Major European stock markets closed firmly lower Monday, as investors fretted about the anything that could derail the interest-rate easing plan in the U.S.
An unexpectedly high rise in the consumer price index Friday forced another triple-digit plunge in the Dow. Asian stocks tumbled Monday, led by losses in financial companies and the weakness continued in Europe.
Investors are counting on further interest-rate cuts to ease the impact of the credit crisis, but the Federal Reserve will be reluctant to keep easing rates at a time when inflation is heating up. In November, U.S. retail prices rose at the fastest rate in more than two years.
Adding to this there is the gloom over the European retail sector, with shoppers seen reluctant to spend as much because of worries over inflation and debt issues.
Retailers have had to deliver deep discounts to lure customers in shops.
"People are now coming out to do their Christmas shopping very belatedly," Kevin Hawkins, from the British Retail Consortium, told "European Closing Bell."
Red Arrows Everywhere
Earlier in the day, data showed that euro zone services grew at a slower pace than expected in December, as the banking sector stalled, signaling a slowdown in the single currency area.
In Germany, almost every stock in the Frankfurt DAX ended in negative territory, but Munich Re managed to limit losses after it said it planned to buy US health-care insurer Sterling Life for $352 million. Munich Re shares closed 0.8 percent lower.
France's CAC-40 also had very few stocks in the green. Pernod Ricard was the biggest gainer, which edged higher after weekend media reports that the French spirits and wine company is close to completing its acquisition of vodka brand Stolichnaya from Russia's SPI Group for $2.03 billion. Pernod shares ended 2.3 percent higher
Air France-KLM and Air Oneboth detailed their takeover plans for ailing Italian carrierAlitalia, as analysts told CNBC.com that Air France was better positioned to clinch the deal. Shares of Air France-KLM lost 3.6 percent, while Alitalia shares were 0.9 percent lower.
And in Sweden, fashion retail Hennes & Mauritz lost 1.8 percent. The company reported a 14 percent rise in November year-on-year sales, about in line with expectations, but sales at stories open at least a year rose 1 percent, lower than expectations for growth of about 1.6 percent.