Euro stocks stumble on French debt warning, US deficit

European stocks closed down sharply and the euro slumped Monday amid a warning on Frances top credit rating and an apparent failure to reach a deal on cutting the US budget deficit.Markets shrugged off an election victory for Spains centre-right, with the euro sliding below $1.35 for most of the day, but later recovered on US concerns.Londons FTSE-100 gave up 2.62 percent to 5,222.60 points, Frankfurts DAX lost 3.35 percent to 5,606.00 points and Frances CAC-40 dropped 3.41 percent to 2,894.94 points.Madrid slumped 3.48 percent and Milan plunged 4.74 percent.The euro was trading at $1.3520 at 1700 GMT compared to $1.3519 on Friday in New York.US markets were also down sharply due to Congresss apparent failure to reach a deal to cut the countrys massive budget deficit and to extend stimulus measures into next year.Spanish government borrowing costs rose as the financial markets found no reason for confidence from a sweeping election win for a right-wing government committed to radical budget cuts so as to balance the public finances.The yield or rate of return earned by holders of benchmark Spanish 10-year government bonds rose to 6.514 percent in evening trading from 6.345 percent at the close on Friday.The US cost of borrowing actually eased in early bond trading, with the yield on the 10-year Treasury bond falling to 1.97 percent from 2.01 on Friday.Asian shares closed mostly lower on Monday as markets awaited the outcome of key China-US trade talks amid simmering tensions between the economic superpowers.Markets also reacted to news Japan logged an unexpected trade deficit in October, while business hub Singapore predicted sharply lower economic growth next year.In Europe, Spains right stormed to its biggest election victory ever on Sunday, winning over voters desperate for an end to soaring unemployment and the eurozone debt storm.Spains government was the latest to fall among the eurozones so-called periphery nations this year after Ireland, Portugal, Greece and Italy all succumbed to a collapse of confidence in their sovereign debt.European stocks fell sharply last week as Spain, Italy and France faced a sharp spike in borrowing costs.A rise in the borrowing rate on French debt bonds and possibly slowing growth could meanwhile have a negative effect on Frances top AAA credit rating but not immediately, Moodys warned on Monday.Nevertheless France successfully placed 7.0 billion euros in short-term debt on Monday, with yields mixed amid strong demand by investors.Benchmark 10-year French bonds were yielding 3.461 percent at 1700 GMT, from 3.457 percent on Friday, after having risen to 3.591 percent in the morning.The rate of return on 10-year Italian bonds rose to 6.647 percent from 6.631 percent on Friday, while Germanys 10-year bonds benefited from safe-haven buying that pushed the yield down to 1.897 percent from 1.964 percent.