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After heavy falls in Asia, Europe headed south with London's benchmark FTSE 100 index shedding 0.4 per cent.
Wall Street also retreated from record highs, with the Dow down 0.4 per cent in late morning trading.
"Stock markets are largely lower as traders are worried about the US-China trading relationship as well as the violence in Hong Kong," said David Madden, analyst at traders CMC Markets UK.
The pound was up around three-quarters of a percentage point versus the dollar, adding further downward pressure to the FTSE 100 that features several multinationals earning in the US unit.
Sterling climbed also against the euro, as official data showed Britain had dodged a recession in the third quarter with growth of 0.3 per cent and the ruling Conservatives of Prime Minister Boris Johnson received a major electoral boost.
"The pound was given a boost by Nigel Farage's announcement that the Brexit party won't stand in the 317 seats currently occupied by the Conservatives," said Oanda analyst Craig Erlam.
Farage, a leading force behind the 2016 referendum vote to leave the European Union, had faced criticism that he risked splitting the eurosceptic vote on Dec 12 if his party ran candidates in constituencies currently held by the Conservatives.
In the eurozone, Madrid's IBEX 35 index spent most of the day lower after Socialist premier Pedro Sanchez emerged as winner but weakened from Sunday's repeat election.
The vote also propelled the far-right Vox into third place in a result set to deepen years of political turmoil in Spain, a leading member of the eurozone.
The IBEX 35 moved into positive territory in the final minutes of trading, ending the day with a gain of less than 0.1 per cent.
European markets took "the cue from Asia, whilst political deadlock in Spain is not a help", said Neil Wilson, chief market analyst at Markets.com.
Asian markets turned sharply lower on Monday as another record close on Wall Street on Friday was overshadowed by uncertainty on the China-US trade talks, while Hong Kong was hit also by fresh protests in which at least one person was shot.
Expectations Beijing and Washington will agree a mini-pact have fuelled an equity rally for the past few weeks.
Hopes had been given an added boost on Thursday after China said the two sides had agreed to roll back some tariffs as the negotiations progress.
But the US side sent out some confusing signals after that announcement, before US President Donald Trump denied such an agreement, leaving investors scratching their heads.
Still, White House trade adviser Peter Navarro provided a lift to sentiment, saying Trump could postpone tariffs on Chinese goods scheduled to take effect in December. The S&P 500 and Dow both ended at fresh all-time highs on Friday.
Key figures around 1630 GMT:
London - FTSE 100: DOWN 0.4 per cent at 7,328.54 points (close)
Frankfurt - DAX 30: DOWN 0.2 per cent at 13,198.37 (close)
Paris - CAC 40: UP less than 0.1 per cent at 5,893.82 (close)
Madrid - IBEX 35: UP less than 0.1 per cent at 9,399.90
EURO STOXX 50: FLAT at 3,699.35
Tokyo - Nikkei 225: DOWN 0.3 per cent at 23,331.84 (close)
Hong Kong - Hang Seng: DOWN 2.6 per cent at 26,926.55 (close)
Shanghai - Composite: DOWN 1.8 per cent at 2,909.97 (close)
Pound/dollar: UP at US$1.2864 from US$1.2774 at 2100 GMT
Euro/pound: DOWN at 85.79 pence from 86.25
Euro/dollar: UP at US$1.1038 from US$1.1018
Dollar/yen: DOWN at 109.06 yen from 109.26 yen
Brent North Sea crude: DOWN 0.1 per cent at US$62.44 per barrel
West Texas Intermediate: DOWN 0.2 per cent at US$57.11 per barrel