By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- The political wrangling over the debt ceiling and budget in the U.S. kept investors in Europe on edge on Monday, with the benchmark stock index struggling for direction for most of the session. Weak Chinese economic data further added to the nervous sentiment.

The Stoxx Europe 600 index ended the volatile session up 0.2% to 312.22, supported by oil firms and other heavyweights such as Vodafone Group PLC (VOD).

"We are no nearer a resolution in the U.S. and I think it's fair to say that the nearer we tick closer to [the debt-ceiling deadline] on Thursday, the more nervous the markets are going to get. Few investors are willing to commit to risk until they know how this will play out," said Richard Hunter, head of equities at Hargreaves Lansdown.

Not even the raft of major earnings reports will get investors distracted from the debt ceiling, he said.

"Under normal circumstances earnings would be in focus, but they are unfortunately totally overshadowed by the debt ceiling talks. This week we have Coca-Cola (KO), Yahoo (YHOO) and Google (GOOG), so quite a host of earnings, but they are just a side story."

Among notable movers in the pan-European index on Monday, shares of Peugeot SA slid 9.1% after the French car maker confirmed it is talking with possible partners for new industrial or commercial projects that will likely have financial consequences. Reuters also reported that the firm is preparing a 3-billion-euro ($4.1 billion) capital increase, citing people familiar with the matter.

Shares of Dassault Systemes SA slumped 11% after the software firm warned third-quarter revenue and earnings will be below its targets.

On a more upbeat note, shares of Electricite de France SA climbed 2.2% as the utility firm closed in on sealing a 14-billion-pound ($22.4 billion) deal to build and operate nuclear reactors in the U.K.

Heavyweight Vodafone gained 0.8% after the telecom firm said it completed the takeover of Kabel Deutschland Holding AG .

U.S. deadlock

More broadly, the losses in Europe came 14 days into the U.S. government shutdown and three days before the country is expected to reach its borrowing limit, unless lawmakers break a stalemate and raise the nation's debt ceiling. On Sunday, Senate Republicans and Democrats leaders continued attempts to find a way to break the fiscal impasse between the Republican-led House and President Barack Obama. Read: Fed shutdown and your retirement: Remain calm

Treasury Secretary Jack Lew has warned the U.S. will run out of borrowing authority on Oct. 17 unless Congress agrees to raise the debt ceiling. A failure to increase the limit could lead to a technical default, which some fear will drag the economy back into recession.

U.S. stocks traded lower on Wall Street.

China and Europe data

Meanwhile in China, data over the weekend showed a surprise decline in exports in September, signaling the global economy is still struggling to recover.

Additionally, Chinese consumer prices rose faster than expected in September, though remaining within the government's target range.

On the data front in Europe, Eurostat said industrial production rebounded in August in the euro zone, rising 1% month-on-month.

"Industrial production data for August support our view that euro-area growth is resuming but is still weak, and risks remain skewed to the downside," said Fabio Fois, southern European economist at Barclays, in a note.

"Our tentative forecast for euro-area industrial production in Q3 (...) also points to a slowdown in economic activity. That said, we continue to expect euro-area GDP to have increased 0.2% q/q in Q3 (0.1pp below Q2), a view that is supported by various confidence data, including PMIs," he added.

Among country-specific indexes, France's CAC 40 index inched 0.1% higher to 4,222.96, while Germany's DAX 30 index closed slightly lower at 8,723.81. The U.K.'s FTSE 100 index added 0.3% to 6,507.65, lifted by the benchmark's oil firms.

Johnson Matthey PLC climbed 5.9% in London after J.P. Morgan Cazenove lifted the chemicals firm to overweight from neutral. The analysts said they "expect years of investment in the industrial-catalyst market to lead to accelerated growth, benefiting from the swathe of new-customer capex, driven by Chinese petrochemical self-sustainability and the U.S. shale gas revolution."

Outside the major indexes, shares of Konecranes Oyj fell 2.3% after the cranes-and-lifting firm lowered its full-year outlook.

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