its budget plans causing more than enough of a stir in the region," said Craig Erlam, senior market analyst at Oanda, in a Monday note.

Italy's FTSE MIB stock index dropped 2.3%, leaving it down more than 4% so far in October versus a 2.6% fall for the Stoxx 600. Concerns that the sharp runup in Italian bond yields fueled by concerns about the government's spending plans, which have put it on a collision course with Europe and stoked fears of downgrades, could damage Italy's still fragile lenders saw banks remain under pressure Monday.

Shares of Intesa Sanpaolo SpA dropped 3.9%, while UniCredit SpA (UCG.MI) declined 4.8%.

"The Italian banks hold about 10% of their assets in Italian sovereigns, on average. I issue a warning, once again. Watch out here!!!" wrote Mark Grant, chief global strategist at B. Riley FBR, in a note.

A pullback in oil prices weighed on producers, with BP PLC(BP.LN) off 2% in London, while Royal Dutch Shell PLC (RDSA.LN) (RDSA.LN) shed 1.2%.

Shares of Airbus SE (AIR.FR) were up 0.1% after The Wall Street Journal reported that the world's second-largest planemaker after Boeing Inc. (BA) would name Guillaume Faury as its next chief executive, replacing Tom Enders, who said in December he wouldn't seek a new mandate when his term expires next year.

(END) Dow Jones Newswires

October 08, 2018 07:04 ET (11:04 GMT)

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