By Jamie McGeever
LONDON (Reuters) - European stocks and U.S. futures fell on Monday, as geopolitical tensions in Asia and U.S. President Donald Trump's accusation that his predecessor Barack Obama wiretapped him overshadowed a flurry of M&A activity in Europe.
Deutsche Bank shares slumped more than 5 percent after Germany's biggest lender said it needs to issue more shares to raise 8 billion euros of capital.
That dragged down European banking stocks and weighed on broader indices, trumping a rise in shares of asset management firms after Aberdeen and Standard Life set the terms of their 11 billion pound tie-up.
Both stocks rose more than 6 percent.
"The question is whether this will be the last capital hike or whether the bank will need more yet again in a few years," said Stefan de Schutter, a trader at Frankfurt-based Alpha, referring to Deutsche. "Until now, none of the restructuring measures have borne fruit."
The FTSEuroFirst index of 300 leading shares and Germany's DAX fell 0.7 percent, both hit by the 5.3 percent slide in Deutsche Bank. The European banking index was down 1 percent.
U.S. stock futures pointed to a fall of around 0.5 percent at the open on Wall Street which would take some of the shine off last week's rally to fresh record highs, particularly the Dow's leap above 21,000 points.
Japan's Nikkei lost 0.5 percent, but that was the outlier in Asia. MSCI's broadest dollar-denominated index of Asia-Pacific shares outside Japan rose 0.4 percent, recovering from Friday's 1 percent fall, its biggest this year.
MSCI's benchmark global stock index was flat on the day.
Risk appetite also took a hit on rising geopolitical tensions in East Asia. North Korea fired four ballistic missiles early in the day, while a spat between China and South Korea over missile defence deepened.
Trump's accusation that his presidential predecessor Barack Obama wiretapped him during the late stages of the 2016 election campaign also cast a shadow over U.S. stocks. Some investors view Trump's confrontational style as distracting the president from his economic agenda.
FED HIKE A DONE DEAL
Investors opened the trading week almost certain that the Federal Reserve will raise U.S. interest rates next week. Fed Chair Janet Yellen on Friday all but confirmed market expectations, barring any sharp deterioration in economic conditions.
U.S. money market futures, are pricing in about a 90 percent chance the Fed will raise interest rates by 0.25 percentage point at its meeting on March 14-15, with another rate hike fully priced in by September.
But much of the market's move towards this level of certainty was made early last week, meaning it was already largely in the price of the dollar and U.S. bond yields.
Attention will now shift to the U.S. employment report for February on Friday, while investors are also awaiting more detail on Trump's fiscal plans.
"The rally (on Wall Street) has been mainly driven by promises made by President Trump to lower taxes, increase spending on infrastructure and the military," Rabobank analysts wrote in a note on Monday.
"The importance of such pledges has increased as the Fed intends to raise rates further. What could possibly go wrong?"
Both the dollar and Treasury yields slipped on Monday, as investors took some profit from last week's moves and squared positions ahead of the expected rate hike.
The euro edged up to $1.0640, having dipped below $1.05 last week, and the dollar fell a third of one percent against the yen to 113.60 yen.
China's yuan was little moved, fetching 6.8920 yuan per dollar in offshore trade after China cut its growth target for this year to 6.5 percent, compared to its 2016 goal of 6.5-7 percent. Growth in 2016 was 6.7 percent.
The 10-year U.S. Treasury yield dipped to 2.472 percent after hitting a two-week high of 2.521 percent on Friday.
Oil prices fell on concern over Russia's compliance with a global deal to cut oil output and China's lower growth target. International benchmark Brent futures fell 0.8 percent to $55.45 per barrel.
Figures released last week showed Russia's February oil output was unchanged from January, casting doubt on Russia's moves to rein in output as part of a pact with oil producers last year.
(Additional reporting by Haken Ersen in Frankfurt; Editing by Catherine Evans)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)