By Sruthi Shankar and Shashwat Chauhan
(Reuters) - European shares closed lower on Monday, bogged down by heavyweight luxury and energy shares after disappointing China data, while French stocks underperformed after a surprise ratings downgrade by Moody's.
The pan-European STOXX 600 index closed 0.1% lower, trading near two-week lows, with autos the top sector decliner by percentage, down 2.8%.
China-exposed luxury firms such as LVMH were down over 1% after data showed China's retail sales growth slowing.
Lower crude oil prices pushed energy 1% lower, while health care helped to crimp overall losses with a 1.1% advance.
France's blue-chip CAC 40 lost 0.7% after the credit ratings agency Moody's unexpectedly downgraded France's rating on Friday to "Aa3" from "Aa2", with a stable outlook.
The news came hours after President Emmanuel Macron named veteran centrist Francois Bayrou as his fourth prime minister this year.
In Germany, parliament accepted Chancellor Olaf Scholz's invitation to withdraw its confidence in him and his government. The DAX closed 0.5% lower.
Surveys showed Germany's economic downturn eased slightly in December but business activity still contracted for a sixth month running, while France's services sector shrank further.
Overall, the decline in euro zone business activity eased this month as the dominant services industry bounced back to growth, as per HCOB's preliminary composite euro zone Purchasing Managers' Index.
"As the (euro area) finds itself in a period of domestic and global uncertainty, consensus appears to underplay the importance of the European Central Bank's cuts for the bloc's cyclical outlook," economists at GlobalData.TSLombard wrote.
ECB President Christine Lagarde said the central bank will cut rates further if inflation continues to ease towards its 2% target, while Vice-President Luis de Guindos said the ECB was confident that inflation will converge to the 2% target in 2025.
The European Central Bank last week cut rates for the fourth time this year. This week, monetary policy decisions from the U.S. Federal Reserve, the Bank of England and the Bank of Japan are on the radar.
Porsche (ETR:P911_p) fell 2.2% after warning it may write down the value of its stake in Volkswagen (ETR:VOWG_p) by up to 20 billion euros ($21 billion). It said it expected its 2024 group result after tax to be "significantly negative".
Volkswagen closed 2% lower.
Ladbrokes (LON:LCL) owner Entain fell 6.3% after Australia's financial crime watchdog launched legal action against its Australian unit.