European Stocks Diverge, Madrid Hit by Election Setback

European stocks diverged Monday, lifted partly by rising German business confidence, but Madrid was hit by a surprise electoral setback for the Spanish government amid new strains over the Eurozone debt crisis.

In late morning trade, London's FTSE 100 benchmark index of top shares rose 0.38 percent to 5,876.77 points and Frankfurt's DAX 30 added 0.36 percent to 7,020.98, while in Paris the CAC 40 was flat at 3,476.24 points.

Frankfurt was boosted by news that German business confidence rose slightly in March, according to Ifo's key business climate index, but traders remain concerned that Europe's biggest economy could be losing some of its momentum.

On the downside, Madrid's Ibex 35 index dived 1.71 percent to 8,310.8 points after Spanish Prime Minister Mariano Rajoy's right-leaning Popular Party unexpectedly failed to secure power in elections on Sunday for the southern region of Andalusia, despite getting the most votes.

In foreign exchange deals on Monday, the European single currency retreated to $1.3203 from $1.3268 in New York late on Friday, while bond yields remain high as a result of ongoing tensions over the Eurozone debt crisis.

"The markets are brushing off the stronger Ifo data and preferring to concentrate on the negative today -- creeping Eurozone bond yields (and) Rajoy's failure to gain a majority in regional elections in Andalusia," said research director Kathleen Brooks at trading site Forex.com.

"After signs of stabilisation in this crisis, we are now back to uncertainty," she told AFP.

"The markets are likely to remain jittery this week until we hear how the eurozone's firewall will be increased, if the increase will be permanent, etc.

"However, what the market really wants to hear is how committed all of the Eurozone countries are to boosting the firewall to stop contagion spreading to Spain and Italy."

Frankfurt stocks rose on news that the Ifo index, which has gained more than three full points in recent months, inched up fractionally again to 109.8 points in March from 109.7 points in February.

The reading was better than expected: analysts polled by Dow Jones Newswires had been penciling in no change in the Ifo index this month. It is in fact the fifth month in a row that the barometer has risen and it now stands at its highest level since July 2011.

"The Ifo came stronger than expected, so it lent a little support to the nervous DAX," said trader Anita Paluch at Gekko Global Markets.

"But at the end of the day, the increase from what was expected is not that massive.

"So yes, it confirms (the) German economy as one of the strongest in Europe, even though it is losing its momentum. But it does not seem the markets are that convinced."

Asian markets were mixed on Monday as lingering concerns about the Chinese economy cancelling out a positive lead from Wall Street and bargain hunting.

Tokyo won just 0.07 percent, Sydney ended 0.18 percent higher and Seoul fell 0.38 percent, while Hong Kong and Shanghai ended virtually unchanged.

Traders were given few buying incentives save Friday's positive close on Wall Street, where the Dow Jones index capped a three-session losing streak despite weak U.S. housing data.

Investors are meanwhile looking to speeches later in the day by U.S. Federal Reserve chief Ben Bernanke and Philadelphia Fed president Charles Plosser.