Equities sag as oil prices slump

Oil prices tumbled to the lowest levels in over a decade on Monday, dragging equities lower with markets already jittery over the Federal Reserve likely raising US interest rates this week.

Brent North Sea crude dived to near 11-year low of $36.33 a barrel on Monday, while US benchmark West Texas Intermediate (WTI) slumped to $34.53.

Stock markets in Frankfurt, London and Paris began Monday with solid gains on encouraging economic news out of China, but pulled back following the latest tumble in crude oil to end the day with sharp losses.

Wall Street also fell back to show losses in midday trade after starting out in positive territory.

"Collapsing oil prices and the potential rise in interest rates in the United States ... compounded investors' nerves," said David Papier, analyst at traders ETX Capital.

"Oil prices continued their freefall after the International Energy Agency warned that global oversupply could worsen next year."

The oil market, which also slumped on Friday, has been punished by OPEC's recent decision to maintain output despite predictions of a stubborn surplus.

Crude has slumped dramatically since the OPEC oil producers' group on December 4 opted against cutting its output levels, and there are warnings of further pain ahead as the global economy struggles.

- 'Signs of distress' -

Around 1630 GMT, Brent North Sea crude for delivery in January traded at $37.39 a barrel, down 54 cents compared with Friday's close.

WTI lost 24 cents to $35.38 a barrel.

That hit European energy stocks.

Shares in BP fell 2.6 percent to 329.3 pence, while in Paris shares in Total dropped 2.9 percent to 40.58 euros.

Meanwhile Shell's A share fell 2.4 percent to 1,418.5 pence despite the company saying it planned to cut 2,800 jobs following its £55-billion (US$84-billion, 79 billion-euros) takeover of smaller rival BG Group.

Adding to the unease on trading floors is Wednesday's Federal Reserve policy meeting that is widely expected to see US interest rates raised for the first time since 2006.

Analyst Jasper Lawler at CMC Markets UK said few long-term positions were being taken ahead of the rate decision, thus leaving market very vulnerable to fluctuations in commodities prices.

Moreover, dropping oil prices could be a sign of slowing demand "at just the wrong time" when the Fed will likely raise interest rates.

"There are already signs of distress," said Lawler.

"Credit spreads in the US have widened in anticipation of corporate bond defaults when highly levered companies can?t afford payments at higher rates."

Shares in Glencore, a commodities giant that has been scrambling to unload a mountain of debt, fell 6.3 percent to 80 pence.

Asia stock markets fell on the back of the ongoing oil market rout.

Tokyo shed 1.8 percent and Hong Kong ended down 0.7 percent, while Sydney slipped two percent and Seoul gave up one percent.

However, Shanghai surged 2.5 percent as traders welcomed surprisingly strong Chinese economic data at the weekend.

Miners were also boosted by news that China?s aluminium smelters pledged Friday to halt new mills.

- Key figures around 1630 GMT -

London - FTSE 100: DOWN 1.3 percent at 5,874.06 points (close)

Frankfurt - DAX 30: DOWN 1.9 percent at 10,139.34 (close)

Paris - CAC 40: DOWN 1.7 at 4,473.07 (close)

EURO STOXX 50: DOWN 1.7 percent at 3,147.47

New York - Dow: DOWN 0.5 percent at 17,172.35

New York - S&P 500: DOWN 0.6 percent at 1,999.93

New York - Nasdaq: DOWN 1.0 percent at 4,882.15

Tokyo - Nikkei 225: DOWN 1.8 percent at 18,883.42 (close)

Euro/dollar: UP to $1.11037 from $1.0996 late in New York on Friday.

Dollar/yen: DOWN to 120.44 yen from 120.86 yen