Eurozone stocks closed lower as the euro remained strong amid hopes that Germany moved a step closer to resolving the country's political impasse.

An employee checks 100 Euro banknotes at the Money Service Austria company's headquarters in Vienna, Austria, November 16, 2017.
An employee checks 100 Euro banknotes at the Money Service Austria company's headquarters in Vienna, Austria, November 16, 2017. (Reuters)

Eurozone stocks closed lower Monday as the euro remained strong amid hopes that German Chancellor Angela Merkel is close to forming a government, dealers said.

Leaders of Merkel's conservative party agreed on Sunday to pursue a "grand coalition" with the Social Democrats to break the political deadlock in Europe's biggest economy.

This together with strong economic data last week lifted the euro to two-month highs at $1.1957 on Monday.

London equities also showed losses at the closing bell as investors worried about apparently stalled Brexit talks, and a rising pound took its toll on exporters.

"European equity markets are mostly lower in afternoon action, with the euro tacking onto a recent rally to a two-month high versus the US dollar," said analysts at the Charles Schwab brokerage.

But the continent's equity markets were lifted off earlier lows by Wall Street posting gains approaching midday in New York thanks to upbeat signs about the holiday shopping season.

Early online shopping data suggested the "Black Friday" start to the gift-shopping season was a boon for stores, and shares in Amazon, Wal-Mart and Macy's all rose in response.

Investors need political stability

Back in Europe, Merkel has been scrambling to avert snap elections after talks to form a new government with the pro-business Free Democrats (FDP) and the left-leaning Greens broke down a week ago.

The Social Democrats had vowed to go into opposition after a disappointing showing in September, but in a U-turn on Friday SPD chief Martin Schulz said he was ready for talks with Merkel's bloc.

"Political optimism is picking up in Germany," added analyst David Madden at CMC Markets.

"The Germany economy has been managing just fine without a functioning government for the past two months, but investors would welcome some political stability."

An improving outlook for a functioning German government boosted the euro, but the currency's strength weighed on export-oriented stocks which stand to suffer from a strong euro.

The European currency gave up some of its early gains by the end of the European trading day but remains close to highs seen in September, analysts at Mirabaud Securities said.

"The euro's strength is the key factor," they said.

Asian markets fell Monday on profit-taking after last week's volatility.

Shanghai slipped almost one percent, with dealers still on edge after Thursday's sharp losses fuelled by concerns about a crackdown on speculative trading.

Source: AFP