European shares were slightly lower Monday amid concerns over the escalating conflict in Iraq, which continued to boost oil prices.
The Stoxx Europe 600 index was down 0.4% midmorning, with renewed tensions in Ukraine adding to the downbeat tone.
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The radical Sunni militia that has plunged Iraq into chaos claimed on Sunday that it had executed hundreds of Shiite Iraqi soldiers, even as the Obama administration said it is preparing to open direct talks with Iran on how to counter the insurgents.
The price of a barrel of Brent crude oil climbed 0.3% to $112.74, not far short of last week's high for the year. The yen, which tends to rise in times of stress, climbed 0.2% against the dollar to Yen101.83. Gold also added 0.6% to hit $1,281.8 an ounce.
Higher energy prices could quicken inflation at a time when investors are already starting to worry about the possibility central banks could begin to tighten monetary policy.
Bank of England Governor Mark Carney said Thursday that rates in the U.K. could rise sooner than investors expect, boosting the pound and putting U.K. stocks and bonds under pressure.
"There is a possibly inflationary impact of a higher oil price. It is a difficult cocktail for the market to digest when [equity] valuations are looking expensive," said Guy Foster, head of portfolio strategy at Brewin Dolphin, which manages GBP26 billion ($44.1 billion) of assets.
Federal Reserve boss Janet Yellen on Wednesday will give the latest indication on the path of U.S. monetary policy.
"It looks like it is going to be a difficult week. Nobody is going to want to be long going into Yellen's news conference on Wednesday," Mr. Foster said.
Events in Ukraine added to investors' concerns.
Russian state gas giant OAO Gazprom said Monday it will only ship fuel to Ukraine if it pays in advance, making good on a threat that could lead to supply cuts affecting European customers after late-night talks on debt repayment failed to yield a deal.
All major European indexes were slightly lower, with London's FTSE 100 losing 0.2%, Germany's DAX down 0.3%, and France's CAC-40 off 0.4%.
U.S. stock futures pointed to a 0.3% opening loss for the S&P 500. Changes in stock futures aren't always accurately reflected in market moves after the opening bell.
In currency markets, sterling traded above $1.70 against the dollar for the first time since 2009, as expectations continued to build that the Bank of England will raise interest rates later this year following Mr. Carney's comments last week. Forwards markets are now pricing in a rate increase in the final quarter of 2014.
The pound also climbed to a fresh 18-month high of GBP0.7965 to the euro.
"It is likely that pound strength will prove more persistent now with the BOE highly likely to become the first major central bank to begin raising rates later this year," said Lee Hardman, a currency analyst at Bank of Tokyo Mitsubishi UFJ.
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