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 The dollar was weak ahead of the week's main set piece - Wednesday's
Federal Reserve policy decision and statement - with a better than
expected survey of German business sentiment pushing the euro above
$1.11 for the first time in a fortnight.
But it was the stunning 8.5 percent fall in Shanghai that drove most
of the moves early in the European day, with share indices in
Frankfurt, London and Paris all sinking by more than 1 percent.
Traders and investors said that was all rooted in broader concerns
over global growth mid-way through the corporate results reason and
following a poor economic reading out of China late last week.
"This really has its roots in nervousness that began in the U.S. at
the end of last week," said Andy Sullivan, a portfolio manager with
Swiss investment firm GL Financial Group.
"Shanghai is an artificial market at the moment reliant on
government support, and they have thrown the kitchen sink at it in
recent weeks. The selling just ratcheted up steadily this morning."
The CSI300 index of the largest listed companies in Shanghai and
China's other major market, Shenzhen, ended 8.5 percent lower.
Japan's Nikkei slipped more than 1 percent, while MSCI's broadest
index of Asia-Pacific shares outside Japan fell 1.6 percent.
Both copper, for which Chinese demand is an important driver, and
the broader Thomson Reuters CRB commodities index hit their lowest
in six years. Copper futures were down another 0.5 percent on
Monday.
FED UP?
Despite the still patchy economic news, many analysts still expect
the U.S. central bank to raise interest rates in September.
Fed chief Janet Yellen drove the dollar higher earlier this month by
saying a move this year was on the cards, but she has gone no
further than that.
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"We expect Fed voters to pull the trigger in September, but for the
path to interest rate normalization to be a long one given the
global risk profile," said analysts at Australia and New Zealand
Banking Group in a note to clients.
Expectations of a hike have slowly pushed up U.S. Treasury yields
and widened the dollar's premium over the euro. But the euro has
also tended to rise when investors get more concerned about global
growth and rein in riskier bets, as they were doing on Monday.
After the upbeat Ifo survey of German business sentiment, the common
currency was up 1.1 percent $1.1101 3 full cents above this month's
lows around $1.0810.
Brent crude fell 30 cents to $54.32 a barrel, touching its lowest in
almost four months. U.S. crude was off 21 cents at $47.93.
(Additional reporting by Samuel Shen in SHANGHAI; Editing by Hugh
Lawson)
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