European shares closed higher Monday, but the Italian market closed firmly in the red after political uncertainty surfaced, with Prime Minister Mario Monti announcing he will step down before his term ends.
The FTSEurofirst 300 Index closed up 0.1 percent at 1,134 points. Italy's FTSE MIB fell 2.2 percent. The euro hit a 2-week low after Monti's announcement but also recovered on Monday afternoon.
Mario Monti announced on Saturday that he will resign after Italy's 2013 budget is approved. The move comes after the party of former Prime Minister, Silvio Berlusconi, withdrew its support for Monti's technocratic government on Thursday.
While it is not clear whether Monti will run for the premiership in Italy's 2013 elections, Berlusconi has indicated that he will run for leadership again.
The banking sector showed the heaviest losses across Europe including Italian banks UniCredit, and Mediobanca, with shares in each bank falling around 5 percent. Stock in Banca Monte Dei Paschi and Banca Popolare di Milano were suspended from trading for a brief period after large falls of around 6 percent in the morning session.
The president of the European Council Herman Van Rompuy spoke in Oslo backing incumbent Mario Monti. Addressing the press at the award ceremony for the Nobel Peace Prize he said that Monti had been a "great" prime minister.
"Mario Monti did a great job as prime minister. He restored confidence in Italy and Italy is a key player in the euro zone, so he was extremely helpful in keeping stability in the euro zone," he said.
There was also more bad news for Italy as October industrial output was released showing a fall that was worse than expected. It showed that a prolonged recession is likely to deepen in the last few months of 2012 after figures had showed a stabilization in the third quarter.
Elsewhere, Greece's debt buy-back offer has been extended for an extra day, according to reports by Reuters. Athens had offered to buy back around 30 billion euros ($38.7 billion) in bonds at a haircut, as it attempts to lower its debt levels, but more time was given for offers. Another official announcement was due to be made later in the day.
Britain's Business Minister has warned that the U.K. could face a Japanese-style "lost decade." Vince Cable said that the country could fall back into a recession for the third time since the 2008 financial crisis in an interview with the Observer newspaper, and added that the Bank of England could be running out of steam in its dealing with the U.K.'s economic woes.
In other stocks news, ST Micro announced on Monday that it was exiting its joint chip venture with Erricsson; shares were over six percent higher.
More details emerged of the U.K.'s Serious Fraud Office (SFO)'s investigation into the engineering group Rolls-Royce. The SFO is reportedly looking into allegations that Rolls paid $20 million to bribe Tommy Suharto, son of the former president of Indonesia, to win a giant contract in Asia. The British company said last week that it had passed information to the SFO relating to concerns about "bribery and corruption by intermediaries" in Indonesia and China but gave no further details.