From MORRISON SECURITIES PTY. LTD:

Stocks pared losses in afternoon trading Monday but remained in the red as investors focused on the standoff between Greece and its private creditors, as well as a surge in Portugal's borrowing costs.

U.S. STOCK MARKETS

The Dow Jones Industrial Average was down 20 points, or 0.2%, at 12640 in afternoon trading. The Standard & Poor's 500-stock index lost three points, or 0.3%, to 1313, and the Nasdaq Composite Index was flat at 2817.

Monday's shaky start comes after four straight weeks of gains for the S&P 500 and the Nasdaq. U.S. equities markets were relatively lightly traded Monday, which some traders said could have contributed to the mid-afternoon turnaround.

Financial companies led stocks lower after a ratings shake-up on the sector from Goldman Sachs. Bank of America dropped 3.2%, the sharpest among blue chips, after Goldman cut its stock-investment rating on the bank to "neutral" from "buy."

Investors remain wary of the potential for Europe's debt issues to spread and constrain the global financial system.

Eight of 10 sectors on the S&P 500 pulled back Monday, with telecommunication and technology stocks the only ones in positive territory. Microsoft and IBM were the biggest gainers on the Dow.

Data showed Americans' incomes picked up during December but that more people chose to increase savings instead of spending, a sign the U.S. economy could remain in slow-growth mode this year. Meanwhile, the Dallas Manufacturing Index rose more than expected in January, to 15.3 versus the expected 1.5, but the news did little to alter stocks' direction.

EUROPEAN STOCK MARKETS

European stocks fell Monday as investors grew increasingly nervous about the lack of a Greek debt-restructuring deal. The Stoxx Europe 600 Index closed down 1.1% at 252.52.

The U.K.'s FTSE 100 Index ended 1.1% lower at 5671.09, Germany's DAX closed down 1% at 6444.45 and France's CAC 40 Index ended down 1.6% at 3265.64.

Banks suffered the brunt of the selling and the Stoxx Europe 600 Index for the sector closed down 3.1%. In London, Royal Bank of Scotland Group dropped 3.5% after its chief executive, Stephen Hester, decided to waive a controversial bonus of just under GBP1 million.

Meanwhile, BNP Paribas declined 7.1% in Paris, KBC Group fell 6.7% in Brussels and Commerzbank and Deutsche Bank lost 4% and 3.8%, respectively, in Germany.

With talks between Greece and its private creditors still unresolved, investors' confidence waned and concerns about debt contagion set in.

Against this backdrop, investors shifted their attention to Portugal, worried it may be the next in line for a second bailout package. Portugal's borrowing costs surged Monday, with the 10-year government bond yield reaching euro-era highs.

At the time of the European stock market close, the 10-year Portuguese government bond yield stood at 17.39%. At the same time, Germany's relationship with Greece was in focus, following weekend reports suggesting Germany would like the European Union to have veto powers over the Greek budget.

Earlier in the day, Italy sold a total of EUR7.475 billion of a targeted EUR8 billion of Treasury bonds. Late Friday, ratings agency Fitch downgraded Italy, Spain, Belgium, Slovenia and Cyprus and cut its outlook in Ireland. Investors were cautious as a European Union leader's summit was getting underway in Brussels to endorse a permanent bailout fund with a lending capacity of EUR500 billion and to finish details of a fiscal pact aiming at budget deficits. But investors were also hopeful that Greece would be on the agenda.

ASIA-PACIFIC STOCK MARKETS
Most Asian markets fell Monday as investors turned cautious ahead of a key summit of European leaders later in the day and as Chinese stocks were hit by disappointment over a lack of policy easing from Beijing.

The drop on mainland Chinese bourses applied pressure on Hong Kong, where shares fell for the first time in seven trading days. Taiwanese stocks bucked the trend, rising sharply as the market there reopened after a long Lunar New Year holiday.

The Hang Seng Index tumbled 1.7% to 20,160.41 in Hong Kong, while the Shanghai Composite Index lost 1.5% to 2,285.04 as investors returned after last week's Lunar New Year holiday.

Elsewhere, Japan's Nikkei Stock Average finished 0.5% lower at 8,793.05 and South Korea's Kospi fell 1.2% to 1,940.55. Taiwan's Taiex was a notable gainer in the region, climbing 2.4% to 7,407.41 as trading resumed for the first time since Jan. 18.

Shares of developers and mainland banks fell sharply in Hong Kong and Shanghai amid fears over the property sector's outlook in the absence of policy easing by Beijing.

Industrial & Commercial Bank of China fell 3%, Agricultural Bank of China gave up 3.6% and China Overseas Land & Investment lost 3.1%. In Shanghai, ICBC fell 2.1% and AgBank lost 1.5%, while Poly Real Estate Group Co. slid 4.7%. Several resource stocks also fell sharply in Hong Kong, with Aluminum Corp. of China or Chalco down 3.4% and Jiangxi Copper 4% lower. Among exporters, Toyota Motor Corp. dropped 1.7%, and Mazda Motor fell 3.1%, while Fujitsu fell 3.4%.

COMMODITIES
Base metals closed mostly lower on the London Metal Exchange Monday, weighed down by a stronger dollar and caution over the health of global economy.

At the close, LME three-month copper was 1.1% lower at $8,428 a metric ton, while aluminum ended in positive territory, up 0.6% at $2,279/ton. Oil futures pulled back Monday after Iran delayed a vote on an oil export ban to Europe and agreed to host United Nations atomic watchdog officials, moves that eased concerns about an immediate supply disruption.

Light, sweet crude for March delivery settled down 78 cents at $98.78 a barrel on the New York Mercantile Exchange. Gold futures ended nearly flat, settling with slight losses as a stronger dollar and caution during a series of European debt-related negotiations outweighed the market's recent upward momentum. Gold for February delivery, the most actively traded contract, fell $1.20, or 0.1%, to settle at $1,731 a troy ounce on the Comex division of the New York Mercantile Exchange.