European stocks, euro down as Greek euro impasse looms

Dealers said that after recent gains made as eurozone government borrowing costs turned lower it was natural that the markets would want to see if European leaders really can deliver the goods this time around.

The summit opened however as talks on agreeing a Greek debt write-down dragged on, stoking concerns that failure to reach an accord could undermine or worse still, even derail the summit, they said.

Early losses on Wall Street added to the negative tone as investors there reacted to weaker-than-expected US growth data released Friday and disappointing spending figures on Monday.

In London, the FTSE 100 index of leading shares closed down 1.09 per cent to 5,671.09 points. In Paris, the CAC-40 index shed 1.60 per cent at 3,265.64 points and in Frankfurt the DAX 30 fell 1.04 per cent at 6,444.45 points.

Milan lost 1.22 per cent despite a solid sale of Italian government bonds at much lower interest rates while Madrid was off 1.62 per cent.

The European single currency meanwhile tumbled to $1.3110 from $1.3221 in New York late Friday as Greece and its private creditors continued to thrash out details of a debt write-down worth about 100 billion euros.

The write-down is important in itself to reduce the Greek debt mountain of some 350 billion euros but it is also a condition for a second eurozone bailout aimed at preventing Athens defaulting in March.

Investors were opting to minimise risk "as yet another EU summit gets underway and the Greek debt talks continue," said analyst Simon Denham at trading firm Capital Spreads.

"The lack of agreement between bondholders and the Greek government seems to have reached loggerheads and is unsettling investors as they take money off the table."

In Brussels, European Union leaders opened their first summit of 2012 caught up in a new row over how to save Greece after Germany suggested placing the country's budget under EU control, sparking an angry Greek response.

The meeting of 27 EU heads of state and government is mainly aimed at finalising a new pact to toughen budget discipline and finding ways to jumpstart growth and create jobs as recession looms large over Europe.

Jane Foley of Rabobank said that if a budget pact can be agreed, then the eurozone "will be on its way to implementing a solution for its fiscal ills."

At the same time, continuing problems with Greece means that there "are risks that today's summit will disappoint," Foley added.

In New York, stocks opened lower, with the blue-chip Dow Jones Industrial Average down 0.68 per cent at around 1650 GMT and the tech-heavy Nasdaq off 0.33 per cent.

"Not even rumors of an impending Facebook (share offering) ... can shake investors' pessimism," said Karee Venema at Schaeffer's Investment Research.

"Wall Street is turning a weary eye (to the EU summit as European leaders) ... continue their efforts to solidify austerity measures throughout the struggling region," Venema added.

"Uneasiness remains with Greece unable to reach a debt-swap agreement and EU officials conducting another summit ... trying to hammer out its fiscal discipline pact and putting the final touches on the region’s permanent bailout mechanism," Charles Schwab analysts said.

Asia's first full day of trading following the Lunar New Year holiday saw markets mostly slip on Monday after US growth data released Friday came in below expectations and profit-takers cashed in recent gains.

Tokyo finished 0.54 per cent lower, Hong Kong shed 1.66 per cent and Sydney fell 0.37 per cent.