By Sara Sjolin
LONDON (MarketWatch)--European stock markets dropped Monday, as uncertainty over the coming U.S. presidential election and worries about structural reforms in Greece weighed on investors' minds.
The Stoxx Europe 600 index lost 0.6% to close at 273.21, giving up a 0.4% Friday gain that followed encouraging U.S. labor data.
"Equities have been range-trading and people don't know if they should push any higher," said Peter Dixon, strategist at Commerzbank in London.
"We also have event risks this week with the U.S. election, and it would be wise to stay on the sidelines until we have more clarity," he added. "If we get a Romney victory, markets will see it as a surprise and sell off as the first reaction. Markets don't like surprises."
Shares of global banking major HSBC Holdings PLC gave up 1.3%, after the bank said third-quarter net profit tanked 52% and it set aside an additional $800 million provision for a U.S. money-laundering investigation.
Shares of Dutch postal company PostNL NV dropped the most in the pan-European index, 11%, after the firm said third-quarter profit fell, mainly because of a decline in addressed-mail volumes.
Pointing in the other direction, shares of Weir Group PLC rose 4.6%, as the manufacturing and engineering firm said it would deliver double-digit growth in 2012.
For the broader sentiment across European bourses, worries about the tight race in the U.S. presidential contest ahead of Tuesday's vote kept investors on the sidelines.
"The worst-case market scenario is likely to be a narrow [Barack] Obama victory, where a bruised Republican Party has enough power and frustration to cause large fiscal-cliff tensions," analysts at Deutsche Bank wrote in a note. "It may never arise, but surely the market would factor in some risk even if it's not immediate. A clear victory for Obama would probably reduce but not eliminate this risk."
U.S. stock traded mixed on Wall Street on the back of a decline in the Institute for Supply Management's nonmanufacturing index.
Greece was on investors' mind as well, as parliament prepared to vote later this week on the latest rounds of budget cuts and tax hikes demanded by the country's troika of international lenders -- the European Central Bank, the International Monetary Fund and the European Commission. A vote against the austerity package could put the next tranche of bailout money at risk.
The uncertainty ahead of the vote added pressure on the euro, which slumped to an almost two-month low against the dollar.
In Spain, data showed jobless claims rose by almost 130,000 in October, bringing the total number of unemployed to 4,833,521.
In addition, a report in Germany's Die Welt am Sonntag said over the weekend that the European Central Bank is reviewing if it is treating Spanish government bills too generously when they are presented as collateral for loans. A representative from the ECB said they bank is investigating the issue.
Shares of Spanish banks declined, with those of BBVA SA down 2.6% and Banco Santander SA off 2.5%.
The IBEX 35 index slumped 1.9% to 7,818.60.
The yield on 10-year government bonds fell 9 basis points to 5.73%.
Risk-sensitive sectors, such as banks and resource firms, were among the biggest decliners in Monday's trades.
The Italian FTSE MIB Index gave up 1.4% at 15,544.40, with shares of Banco Popolare SC off 3.1%.
In France, Credit Agricole SA shares lost 2.5% and those of Societe Generale SA gave up 2.4%.
Oil group Total SA shares tripped 1.5%.
The CAC 40 index fell 1.3% at 3,448.50.
Among German stocks, shares of Deutsche Bank AG dropped 1.5%.
Daimler AG shares gave up 0.4% after Goldman Sachs removed the car maker from its conviction buy list, but kept a buy rating on the stock.
The DAX 30 index slipped 0.5% at 7,326.47.
In the United Kingdom, shares of Barclays PLC fell 1.5% and Royal Bank of Scotland Group PLC slipped 1.7%.
Mining major Rio Tinto PLC's shares fell 2.2%, while shares of oil group BP PLC gave up 0.9%.
The FTSE 100 index tripped 0.5% at 5,839.06.
Outside the major indexes, shares of Svenska Cellulosa AB rose 1.5%, after the hygiene-products firm said it introduced a cost-cutting program.
Write to Sara Sjolin at AskNewswires@dowjones.com