LONDON - Eurozone stocks were mostly lower Monday as the euro extended gains on hopes that German Chancellor Angela Merkel is close to forming a government, dealers said.

London equities also showed small losses as investors worried about apparently stalled Brexit talks and the pound rose against the dollar.

"European equity markets are mostly lower in afternoon action, with the euro tacking onto a recent rally to a two-month high versus the US dollar," said analysts at the Charles Schwab brokerage.

A renewed coalition between Merkel's CDU/CSU conservatives and the centre-left Social Democrats is "the best option for Germany", CSU head Horst Seehofer said Sunday, raising hopes for an end to the political impasse that has gripped the eurozone's largest economy since September's inconclusive election result.

Merkel has been scrambling to avert snap elections after talks to form a new government with the pro-business Free Democrats (FDP) and the left-leaning Greens broke down a week ago.

The Social Democrats had vowed to go into opposition after a disappointing showing in September, but in a U-turn on Friday SPD chief Martin Schulz said he was ready for talks with Merkel's bloc.

"Political optimism is picking up in Germany," added analyst David Madden at CMC Markets.

"The Germany economy has been managing just fine without a functioning government for the past two months, but investors would welcome some political stability."

An improving outlook for a functioning German government boosted the euro, but the currency's strength weighed on export-oriented stocks which stand to suffer from a strong euro.

Wall Street was unchanged shortly after the opening bell.

Asian markets fell Monday on profit-taking after last week's volatility.

Shanghai slipped almost one percent, with dealers still on edge after Thursday's sharp losses fuelled by concerns about a crackdown on speculative trading.