LONDON: European stocks fell on Monday as news that Islamist insurgents swept further into Iraq and Russia cut supplies of gas to Ukraine spooked investors, analysts said.
London's FTSE 100 index of top companies lost 0.34 percent to close at 6,754.64 points.
Frankfurt's DAX 30 ended down 0.29 percent at 9,883.98 points, while the CAC 40 in Paris slipped 0.73 percent to 4,510.05 points, compared with Friday's closing levels.
"Equities are under pressure as tensions escalate in Iraq and the full impact of a potential increase in oil prices starts to weigh on the market," said Rebecca O'Keeffe, head of investment at online stockbroker Interactive Investor.
Fears are rising of a regional crisis as Islamist militants, led by the powerful Islamic State of Iraq and the Levant (ISIL) jihadist group, are storming toward the capital Baghdad after seizing swathes of the north of the country.
European investor sentiment was also plagued by concerns about simmering tensions between Ukraine and Russia.
Moscow cut the flow of gas to Ukraine on Monday after last-ditch talks failed to end a dispute over debts that threatens to disrupt supplies to Europe for the third time in a decade.
Kiev was dealt a further blow on Monday when dozens of Kalashnikov-wielding pro-Russian rebels seized the central bank building in the eastern separatist stronghold of Donetsk.
"Tensions have also escalated over the weekend, with promises of retaliation after the shooting down of a plane in Lugansk," said O'Keeffe.
"The threat of wider disruption in the region and the potential pressure on natural gas prices going forward is adding to market risks."
Oil gains:
Oil prices held near recent highs on the back of the worsening crisis in Iraq, the second-biggest oil exporter in the 12-nation OPEC producer group.
Brent crude for August delivery rose 34 cents to $112.80 per barrel on Monday, having jumped at one point on Friday to $114.69 -- the highest level since September 2013.
"Investors are unwilling to sell oil with the situation in Iraq still having the potential to deteriorate any time," said Jasper Lawler at CMC Markets.
That benefitting energy stocks, pushing energy giant Royal Dutch Shell up 0.40 percent in London to close at 2,380.80 pence.
Smaller Tullow Oil closed up 1.78 percent at 856.80 pence and Petrofac also benefitted, ending up 1.11 at 1,271 pence.
But airline shares, already hurt by concerns about demand due to the weak global economy, were hurt by fears their fuel costs will rise.
Lufthansa, which last week cut its earnings targets for 2014 and 2015, ended down 0.86 percent at 16.13 euros.
Hungarian budget airline Wizz Air on Monday cancelled its proposed 200-million-euro listing on the London stock market due to tough industry conditions.
"A substantial rise in oil prices could be particularly damaging to the still fragile global economic recovery," said O'Keeffe.
Pound surges:
US stocks, however, remained jittery despite upbeat economic data and news of several large deals.
US industrial production grew 0.6 percent in May, slightly above the analyst forecast of a 0.5 percent rise, due to strong mining growth. The Dow Jones Industrial Average edged down 0.16 percent to 16,749.19.
The broad-based S&P 500 lost 0.05 percent to 1,95.23, while the tech-rich Nasdaq Composite Index dipped 0.02 percent at 4,309.94.
In foreign exchange activity, the British pound soared to a five-year high at $1.7011 on expectations the Bank of England will raise interest rates within the next six months.
Later on Monday it stood at $1.6986, up from $1.6962 on Friday. The euro edged up to 79.92 British pence from 79.79 pence.
The European single currency rose to $1.3577 from $1.3538 late in New York on Friday.
And on the London Bullion Market, the price of gold rose to $1,276.25 an ounce from $1,273 late on Friday.
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