Europe close: Stocks end lower as oil skids lower, China worries persist

European stocks resisted an initial bout of selling pressure on Monday after Chinese stocks ended lower again overnight, but a late bout of selling sent them into the red just before the close of trading as oil prices continued to crumble.

The benchmark Stoxx Europe 600 index finished down by 0.33%, Germany’s DAX lost 0.25% and France’s CAC 40 another 0.49%.

As of 17:05 front month Brent crude futures were off by 5.04% to $31.94 per barrel on the ICE, as analysts came out of the woodwork with warnings they could fall below the $30 mark.

Analysts at Morgan Stanley told investors that US dollar strength alone could see oil skid down to the $20s, particularly should China opt for a large and quick depreciation of the Yuan.

Earlier on Monday, the People’s Bank of China guided the yuan 0.02% higher, setting the mid-point for its daily fixing at 6.5626 against the US dollar, in a bid to stabilise the country's currency.

Fitch Ratings said officials in Beijing were unlikely to opt for a sharp depreciation in the yuan.

Perhaps, but a move by China on Monday to buy yuan in the offshore market and hamper those trying to bet on a weaker currency led to a spike in Hong Kong interbank lending rates in yuan, in turn possibly adding to the selling pressure in stocks.

Despite oversold conditions in share markets, JP Morgan recommended to clients that they sell into any rallies in stocks.

In overnight trading, the Shanghai Stock Exchange's Composite Index tumbled 5.3% while Hong Kong’s Hang Seng fell 2.8%.

Over in the commodity space, prompt month West Texas Intermediate futures closed 4.51% at $31.73 a barrel, slipping below the $32 mark for the first time since December 2003.

Economic sentiment in the Eurozone worsened more than expected in January, according to the latest survey released by Frankfurt-based research group Sentix.

The index, which tracks economic confidence among investors, from 15.7 in December to 9.6, missing expectations for a reading of 12.2.

Meanwhile, the sub-index tracking expectations for the Eurozone’s economy over the next six months tumbled to 6.3 in January from 18 in December, while the index tracking Germany fell to 18.1 from 22.7.

The current situation index nudged lower from 13.5 to a reading of 13.0 for December.

“This is a downbeat headline, but not unexpected given the atrocious start to the year for equities,” said Pantheon Macroeconomics.

“Fears over China’s devaluation — as an omen of a hard landing in the economy — and increased global deflation risks likely will linger in the short-run.”

In corporate news, Air France-KLM was on the front after the airline operator said the terrorist attacks in Paris cost it €70m (£52m) in lost revenue, but added that bookings returned to normal in December.

Italian oil and gas industry contractor Saipem was a high riser throughout most of the session following reports that it could be involved in the Russian Nord Stream 2 pipeline project.

In London, housebuilder Taylor Wimpey nudged a touch lower despite reporting a strong year.

Sage Group and Whitbread were standout gainers on the FTSE 100 after Bank of America-Merrill Lynch upgraded its ratings on the stocks.