During European morning trade, the EURO STOXX 50 slumped 0.75%, France’s CAC 40 shed 0.55%, while Germany’s DAX 30 dipped 0.3%.
With time running out, talks between Democrats and Republicans from the U.S. Congress broke down over the weekend, prompting White House Chief of Staff Bill Daley to warn that there would be a "few stressful days" ahead for financial markets, as the deadline to raise the USD14.3 trillion debt ceiling was only nine days away.
Meanwhile, ratings agency Moody's downgraded Greece by three notches to Ca from Caa1 earlier in the day, saying the country still faced serious medium term solvency challenges despite the fresh bailout package.
Banking shares performed poorly following the news, with French lenders BNP Paribas and Societe Generale dropping 3.7% and 3.4% respectively, while shares in Germany’s Commerzbank sank 2.9%.
Peripheral lenders were also lower, as shares in Unicredit and Banco Santander each lost 3%, while Italy’s second largest bank Intesa Sanpaolo tumbled 4.6% after JP Morgan lowered its price target on the stock by nearly 30%.
Shares in French advertising group JCDecaux dropped 3.4% after Citigroup downgraded the stock to ‘hold’ from ‘buy’, saying revenue momentum at the group could stall over the near term.
In London, the FTSE 100 shed 0.35% as U.K. lenders tracked their European counterparts lower. Barclays saw shares drop 2.9%, Royal Bank of Scotland shares retreated 2.2%, while shares in Lloyds Banking Group sank 2.7%.
On the upside, precious metal producer Fresnillo saw shares climb 3.6% after gold prices rallied to a new all-time high, while silver prices hovered close to a three-month high.
Meanwhile, the outlook for U.S. equity markets was downbeat ahead of earnings reports from semiconductor manufacturer Texas Instruments and video streaming website Netflix.
The Dow Jones Industrial Average futures pointed to a loss of 0.85%, the S&P 500 futures dropped 0.8%, while the Nasdaq 100 futures retreated 0.7%. Later in the day, the U.S. was to release a report on manufacturing activity in the Dallas-region.
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