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European stock markets sank on Monday, mirroring Asian equities, after US lawmakers failed to prevent $85 billion in spending cuts that were implemented late last week in the world's biggest economy.
The British stock market was also pulled lower by poor survey data that signalled fresh recession on the horizon for Britain -- and as global bank HSBC posted sliding annual profits.
Shortly after midday, London's FTSE 100 index of leading companies was showing a fall of 0.58 percent to 6,342.06 points.
Milan's FTSE Mib index lost 1.05 percent to 15,512.87 points as the eurozone nation continued to face political uncertainty in the wake of last week's inconclusive national elections.
In foreign exchange deals, the euro fell to $1.2991 from $1.3018 late in New York on Friday. Gold prices declined to $1,577.96 an ounce on the London Bullion Market from $1,582.25.
Asian stocks mostly sank on Monday, as markets fretted over the steep cutbacks in federal spending. However, Wall Street inched closer to a five-year high on Friday as investors had shrugged off the US budget mess.
"European stock indices are trading lower... as a combination of the sequester in the United States and poor data in Europe hits investor sentiment," said analyst Craig Erlam at trading group Alpari.
US politicians traded barbs over the weekend after the "sequester" of deep federal spending cuts that kicked in on Friday, with most economists warning it will lead to rising unemployment and dent economic growth.
There had been hope that Democrats and Republicans would be able to reach a compromise to cut the budget that would not be as painful, but last-minute talks failed.
"Once again it appears that squabbling between the two US political powers are harming the ability of the US economy to continue its recovery," said analyst Alastair McCaig at trading group IG.
"With the budget cuts that (US President) Barack Obama is being forced to implement, an initial $85 billion will be taken out of public spending.
"If he is not careful he may find himself with the legacy of being a president who was unable to force through difficult economic policies."
Meanwhile, British stocks were hit also by a new survey which stoked concern that the economy could be heading for its third recession since the 2008 global financial crisis.
Britain's construction sector contracted at its fastest pace in over three years in February, as new orders declined for a ninth straight month, a Markit survey showed.
Sharp falls in commercial building work and in civil engineering activity pushed the purchasing managers' index (PMI) to 46.8, from 48.7 in January.
A reading of 50 marks the line between signals of growth and contraction in the economy. The index has been underneath this level for four months in a row.
"A contraction figure was expected, however it was forecast to contract at a slower rate than the month before, instead it's contracted much faster," added Erlam.
"This just adds to concerns that the UK is going to struggle to avoid a triple-dip recession in the first quarter, let alone grow in 2013."
In company news, global bank HSBC said net profits sank 16.5 percent to $14.03 billion (10.78 billion euros) last year, hit by US money-laundering fines, mis-selling scandals, rising taxation and a huge accounting charge.
The announcement pushed the group's share price 2.65-percent lower to stand at 708.8 pence.
Other British banks also fell. Lloyds Banking Group dropped 3.33 percent to 51.47 pence and Royal Bank of Scotland slid 1.66 percent to 308.8 pence.
Back in Asia, Chinese shares suffered the biggest sell-off, with Shanghai slumping 3.65 percent as property developers were hit by measures to cool the housing market.
However, Tokyo enjoyed modest gains, adding 0.40 percent as the man tapped to become Japan's top central banker vowed to tackle deflation.