Europe tumbles, DAX closes 2% lower after Sydney siege

European shares closed sharply lower on Monday with earlier gains in the price of oil reversed after the siege at the Sydney cafe ended in gunfire and explosions and reports of several fatalities and casualties.

The pan-European Euro STOXX 600 fell to close around 2.2 percent lower in afternoon trade as thehostage situation in Australia came to its violent conclusion.

Oil prices rebound

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The French CAC and German DAX both closed over 2.5 percent lower, while London's FTSE ended around 1.8 percent lower.

Armed Australian police stormed a cafe in central Sydney bringing a 16 hour siege to a close.The gunman has been identified as self-styled sheikh whose website is known for its extreme political views.

Read MoreLive blog: Hostages held in Sydney cafe siege

Brent crude futures turned negative in late afternoon trade and U.S. crude oil extended losses, falling back below $60.

Oil stocks gave up earlier gains on Monday, following on heaving selling seen last week. Oil companies BG Group and BP both fell around 2 percent in late trading, dragging the FTSE 100 lower. Royal Dutch Shell and Tullow Oil also both traded around 1 percent.

U.S. stocks turned lower on Monday, extending the prior week's drubbing, as the price of oil continued to fall. Equities offered muted reaction to a gauge of home-builder sentiment falling a point in December after a large jump last month.

A Federal Reserve report had industrial production rebounding in November, after a Fed measure of manufacturing in the New York region dropped in December.

BT shares gain

In Russia, the ruble plunged close to 9 percent against the dollar to a fresh record low, with analysts suggesting the prospect of U.S. Congress contributing funding to Ukraine's battle against insurgents hurt the currency.

In stocks news, shares of telecoms giant BT were trading up 1.4 percent following rumors that the company could soon announce a takeover deal.

Danske Bank said it expected to make goodwill impairments of around 9 billion Danish krone ($1.5 billion) in its 2014 annual report. The penalties relate to the Danish bank's activities in Finland, Northern Ireland and Estonia, it said.

In Asia, business sentiment in Japan worsened in the fourth quarter, data showed on Monday. Meanwhile, Japanese Prime Minister Shinzo Abe won a snap election over the weekend, according to media exit polls, giving him a fresh mandate to continue his strategy to revive the economy.

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