European stock markets on Monday gave up some of their Friday gains as oil steadied after its sharp pre-weekend drop despite a firm dollar.
Sterling weakened in the aftermath of data showing a stagnant British economy in the second quarter and euro zone government debt prices rebounded from two-week lows hit in the previous session.
Trade was thin because of a British local holiday which closed London markets.
The 0.21% fall in the FTSEurofirst 300 by 0855 GMT followed a 1.8% gain on Friday, and analysts continued to believe that the gloom hanging over stockmarkets had lifted a little.
"The clearly positive sign is that the raw material, oil and food prices are on the decline and the inflation outlook is more favourable," said Tuomas Komulainen, Helsinki-based strategist at Danske Market Securities.
"On the negative side is the euro zone economy slowing more than expected, but overall things are slightly more positive for equities," he added.
The oil and gas sector was weaker following Friday's 5.4% fall in oil prices with Total losing 1.39% and Royal Dutch Shell down 0.90%.
But oil prices steadied with U.S. light crude for October delivery up 47 cents at $115.06 a barrel as analysts said they felt traders saw a bottom to the market following Friday's falls.
"Some of them may be seeing a buying opportunity at these price levels," said Gerard Rigby at Fuel First Consulting in Sydney. "Lingering concerns about Russia and Georgia are also giving some support."
DOLLAR MAKES GAINS
The dollar benefited from the oil price drop and from recent signs that Europe and Asia are feeling the effects of the global credit and commodity crunches every bit as keenly as the United States.
The latest sign of this came on Friday when Britain reported that its economy registered no growth at all in the second quarter, so sterling bore the brunt of the dollar's resurgence.
While the British currency hit a two-year low of $1.8407, the euro was caught in its wake, easing 0.3% to $1.4741.
But some analysts said the dollar surge was likely to ease.
"While the commodity markets are still volatile, they are no longer going through a one-way decline. Dollar-buying momentum seems to be slowing under such conditions," Masafumi Yamamoto, head of forex strategy for Japan at Royal Bank of Scotland, said in a note.
Euro zone government debt prices rebounded from two-week lows hit the previous session on the easing in equity markets and as money market strains continued to loom large.
The two-year Schatz yielded 4.08%, down around 6 basis points on the day, according to Reuters charts.
