London - European stocks mostly retreated on Monday with investors increasingly edgy over the approaching US debt deadline that has until now failed to overly alarm markets.
But a growing chorus of officials warned that a failure by US leaders to end to the deadlock would have catastrophic consequences that could affect the entire global economy.
Adding to selling pressure was a disappointing batch of Chinese economic data, while on the corporate front shares in French car giant Peugeot dived.
In London, the benchmark FTSE 100 index stayed just in the green with shares up 0.05 percent to stand at 6,467.37 points in afternoon trading.
Frankfurt's DAX 30 fell 0.21 percent to 8,706.47 points and the CAC 40 in Paris lost 0.27 percent to 4,208.37.
US stocks opened sharply lower Monday after a weekend that saw no progress in talks between the White House and Republicans.
Five minutes into trade, the Dow Jones Industrial Average was down 76.10 points (0.50 percent) at 15,161.01.
The broader S&P 500 lost 8.41 (0.49 percent) to 1,694.79, and the Nasdaq Composite gave up16.27 (0.43 percent) to 3,775.60.
“The continued division between Republicans and Democrats in reaching a conclusion to the US debt ceiling is hampering upside in equity markets,” said Brenda Kelly, senior market strategist at traders IG.
On the foreign exchange market, the US budget impasse was weighing on the dollar.
The European single currency rose sharply against the greenback to $1.3591 from $1.3543 in New York late on Friday.
The dollar fell to 98.13 yen from 98.58 yen.
Sterling rose to 84.87 pence to the euro and to $1.6014.
With the US expected to run out of cash to pay its bills on Thursday, President Barack Obama has urged Republicans to agree to a debt ceiling hike.
Failure to raise the spending limit would mean a default that could have a devastating effect around the world.
EU Economic Affairs Commissioner Olli Rehn warned the crisis “could have potentially dramatic consequences on the world economy and on the still nascent recovery in Europe.”
While China and Japan - which between them hold more than $2.4
trillion of US debt - have urged the United States to get its house in order and avert a default.
The price of gold rose to $1,276 an ounce on the London Bullion Market, from $1,265.50 on Friday.
Meanwhile in Luxembourg, EU finance ministers are again this week trying to resolve deep differences over how to supervise, and if necessary close, failing banks before they can plunge the economy into crisis.
Ireland was among the worst affected by the collapse of its banks but over the weekend announced it would exit its three-year, 85-billion-euro bailout programme on schedule in December.
The Irish news, plus the fact that further aid for twice-bailed out Greece is not pressing, highlights how far the 17-nation eurozone has come since the dark days of 2009-10.
The 17-eurozone ministers met on Monday in Luxembourg, to be followed by talks on Tuesday with their 11 non-euro colleagues hoping for progress on a hugely complex issue surrounded by political sensitivities.
In company news on Monday, shares in French auto group PSA Peugeot Citroen plunged on rumours that the struggling company will raise new capital, and amid talk it might tie up with a Chinese firm.
The shares dived 9.34 percent to 11.21 euros.
The group, a top name in French industry, is in trouble and struggling to carry through a deep restructuring with job cuts and a plant closure.
Shares in French software group Dassault Systemes fell by 9.64
percent on a profits warning.
In Asia on Monday, China said that its inflation reached a seven-month high in September.
China's consumer price index rose sharply to 3.1 percent last month, the government said Monday, from 2.6 percent in August. - Sapa-AFP