[LONDON] Europe's main stock markets chased the gyrations in the price of oil on Monday, while Italy sank on fears that needed consolidation in the banking sector have hit snags.
Most Asian markets fell as oil prices slumped beneath US$28 per barrel during Asian trading hours on Monday after the lifting of sanctions against key producer Iran under its nuclear deal with world powers.
European markets benefitted as the price of crude rebounded off the new lows, but followed it back down later in the day.
"As has become the custom recently; it was the volatile price of oil that set the tone for equity trading," said CMC Markets UK analyst Jasper Lawler.
"A bounce off the lows set in Asian trading for crude oil helped an encouraging start for European equities but as oil prices slid back, equities fell into the red," he said.
European trading was more subdued than the highly volatile sessions of the past two weeks however as US markets were closed Monday for Martin Luther King Jr Day.
Investors also remain on edge over China's economic slowdown - and its impact on the faltering world economy.
"China, global growth and the oil market continue to cause concern and the market remains highly nervous, but at some point momentum may turn as active investors attempt to catch the bottom," said Rebecca O'Keeffe, head of investment at stockbroker Interactive Investor.
Iran on Monday ordered as planned an increase of 500,000 barrels per day in its oil production.
"While the lifting of sanctions in Iran was well flagged, the prospect of additional supply from Iran has seen oil prices slide further," added Ms O'Keeffe.
"With oil supply remaining in huge excess to demand, it is difficult to see what will cause the market to reach equilibrium so that prices can stabilise." While the decision to free Tehran of the strict embargoes had been well telegraphed, the news hammered Middle East equities on Sunday, which were already under pressure from slumping oil.
The United States and the European Union lifted the sanctions at the weekend after the UN's atomic watchdog confirmed Iran had complied with its obligations under the deal to curb its nuclear programme.
Brent oil nosedived as low as US$27.67 in earlier Asian trading hours, touching a new 12-year low before rebounding back above US$29, but then slipped back again to US$28.78 in late European deals.
Europe's biggest stock market casualty on Monday among main exchanges was Milan, whose FTSE MIB index shed 2.7 per cent.
Several Italian banks ran into trouble amid rumours of difficulties in negotiations on their consolidation.
Italian lender BMPS (Banca Monte dei Paschi di Siena) saw its shares tank 14.8 per cent, Banca Popolare dell'Emilia Romagna fell 8.7 per cent and UBI Banca 7.3 per cent.
Among smaller exchanges, Lisbon fell 3.7 per cent, dragged down by the financial sector, but also by sharp falls in energy company BTP Mota-Engil, which has large investments in Angola, an oil producer.
Elsewhere, most Asian equities sank, with Tokyo closing down 1.1 per cent near one-year lows, Hong Kong losing 1.5 per cent and Sydney shedding 0.7 per cent.
Shanghai however swung in and out of positive territory, having plunged almost nine percent last week. The benchmark index ended 0.4 per cent higher.
The Chinese market was given some support by the People's Bank of China's decision to increase the yuan's rate against the dollar. Its recent weakness has been a key contributor to a rout in global markets that has characterised the start of 2016.
In a bid to prevent cash outflows which have also hit the yuan, the PBoC said Monday it would require foreign banks to hold reserves of the currency. Overseas lenders have until now been set a reserve requirement ratio of zero.
But from next week they will be subject to similar rules as domestic lenders, which are as high as 17.5 per cent.
Markets are now nervously awaiting Tuesday's release of Chinese economic growth data for 2015.