Portugal Colonial - Stock markets drop as geopolitics, inflation concerns weigh

"Heightened tensions between Ukraine and Russia have brought a halt to the rally in equity markets seen last week," noted Russ Mould, investment director at AJ Bell.

"Investors were nervously watching proceedings from the sidelines, particularly as oil prices crept up once again."

Moscow has escalated its aerial attacks on Kyiv, targeting key infrastructure in the wake of Ukrainian attacks on Russian oil facilities.

Russia is a key producer of oil, while the Gaza-Israel war has given rise to worries about Middle Eastern crude supplies.

The Kremlin has meanwhile refused to comment on the Islamic State group's claims that it was behind the deadliest attack in Russia in two decades, as rescuers searched for bodies amid the rubble of the burnt-out Moscow concert hall.

At least 137 people were killed after gunmen in camouflage stormed Crocus City Hall on Friday, shooting spectators before setting the building on fire in the most fatal attack in Europe to have been claimed by Islamic State jihadists.

- Inflation -

Stock markets took a knock also from concerns about elevated inflation, even if it has come down from four-decade highs and central banks are poised to start cutting interest rates.

"Optimism has been surging about the prospects for interest-rate cuts and brighter economic horizons ahead, despite some uncertainty lingering about stubborn inflation in the US," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Traders were awaiting the release Friday of key US inflation data.

After last week's Federal Reserve projections for US interest rates indicated it would cut three times this year, traders are optimistic about the outlook for equities.

However, figures showing the US economy remains in rude health raised concerns that the central bank might not be able to bring borrowing costs down as quickly as hoped, keeping a lid on sentiment.

Those concerns were echoed by Atlanta Fed chief Raphael Bostic on Friday, when he said he saw inflation remaining sticky and saw just one rate cut this year, instead of the two he had previously foreseen.

Eyes are now on the release of the personal consumption expenditures (PCE) index, the Fed's preferred gauge of inflation, with traders hoping for a reading that shows price gains slowing further.

The report follows recent US data on consumer and producer prices, which came in higher than forecasts.

- Key figures around 1200 GMT -

London - FTSE 100: DOWN 0.5 percent at 7,894.57 points

Paris - CAC 40: DOWN 0.4 percent at 8,116.67

Frankfurt - DAX: FLAT at 18,203.79

EURO STOXX 50: DOWN 0.3 percent at 5,017.43

Tokyo - Nikkei 225: DOWN 1.2 percent at 40,414.12 (close)

Hong Kong - Hang Seng Index: DOWN 0.2 percent at 16,473.64 (close)

Shanghai - Composite: DOWN 0.7 percent at 3,026.31 (close)

New York - Dow: DOWN 0.8 percent at 39,475.90 (close)

Euro/dollar: UP at $1.0829 from $1.0812 on Friday

Dollar/yen: DOWN at 151.30 yen from 151.40 yen

Pound/dollar: UP at $1.2638 from $1.2601

Euro/pound: DOWN at 85.71 pence from 85.77 pence

Brent North Sea Crude: UP 0.3 percent at $85.70 per barrel

West Texas Intermediate: UP 0.4 percent at $80.91 per barrel

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J.Oliveira--PC