European shares fell for the first time in 2013 on Monday, with utilities leading a broad retreat after a gloomy sector note from Deutsche Bank.
After chalking up a 3 percent weekly gain and hitting a near two-year closing high in the previous session, fueled by a U.S. budget deal and a solid U.S. jobs report, the FTSEurofirst 300 Index ended down 0.5 percent at 1,161.44 points.
"I don't think it's a great surprise that we see a pause," said Andrew Milligan, head of global strategy at Standard Life Investments, which has around 163 billion pounds ($261 billion)of assets under management. "Generally the backdrop is that clients do seem a little more confident about the world given the economic data that's appearing, or the absence of the 'fiscal cliff' debacle which was hanging over the markets in December."
Utilities stocks were the standout decliners, off 1.6 percent, after Deutsche Bank downgraded several firms and advised that there are no safe havens in the sector, traders said.
On Sunday, the Basel Committee for Banking Supervision, a group of the world's top regulators and central bankers, agreed to give banks four more years to build up cash reserves and widen the range of assets banks can put into this buffer.
Banks such as Credit Agricole, Unicredit, Commerzbank, Deutsche Bank and Barclays were higher. Italian bank BMPS showed the most gains but was also helped by a fall in bond yields in the country which could potentially reduce the bank's need for state aid.
Investors were also looking ahead to Thursday this week when the ECB meets to discuss whether it will cut interest rates, something the bank's policymakers discussed last month before opting to hold the benchmark at its record low of 0.75 percent.
"Softer start to the week for European equity markets, pressured by weakness in Asian share markets overnight. With little to stimulate stock markets today given the lack of economic data and ongoing concerns about the next showdown between U.S. lawmakers, traders are taking profit," Ishaq Siddiqi, a trader at ETX Capital said in a morning note.
"Most major stock markets are trading near fresh 12-month highs; this provides traders the perfect opportunity to take some cash off the table ahead of another week of key global macroeconomic data."
In the U.K., the leaders of the governing coalition, Prime Minister David Cameron and his deputy, Nick Clegg, pledged on Monday to cap the cost of long-term care for the elderly and to improve state pensions in an effort to re-engage with the electorate midway into their five-year government. Austerity measures introduced by the coalition have seen support for the fragile political alliance decrease.
Former Italian Prime Minister, Silvio Berlusconi, announced an agreement with the right-wing Northern League party on an Italian radio station on Monday. He said the two parties would run together in February's elections and that he wanted to be economy minister in a future government.
In stocks news, Air France-KLM is reportedly in talks to take control of Italian airline Alitalia, according to Italian newspaper Il Messaggero. The France-Dutch carrier is in "advanced" talks to take over the Italian flagship airline, the paper said on Sunday, without citing sources. Shares in Air France-KLM traded higher by 0.67 percent. Air France-KLM has since denied it is in talks with the airline.
Supermarket chain Morrisons released a Christmas trading statement on Monday showing sales over the festive were down 2.5 percent. However traders told CNBC that the report wasn't as bad as some had expected and shares in the retailer were higher by 0.31 percent.
Airline Easyjet released a traffic report detailing that December passenger numbers had risen by 4.9 percent from a year earlier; stock in the firm rose by 1.34 percent.
Shares in Daimler rose by 2.17 percent on Monday as media reports in China said the country's sovereign wealth fund was looking at buying a stake in the German car maker.