Europe close: Banks drag Italian stocks sharply lower

European stocks slipped lower against a backdrop of lower oil prices, even after China moved to deter speculation against its currency and despite US markets being closed for trading in observance of a holiday, which tends to support stocks.

The benchmark Stoxx Europe 600 index had lost 0.36% by the close, Germany’s DAX was down 0.25% and France’s CAC 40 by another 0.49%.

Italy’s FTSE MIB significantly underperformed its peers, crumbling 2.65% as banks fell sharply amid worries that their consolidation could be delayed.

Shares in Banca Monte dei Paschi di Siena and Banco Popolare were suspended following large losses.

“It would not have been surprising to see a low-volume rally across the board in Europe today, as the absence of US volumes was employed to good effect by the usual collection of dip buyers and bargain hunters.

“The fact that, thus far, even this is beyond the ability of investors suggests a broad risk-off mentality, with even those of an optimistic disposition looking to keep trimming allocations to stock markets,” said Chris Beauchamp, senior market analyst at IG.

“Oil prices have been calling the tune for global markets for weeks now, and it looks like this state of affairs will continue.”

Shares in Europe staged a bounce earlier in the session as investors stepped in to pick up some stocks that were battered in last week’s sell-off and following the introduction of additional measures to stem capital outflows by the People’s Bank of China.

Oil prices ended a volatile session lower, albeit off their intra-day lows after the lifting of nuclear sanctions on Iran over the weekend. West Texas Intermediate futures dropped 1.52% to $28.98 a barrel while Brent crude slipped 0.7% to $28.74.

On the corporate front, plumbing and heating firm Wolseley gave back early gains after announcing the retirement of chief executive officer Ian Meakins to end the day lower.

Ericsson rose after Nordea Markets lifted the stock to ‘buy’, while LVMH retreated despite an upgrade by Goldman Sachs.

On the downside, French supermarket operator Casino crashed lower despite attempts to reassure investors after ratings agency Standard & Poor's said it might downgrade its debt to junk status.

Meanwhile, stock in French car maker Renault was under pressure again as executives from the company prepared to appear before a government commission to explain why some of its cars exceeded emissions limits.