World stocks edged lower on Monday, led by a fall in Chinese share prices and a sell-off in South Korean tech stocks that kept risk appetite muted, while the euro hit a two-month high against the dollar on optimism around German coalition talks.
Away from the main markets, bitcoin's vertiginous ascent showed no signs of abating, with the cryptocurrency soaring to another record high just a few percent away from $10,000 after gaining more than a fifth in value over the past three days alone.
European shares inched higher, reversing earlier weakness as financials gained ground amid fresh dealmaking activity.
But those gains were not enough to pull up the MSCI world equity index, which tracks shares in 47 countries. The index was down 0.1 per cent on the day.
China market selloff
In Asian trading, Shanghai shares fell 0.9 per cent to a three-month low, having already been on a shaky footing due to a rout in the domestic bond market and fresh moves to reduce risks in the asset management industry that may bring a sea change for banks.
“The Chinese stock market drop is reminiscent of the selloff that we saw in the summer of 2015, and that is causing some investors to become cautious going into the thin year-end markets,” said ING currency strategist Viraj Patel, in London.
The dollar fell a quarter of a per cent against the yen, a currency that is traditionally sought at times of investor uncertainty. The dollar was trading at 111.27 yen, close to a 2-1/2-month low.
Political lifeline
The euro climbed as high as $1.19965, its strongest since mid-September, boosted after German Chancellor Angela Merkel - whose chances for a fourth term were plunged into doubt a week ago when coalition talks collapsed - was handed a political lifeline by the Social Democrats.
It has also been given a leg up in recent months by signs that Europe's economic recovery is gaining speed, with upbeat data from Germany lifting the single currency on Friday.
But it edged back to $1.1930 in European trading, flat on the day, with a Merkel ally saying on Monday that the “grand coalition” talks may not begin until next year, potentially prolonging the uncertainty in Europe's largest economy.
The pan-European STOXX 600 index rose 0.2 per cent by 0939 GMT, led higher by gains among insurance stocks after Allianz on a deal to buy out France's Euler Hermes.
Euro zone bond yields nudged down, with southern Europe leading the way thanks to strength in the euro and reduced political uncertainty in the region after Germany moved a step closer to resolving the country's political impasse.
In Germany, the 10-year Bund yield dipped 1 basis point to 0.35 per cent.
“There is optimism about the formation of a grand coalition in Germany, and economic surprise indices for the bloc are at an all-time high,” said Antoine Bouvet, rates strategist at Mizuho.
“That means there could be more investment in Europe, driving the currency higher, and the corollary to that is for market expectations for ECB policy has to be more dovish.”
Tech shares slump
Earlier, Asian stocks retreated from a decade high, with MSCI's broadest index of Asia-Pacific shares outside Japan falling 0.7 per cent.
The index had risen to its highest since 2007 on Thursday, with equity markets having enjoyed strong support this year thanks to corporate earnings rising on the back of an improving global economy.
South Korea's KOSPI fell 1.4 per cent as tech shares slumped following an analyst's report suggesting the memory chip "super cycle” would soon fade, led lower by Samsung Electronics .
Strength in tech shares had pushed the S&P 500 and Nasdaq to record highs on Friday, but observers noted that demand for tech-related products such as semiconductors could eventually slacken.
Japan's Nikkei pared earlier gains and fell 0.3 per cent with chip makers suffering losses.
“Global sales of semiconductors expanded greatly in the third quarter. But demand could slow in the fourth quarter as a reaction to this sharp increase, and there are warning signs such as reversals in price trends,” wrote Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities in Tokyo.
Oil prices slipped, with US crude easing from two-year highs to $58.50 on prospects for increased output.
Losses were limited though as expectations that OPEC and other key exporters will agree this week to extend production limits provided support.
Bitcoin
Bitcoin surged almost 5 per cent to trade as high as $9,721 on the Luxembourg-based Bitstamp exchange, before easing back to just below $9,500 in volatile trade.
The digital currency has seen an eye-watering tenfold increase in its value since the start of the year, and has more than doubled in value since the beginning of October.
“$10k is on the cards and bitcoin seems to be straining at the leash to reach it,” said Charles Hayter, founder of cryptocurrency data analysis website Cryptocompare.