Europe close: Stocks drop but end off lows amid Ukraine-Russia ceasefire talks

European stocks managed to pare initial sharp drops after Western governments imposed massive sanctions on Russia over its invasion of Ukraine, likely helped by news of ceasefire talks between Kiev and Moscow.

At the weekend, the US, European Union and UK imposed sanctions on the Russian central bank and kicked several of its largest lenders from the Swift system for international bank transfers.

In response to the sanctions, Russian President Vladimir Putin put the country's nuclear deterrent on high alert.

Against that backdrop, the Russian rouble slid 28% versus the US dollar, even as the country imposed capital controls and Moscow ordered that the stock market remain closed.

The pan-European Stoxx 600 index drifted 0.09% lower to 453.11, alongside a 0.73% drop on Germany's DAX to 14,461.02.

"The lack of any obvious progress in the Russia-Ukraine ceasefire talks has not provoked any further selling, and for now the lows of the day are intact," said IG chief market analyst Chris Beauchamp.

"[...] Overall, the initial shock of conflict has worn off, and aside from the huge impact on Russian stocks and the ruble the atmosphere is far less febrile than it was last week. It looks like a major escalation in the conflict would be required to prompt a further leg down.”

Ceasefire talks between Kiev and Moscow adjourned after five hours so that both delegations could consult with their respective governments.

"The talks are difficult [...] The Russians unfortunately still have an extremely biased view of the destructive processes they have unleashed," Ukrainian presidential adviser, Mykhailo Podolyak, reportedly told the Financial Times.

The head of the Russian delegation, Vladimir Medinsky, reportedly said that another meeting would take place "soon", although no specific date was mentioned by either side.

Reports on the ground in Ukraine focused on what some observers said were the significant logistical problems facing the Russian army due to the unexpectedly stiff resistance of the Ukrainian military and civilian population.

Mondi shares fell 12% as it suspended production at its paper bag plant in Lviv, employing approximately 100 people.

Shares in energy giant BP slipped after the company said it was abandoning its stake in Russian state oil company Rosneft at a cost of up to $25bn.

France's Renault, which controls Russian carmaker Avtovaz, fell 6.6%. Finland's Nokian fell 20% as it was forced to move production from Russia.

Anglo-Russian miner Polymetal plunged 56% over the Ukraine crisis, despite the company last week saying it did not expect to be hit by sanctions.

Defence company Rheinmetall surged by 27% after German Chancellor Olaf Scholz on Sunday said the country would sharply increase defence spending to more than 2% of its economic output.