Europe's STOXX 600 share index hit a two-week low on Monday, weighed by escalating tensions in the Middle East and a global selloff in AI stocks, while Italian lender Monte dei Paschi di Siena jumped after a takeover bid from rival Intesa Sanpaolo.
The pan-European STOXX 600 index (.STOXX) slipped 0.7% to 618.42 points by 0828 GMT, with all major regional indexes also in the red.
Prices of crude oil, a key resource for energy-deficient Europe, jumped more than 4% after Israel and Iran traded fire through the weekend, jeopardizing a fragile ceasefire in the region and clouding any hopes for an imminent end to the conflict.
Losses were broad, with energy price-sensitive airlines such as Lufthansa (LHAG.DE) and Air France (AIRF.PA) slipping about 2% each. The International Air Transport Association (IATA) nearly halved its annual profit forecast due to fuel shock.
Meanwhile, the focus was also on the Italian banking sector that was rife with M&A news.
Monte dei Paschi di Siena (MPS) (BMPS.MI) gained 10.7% after Intesa Sanpaolo (ISP.MI), Italy's biggest banking group, announced a €30.6 billion ($35 billion) unsolicited cash-and-share bid to buy the lender, in what could be one of the country's biggest banking deals. Intesa slipped 4.1%.
"We would see the deal as positive for Intesa Sanpaolo in the longer term but see substantial uncertainty regarding execution," said Suvi Platerink Kosonen, senior sector strategist, financials, at ING Bank.
Intesa's approach was after Banco BPM (BAMI.MI) proposed a merger with MPS that aimed to create the second largest domestic operator in the country. Banco BPM's shares were marginally lower.
Kosonen said a BPM–MPS merger would create three larger domestic banks, which would appeal to policymakers, while Intesa’s alternative could create a more diverse landscape with smaller players.
Global focus was also on the tech sector after sharp sectoral losses in the U.S. late last week and in Asia on Monday.
In Europe, ASM International <ASMI.AS> slipped 1.8%, while AI equipment makers Legrand (LEGD.PA) and Schneider Electric (SCHN.PA) dipped over 1% each.
European tech shares have rallied this quarter, with the sector logging its biggest quarterly gains among STOXX 600 sectors so far.
Investors' focus is now on the rate decision by the European Central Bank, due on Thursday, with markets already pricing in a 25-basis-point interest rate hike.
Across the Atlantic, signs of a resilient U.S. jobs market has had investors pricing in hawkish monetary policy by the Federal Reserve this year.
Meanwhile, Goldman Sachs flagged downturn risk for European chemicals citing faster-than-expected demand destruction along with Chinese export pressure. The chemical sector (.SX4P) lost 1%.
