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Europe closes lower after Greece talks collapse

European equities closed sharply lower on Monday after talks between Greece and its creditors collapsed at the weekend, raising the prospect that Greece could default on its debt obligations.

The pan-European FTSEurofirst 300 closed around 1.4 percent lower, with Greek stocks tumbling down to close around 4.7 percent, as peripheral bond yields spiked during session.

The U.K. benchmark FTSE 100 index closed around 1.1 percent lower, having traded at three-month lows during the session. The French CAC and German DAX underperformed, both closing lower around 1.75 and 1.9 percent.

Greek banks, peripheral bonds sell off

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IBEX 35
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Talks between Greece and its creditors over the weekend yet again failed to resolve the impasse over reforms, with European officials blaming Athens for failing to offer concessions in return for a final tranche of desperately-needed financial aid.

Greek banks faced severe selling on Monday as investors digested the news, with Pireaus Bank tumbling to close over 12 percent lower, while Alpha Bank and Eurobank Ergasias both traded down around 9 and 6.9 percent respectively. Italian and Spanish banking stocks also fell sharply.

Bond yields in Greece and peripheral Europe also spiked during trade. Greek 10-year yields hit 12.2 percent at the close, up from its 11.8 percent close on Friday.

Greek Finance Minister, Yanis Varoufakis, ruled out a "Grexit" -- Greece leaving the euro zone -- in an interview with a German newspaper Bild published Monday, but said that Germany needed to play a bigger part in talks. The only way Greece would be able to repay its debts is if there is a restructuring, he wrote, and a deal could be possible if German Chancellor Angela Merkel took part in the talks, Reuters reported.

Read MoreGreece on 'brink of disaster' as talks fail again

Around the Europe close, U.S. stocks were paring losses, after opening sharply lower, following a decline in European equities.

In other Europe news, the U.S. plans to store heavy military equipment in the Baltics and Eastern European nations to reassure allies made uneasy by Russian intervention in Ukraine, and to deter further aggression, Reuters reported Sunday, citing an unnamed senior U.S. official.

Russia's central bank cut its key interest rate once again on Monday, in a further bid to stimulate economic growth in the country. It slashed interest rates by 100 basis points to 11.5 percent, in line with analyst expectations, in the fourth consecutive month of cuts.

In other individual stocks news, budget U.K. airline easyJet closed around 2.3 percent lower, after RBC analysts cut its rating to underperform from outperform.

The move weighed on European rivals Air-France KLM and Lufthansa, which both slipped down to close around 3.1 and 2.3 percent down respectively.

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