By Carla Mozee, MarketWatch

LONDON (MarketWatch) -- European stocks fell Monday, with the market benchmark holding to losses after a report that euro-zone business activity slowed this month and as U.K. housing shares declined on the prospect of changes to mortgage rules.

The Stoxx Europe 600 index lost 0.5% to 346.31, erasing last week's 0.3% gain.

Equities remained stuck in the red after data firm Markit said business activity in the euro zone slowed for a second consecutive month in June. Its composite purchasing managers index, which measures activity in the manufacturing and services sectors, fell to 52.8 from 53.5 in May.

"The negative tone within equities continued in Europe, as European 'flash PMI' disappointed consensus and underlined the fragility of the recovery story," said analysts at Barclays in a note Monday.

The key contributor to the weaker reading came from France, signaling that the economy -- the second largest in the euro zone -- may have contracted in the second quarter. In Paris, France's CAC 40 index fell 0.6% to 4,515.57.

U.K. real estate shares dropped following reports that the Bank of England this week will propose measures aimed at paring the pace of growth in the country's booming housing market. Britain's finance minister George Osborne this month gave the central bank new powers to cap mortgage-lending limits, and the bank's Financial Policy Committee is expected to unveil recommendations on Thursday.

Last month, BOE Gov. Mark Carney said the biggest risk to economic recovery in the U.K. is the impact of increased borrowing by home buyers as housing prices have jumped. Interest rates in the U.K. are expected to be lifted by the central bank later this year.

Shares of British home builders Barratt Developments PLC and Persimmon PLC lost 2.7% and 1.1%, respectively, and Taylor Wimpey PLC gave up 1.7%. Also lower were shares of Home Retail Group PLC , which runs electronics retailer Argos and home improvement chain Homebase, down by 1.5%.

Meanwhile, Alstom SA reversed course and fell 4.1%. France on Sunday won an option to buy a 20% stake in the company from France's Bouygues SA . The move was part of an agreement to support General Electric Co.'s (GE) bid to purchase Alstom's energy business. Bouygues shares fell 0.9%.

Elsewhere on the deal front, Spain's Banco Santander has agreed to buy GE Capital's consumer-finance business in Sweden, Denmark and Norway. Santander's consumer-finance unit will acquire the GE Money Bank AB business for about 700 million euros ($952 million), with the deal expected to close in the second half of 2014. Santander shares were off 0.3%.

But managing to pare losses were shares of BNP Paribas , ending down 0.5%. The bank neared a settlement of up to $9 billion with the U.S. Investigators say they have evidence BNP intentionally hid $30 billion of financial transactions that violated U.S. sanctions, people close to the investigation told The Wall Street Journal.

A number of mining shares rose following a better-than-expected result for HSBC's June preliminary manufacturing report from China, a major buyer of natural resources. Rio Tinto PLC (RIO) rose 1.6%, BHP Billiton PLC (BHP) picked up 1.9% and Anglo American PLC ended 1% higher.

Among country indexes, the FTSE 100 index fell 0.4% to 6,800.56, and Germany's DAX 30 index lost 0.7% to 9,920.92.

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