Europe's main stock markets fell on Monday as investor worries over the impending US fiscal cliff overshadowed the election of a new leader in Japan, dealers said.
In late morning deals, London's benchmark FTSE 100 index of leading shares fell 0.56 percent to 5,888.85 points, Frankfurt's DAX 30 index dipped 0.22 percent to 7,579.82 points and the Paris CAC 40 shed 0.69 percent to 3,618.21.
The European single currency eased to $1.3157, up from $1.3161 late in New York on Friday. Gold prices fell to $1,689.69 an ounce on the London Bullion Market, from $1,696.25.
Japan's conservative opposition swept to victory in national polls on Sunday as former premier Shinzo Abe's Liberal Democratic Party (LDP) ousted Prime Minister Yoshihiko Noda's Democratic Party of Japan (DPJ) from power.
In reaction, Tokyo shares surged 0.94 percent and the yen slumped to a year-and-a-half dollar low, in a boon for exporters, as investors bet on more central bank easing by the country's incoming government.
In earlier Asian trade, the dollar surged to 84.48 yen -- its highest since April last year. It later stood at 83.70 in London deals.
However, other Asian stock markets ran out of steam as fears returned over the looming US fiscal cliff of automatic tax hikes and spending cuts that will be implemented on January 1, unless a political deal is reached in Washington.
Hong Kong shed 0.41 percent, Seoul dropped 0.60 percent and Sydney closed down 0.21 percent in value.
"Traders are torn between the east and the west today," said analyst David Madden at trading group IG.
"The news that Shinzo Abe won the latest Japanese elections drove stocks higher overnight, but the dreaded (US) fiscal cliff has taken the edge off his victory.
"Mr Abe is in favour of further monetary easing, and stocks rallied as investors feel he is likely to appoint a governor to the Bank of Japan who will toe the line."
European markets are subdued with just two weeks to go until the end of the year, which is usually witnesses low trading volumes.
However, the fiscal cliff will remain top of the agenda as US politicans seek to avoid measures which could send the world's biggest economy back into recession, dealers said.
"With investors traditionally closing their books at the end of the year, the last two weeks of trading that are left should be quiet and peaceful with rather reduced volume," said Gekko Global Markets trader Anita Paluch.
"There is, however, one thing, that keeps everyone on their toes and this is the 'last minute' nature of the fiscal cliff negotiation; any deal really could have a big effect on the markets.
"As the year's end is nearing and the prospects Capitol Hill may actually not come up with a deal till then, the price action may be driven by the news out of Washington."
In company news on Monday, British oil giant BP said it had agreed to sell its 50-percent stake in a North Sea gas field to energy firm SSE for $288 million (219 million euros) as part of its divestment plans.
BP shares retreated 0.76 percent to 423.20 pence in morning deals following news of the deal, which is due to complete in the first half of 2013.
In Madrid, Banking giant Banco Santander announced it will absorb its Spanish offshoots Banesto and Banif, closing 700 branches and saving an estimated 520 million euros ($680 million) a year.
In reaction, the bank's share price slid 0.71 percent to 5.86 euros on Madrid's IBEX 35 index, which was 0.18 percent lower at 8,010.30 points.