European equities closed lower on Monday - despite a strong performance from Spanish stocks and positive data from the euro zone - after a mixed bag of U.S. economic data put investors in a cautious mode.
The FTSEurofirst 300 Index provisionally closed lower by 0.27 percent at 1,308.61 points, despite data showing services and manufacturing activity in the euro zone expanded in December.
Euro zone composite purchasing managers' index (PMI) data showed that activity in the sectors rose to 52.1 in December, up from 51.7 in the previous month. A reading above 50 indicates expansion.
German final composite PMI fell slightly in December, to 55.0 from 55.4 in November, although the numbers remained firmly in expansion territory. The same cannot be said for France, however, where the negative trend accelerated in December with the final composite PMI falling to 47.3, from 48.0 in November.
The periphery also showed a diverging picture. While Italy's all-sector output fell to a two-month low, Spain continued on an upward trajectory, recording a 77-month high in all-sector output in December, Markit said. The Spanish IBEX closed the day higher by 1 percent.
(Read More: Euro zone economic recovery gathers steam)
US data eyed
Investors in Europe also digested
Further hints on the direction of U.S. monetary policy may be seen on Wednesday, with minutes from the Fed's most recent policy meeting – where it it began tapering its bond-buying program – due for release. The week ahead will also see a raft of speeches from regional Fed presidents as well as the December jobs report on Friday.
U.S. stocks declined on Monday, with the S&P 500 extending 2014 losses into a third session, after a mixed bag of economic data put investors in a cautious mode ahead of the jobs report at the end of the week.
The Institute for Supply Management's non-manufacturing index came in at 53.0 in December, versus estimates that the index would climb to 54.6 from 53.9 the month before.
(Read More: Big week for Fed, as traders await jobs report)
In other news, U.S. Treasury Secretary Jack Lew will begin a tour of Europe this week in which he is expected to visit France, Germany, and Portugal to discuss economic developments in Europe and policies to boost global growth and promote financial stability.
Meanwhile in the U.K. on Monday, Finance Minister George Osborne warned that years of spending cuts lie ahead even as Prime Minister David Cameron promised on Sunday to protect pensioners' income if his Conservative party wins the 2015 election.
(Read More: Happy new year? More UK budget cuts ahead)
RSA Insurance rises
In stocks news, shares of RSA Insurance Group closed around 6.24 percent higher after media reports that a recent £200 million ($327 million) capital black hole at its Irish operations was an "isolated incident" and would not lead to further writedowns. UBS have also raised the price target of the company.
Business services group Edenred fell to the bottom of European benchmarks after a downgrade to "neutral" by Natixis; shares were down around 5.5 percent.
Shares of U.K. retailer Marks and Spencer also saw selling after a price target downgrade by Citigroup. The company is due to release its Christmas sales figures later in the week. Shares ended the day down around 0.8 percent.
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