Europe close: Stocks finish off their worst levels, but sentiment dented

Stocks across the Continent were lower again on Monday, with investor sentiment taking another hit after Turkey's President, Recep Tayyip Erdogan, dismissed the possibility of interest rate hikes at the weekend, resulting in another leg lower for the Turkish lira.

Currency weakness undermining the share prices of lenders with exposure to the Mediterranean country and sentiment towards Emerging Markets more generally.

It also weighed on the single currency throughout much of the session, prompting analysts at Rabobank to tell clients that: "The sharp fall in the value of the EUR on Friday morning and the continued pressure on the unit into the weekend was illustrative of events in Turkey developing from idiosyncratic to contagious.

"On Friday the market was worried about the exposure to Turkey of various European banks. These concerns have continued to pressure European bourses this morning in addition to the EUR. Today contagion has spread further into the EM universe. Generally speaking those countries with low FX reserves or high levels of external debt tend to be particularly vulnerable to broad-based 'risk off' events."

At the market close, the benchmark Stoxx 600 was lower by 0.25% or 0.95 points to 384.91, alongside a drop of 0.53% or 65.61 points to 12,358.74 for Germany's Dax, while the FTSE Mibtel was down by 0.58% or 121.52 points 20,969.26.

Istanbul's equity benchmark, the Borsa Istanbul 100 index, was 2.38% lower to 92,684.55.

In parallel, by the end of trading the US dollar had tacked-on another 8.94% versus the lira to change hands at 7.0074, having traded as high as 7.2362 at one point in the session.

Euro/dollar on the other hand had reversed course, edging up 0.04% to 1.1387, even as the yield on benchmark two-year Turkish government debt jumped 94 basis points to 25.74% - its highest since 2008 - and five-year CDS rates for Turkish banks leapt more than 100 basis points higher to 537.

Possibly helping the single currency, on Sunday evening the central bank in Ankara said it would "take all necessary measures, if deemed necessary" to ensure stability while, among other things, lowering the amount of funds that the country's lenders needed to keep with it and giving them more flexibility to manage their foreign exchange liquidity.

Meanwhile, the Stoxx 600 gauge of lenders' shares finished down by 1.18%, led by declines in shares of BBVA (-3.23%), UniCredit (-2.58%), ING (-2.24%), BNP (-1.05%) and HSBC.

The slide in bank shares aside, Bayer was in the spotlight at the start of the week too, after a California jury ordered the German chemicals giant to pay $289m in damages to a man who had alleged that its pesticides, including Roundup, had provoked his cancer.

The economic calendar was light, with the main release of the session being a final reading on Italian consumer prices for July, which were confirmed by ISTAT at up by 1.9% year-on-year, versus a rise of 1.4% in June.