European equities closed mixed on Monday after talks in Washington over the weekend failed to produce a budget deal, and the deadline to raise the U.S. debt ceiling grew closer.
Weekend talks between lawmakers to end the deadlock over the U.S. debt limit proved unsuccessful, although there were signs of improvement on Sunday. Senate Democratic leader Harry Reid said he had a "substantive" and "productive conversation" with Senate Republican leader Mitch McConnell.
The U.S. government needs to raise the debt ceiling before Thursday, October 17 if it is to avoid a sovereign default. As global concerns grow, the head of the International Monetary Fund, Christine Lagarde, said the situation was "very, very concerning" and warned that "creative accounting" was not the solution.
Senator. Bob Corker, R-Tenn., told CNBC that a debt deal was still "very possible" following the talk between Reid and McConnell.
"I've had some good conversations early this morning. It is between Mitch and Harry. And I think people want to see that come to fruition," said Corker, who is a member of the Senate Banking Committee.
President Barack Obama and Vice President Joe Biden are scheduled to meet Congressional leaders at 8 p.m. London time.
In European news, the Eurogroup of finance ministers from the euro zone countries met on Monday to discuss, among other topics, Greece and banking supervision.
In Ireland, the government is preparing to soften its line on austerity for Tuesday's 2014 budget proposals, despite warnings that it would be better to stick to its targets.
Taoiseach (Prime Minister) Enda Kenny triumphantly declared an end to the "era of the bailout" on Saturday. He said Ireland would become the first euro zone country to exit its bailout, and it may even do so without a financing backstop from the rest of Europe.
(Read More: Ireland risks long-term pain for short-term gain)
Meanwhile, the Ernst and Young ITEM Club said in a new report on Monday that the U.K. government's "Help to Buy" mortgage guarantee scheme would lead to a rapid improvement in prospects for the housing market, and added that fears of a housing bubble were unfounded.
(Read More: Bubble trouble? Experts clash over UK housing)
Japan and Hong Kong were shut for public holidays on Monday. U.S bond markets were also closed for the Columbus Day holiday.
In stocks news, shares of French car maker Peugeot Citroen closed around 9 percent lower, after reports that the firm was ready to raise 3 billion euros ($4 billion) via a capital hike.
(Read More: Peugeot stock tumbles on rights issue reports)
Dassault Systemes warned on revenue on Monday, saying it would be sharply lower than expected this year; shares in the French software maker closed provisionally 10.53 percent lower.
Royal Mail shares continued trading higher on Monday, after its conditional trading period started on Friday. Shares were 3 percent higher at £4.69, above an initial offer price of £3.30.
Shares of recruitment agency Michael Page closed down by 4.95 percent after it corrected its full-year operating profit guidance lower on Monday.
Johnson Matthey was one of the best European performers, following a JPMorgan upgrade from "neutral" to "overweight". Shares closed up 5.88 percent.
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