European Markets Diverge amid U.S. Government Shutdown

Europe's stock markets diverged Monday in a muted response to the U.S. government shutdown, and despite hopes that German Chancellor Angela Merkel will be able to form a new administration.

The Frankfurt and Paris stock markets edged lower in late morning deals, but London bobbed into positive territory.

"Stock markets in Europe are a mixed bag ... as investors assess the political landscape," said CMC Markets UK analyst David Madden.

"The shutdown of the U.S. government has not spooked investors as there was a similar muted reaction the last time it happened in 2013, but nor has it given traders a reason to buy into the market."

There was little concern over the midnight Friday shutdown of the U.S. government after lawmakers failed to agree a funding bill. Democrats in the Senate held out for Republican concessions on immigration issues.

The two sides remain locked in talks to resolve the issue but expectations are for the shutdown to continue for some time, with a planned vote on Sunday evening delayed until noon Monday.

- German breakthrough? -

In the eurozone, Germany's center-left Social Democrats voted Sunday to begin formal coalition talks with Chancellor Angela Merkel's conservatives.

The news, which brought Europe's top economy a step closer to a new government after months of deadlock, helped guide the euro higher.

"This is a step in the right direction for German politics and traders will be watching it closely," noted Madden.

The thumbs-up will come as a huge relief to Merkel, staving off the threat of snap polls or the unappealing prospect of leading an unstable minority government.

"Eurozone investors will be breathing a sigh of relief this morning, as Angela Merkel took one step close to cementing a fourth term as German chancellor," added IG analyst Joshua Mahony.

- Asia extends rally -

Asian equities reversed early losses on Monday to build on last week's impressive rallies, as investors took heart from improving global economic data.

Hong Kong closed up 0.4 percent at a new record and Shanghai also added 0.4 percent. Tokyo finished slightly higher on late bargain-buying.

Possible market-moving events this week include meetings at the European Central Bank and Bank of Japan, which will be closely watched for signs of further policy tightening.

- Key figures around 1130 GMT -

London - FTSE 100: UP 0.4 percent at 7,730.79 points

Frankfurt - DAX 30: DOWN 0.1 percent at 13,421.50

Paris - CAC 40: DOWN 0.1 percent at 5,519.03

EURO STOXX 50: FLAT at 3,650.20

Tokyo - Nikkei 225: FLAT at 23,816.33 (close)

Hong Kong - Hang Seng: UP 0.4 percent at 32,393.41 (close)

Shanghai - Composite: UP 0.4 percent at 3,501.36 (close)

New York - DOW: UP 0.2 percent at 26,071.72 (close)

Euro/dollar: UP at $1.2254 from $1.2225 at 2200 GMT

Pound/dollar: UP at $1.3900 from $1.3860

Dollar/yen: DOWN at 110.67 yen from 110.77 yen

Oil - Brent North Sea: DOWN three cents at $68.58 per barrel

Oil - West Texas Intermediate: UP three cents at $63.40