CBA Commonwealth Bank Of Australia

By Riva Gold 

Stocks in Europe and Asia fell Monday while the British pound dropped to three-month lows amid escalating concerns over the U.K.'s access to the European Union's single market.

The Stoxx Europe 600 slumped 0.6% in afternoon trading, led by declines in the banking and auto sectors, while London's export-heavy FTSE 100 index stalled after 14 consecutive sessions of gains.

Several British newspapers reported over the weekend that Prime Minister Theresa May could hint at an end to the country's participation in the single market in a speech on Tuesday.

The British pound was last down 1.1% at $1.2050 after dropping to $1.1987 earlier in the session, according to FactSet, around its lowest since the "flash crash" in October.

"Europe is the largest single trading partner on the U.K.'s doorstep," said Paul Griffiths, chief investment officer for fixed income and multi asset solutions at First State Investments, "the market is reacting to the risk that there is going to be limited or even no deal-driven access."

While Mr. Griffiths thinks the U.K. currency will be volatile until the terms of Brexit become clear, "I suspect the reality will be less significantly bad than markets are discounting," he said.

The U.K. could change its economic model if it isn't granted access to trade in the EU, U.K. Treasury Chief Philip Hammond said in a weekend interview with German newspaper Die Welt. "We will change our model, and we will come back, and we will be competitively engaged," he was quoted as saying.

Separately, President-elect Donald Trump said in an interview with The Times that he would offer the U.K. a quick and fair trade deal.

The pound has fallen roughly 19% since the June 23 referendum on EU membership, while the FTSE 100 index, which tends to move inversely to the U.K. currency, has climbed to record highs for 12 consecutive sessions.

On Monday, shares of banks and financial institutions in the FTSE 100 declined, offsetting gains in the mining sector. Shares of Royal Bank of Scotland were down 3.4%, while Prudential fell 2.6% and Barclays fell 2.3%.

The euro also fell 0.5% against the dollar on Monday to $1.0591, while the dollar fell 0.4% against the yen to Yen114.1560 as investors flocked to safer assets.

U.S. markets were closed Monday for the Martin Luther King holiday, a factor analysts said would likely limit global trading volumes.

In government bond markets, the yield on the 10-year German bund fell to 0.255% from 0.266% Friday, while U.K. gilt yields fell to 1.324% from 1.358%. Yields move inversely to prices.

Italian 10-year notes climbed to 1.916% from 1.894% on Friday after DBRS ratings agency downgraded the country. Some analysts said the decision could add to pressure on Italian bank shares, which fell 1.7% on Monday.

Elsewhere in European markets, shares of Essilor International were up roughly 13% after the French optical-lens maker agreed to merge with Italian frames maker Luxottica Group, which added around 9%.

Shares of Fiat Chrysler Automobiles were down 4.5% following reports the German Transport Minister called on the European Commission to force it to recall vehicles alleged to use illegal software, days after a U.S. authority made similar accusations against the car maker.

Separately, President-elect Donald Trump suggested over the weekend that car makers would have to shift manufacturing to the U.S. in order to do business there. Europe's auto sector fell 1.4%.

Earlier, stocks mostly declined in Asian trading, with Japan's Nikkei Stock Average down 1% at its lowest close since December as the stronger yen dragged down shares of exporters.

Bank of Japan Gov. Haruhiko Kuroda said Monday the economy will shift into a moderate expansionary phase, but separate readings on the economy were mixed as data showed core machinery orders fell in November.

Hong Kong's Hang Seng Index also fell 1% in its worst day of the year, while the Shanghai Composite Index dropped 0.3%, recovering from steeper losses earlier in the session.

Australian markets climbed 0.5%, bucking the global trend, lifted by gains in utilities and mining companies as iron ore prices strengthened. Gold was last up 0.6% at $1,203 an ounce.

Monday's moves came after the Dow Jones Industrial Average slipped Friday and posted a weekly decline as its post-election rally continued to taper off.

Focus later in the week is expected to be on U.S. corporate earnings and the Jan. 20 inauguration as investors await clarity on the new administration's policy priorities.

Nicholas Winning, Friedrich Geiger and James Glynn contributed to this article.

Write to Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

January 16, 2017 09:34 ET (14:34 GMT)

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