The pan-European Stoxx 600 slightly pared early losses but was still down 0.45% by the close. Travel & leisure , autos and chemicals baskets all fell more than 1% to lead losses as almost every sector traded in the red.
Market players are fleeing riskier assets like equities in favor of safer alternatives like gold and bonds after a U.S. airstrike last week killed Iran's top military commander, Qasem Soleimani, in Iraq. The attack has heightened already-volatile relations between Washington and Tehran.
Oil is also surging on the back of intensifying U.S.-Iran tensions, amid fears it could disrupt supply in the Middle East. Brent crude futures were up .6%, or 43 cents, at $68.60 a barrel at 4:30 p.m. London time. U.S. West Texas Intermediate (WTI) crude futures climbed 0.3%, or 17 cents, to $63.22.
Over the weekend, Iraq's parliament passed a resolution calling for the government to expel foreign troops from the country. President Donald Trump responded by threatening to impose sanctions on Iraq. Meanwhile, Iran has declared it will no longer adhere to uranium enrichment restrictions agreed under the 2015 nuclear deal.
Back in Europe, Spanish Socialist leader Pedro Sanchez failed to secure parliament backing to form a government. He'll have another chance on Tuesday, when another vote will be held in which he only requires a simple majority.
On the data front, euro zone business activity hovered near stagnation in December, according to IHS Markit's final composite PMI (purchasing managers' index) figures published Monday.
The currency bloc's reading edged up to 50.9 in December from November's 50.6, slightly beating expectations but remaining just above the 50 mark, which separates growth from contraction.
France, Germany and Italy all saw service sector PMIs pick up in December to either match or beat forecasts, with improvements over the broad set of data pushing the euro higher.
Sterling climbed after Britain's service sector surged on the greater certainty resulting from the landslide Conservative election victory last month, despite a stagnant economy. December's composite PMI for the U.K. was revised up to 50.0 from an initial "flash" estimate of 49.0.
Stocks on the move
Jeweler Pandora leaped 11.9% after issuing a muted trading update but confirming its financial guidance for 2019, while Britain's John Wood Group led the bounce for oil stocks on the back of escalations in the Middle East, climbing 4.2%.
At the other end of the European benchmark, British property developer Hammerson slid 5.3% while German wholesale and food specialist Metro fell 3.9% after Bernstein downgraded the company's stock, citing its "weak business structure."
Covestro shares slumped 4.8% after Societe Generale and Mainfirst brokers warned of declining earnings in 2020, according to Reuters.
London-headquartered Hikma Pharmaceuticals slid 3.7% after J.P. Morgan downgraded the stock.