Europe's stock markets diverged Monday in a muted response to the US 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, reports AFP.

"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 US 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 US 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.

In the eurozone, Germany's centre-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.

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

Source:AFP