LONDON (AFP) - European stock markets plunged on Monday and the euro dropped against the dollar amid political tensions in Spain and Italy and as traders locked in profits ahead of interest rate decisions due this week.
London's FTSE 100 index of top companies fell by 1.18 per cent to stand at 6,272.45 points in afternoon trading. Frankfurt's DAX gave up 1.42 per cent to 7,722.46 points and in Paris the CAC lost 1.56 per cent to 3,714.72 points.
Madrid's IBEX 35 decreased by 1.83 per cent in value to trade at 8,079.40 points, while Milan's FTSE-Mib slumped 2.80 per cent.
Most European stock markets had posted strong gains last Friday on reassuring US jobs data, but Madrid was hit by news of falling profits at the country's crisis-hit banks, dealers said.
"European markets opened cautiously today... as investors opted to cash in on last Friday's thundering finish to the trading week," said Spreadex trader Shavaz Dhalla.
"The true test for optimism will be whether the markets can sustain the recent highs in the face of a potential string of poor data from the eurozone," Dhalla added.
"If such optimism fails to stand the test of time, investors could find themselves swimming in a 'sea of volatility'," he said.
In New York, US stocks retreated in early trading after a dramatic surge on Friday that took the Dow Jones Industrial Average above 14,000 points.
The Dow was down 0.70 per cent, while the broad-based S&P 500 fell by 0.60 per cent and the tech-heavy Nasdaq Composite Index was down 0.50 per cent.
Back in Europe, data released on Monday showed the number of Spaniards officially registered as unemployed rose to 4.98 million in January.
The data comes a day after the leader of Spain's opposition Socialist party pressed the country's Prime Minister Mariano Rajoy to resign amid a damaging corruption scandal.
Spain's centre-left newspaper El Pais published account ledgers purportedly showing that donations were channelled into secret payments to Rajoy and other top party officials.
Rajoy has dismissed the ledgers as false and vehemently denies receiving any payments.