By Riva Gold

Markets started the final trading week before Christmas on a subdued note, with stocks in Europe and Asia mostly lower and the dollar cooling after its best week in a month.

The Stoxx Europe 600 inched down 0.2% in morning trading, following modest losses in Asia.

Europe's basic resources sector led declines on Monday with copper futures down 0.4% at $5,617 a ton, while Chinese iron-ore futures dropped sharply in a move analysts attributed to a growing stockpile and Beijing's latest calls to curb asset bubbles.

European bank stocks were also under pressure, with shares of troubled Italian lender Banca Monte dei Paschi di Siena down around 7% after initially failing to open in the first day of a share sale. The bank needs to raise about EUR5 billion ($5.23 billion) by the end of the year to avoid being nationalized.

The euro was little changed after data showed German business sentiment improved in December. The Ifo's business climate index rose to its highest level since February 2014.

Government bonds and the dollar both stabilized meanwhile after rising sharply last week, when the U.S. Federal Reserve raised interest rates for the first time in a year and signaled a faster-than-expected pace of rate increases in 2017.

The WSJ Dollar Index was last down 0.1%, with the dollar down 0.4% against the yen and 0.1% against the euro.

Some analysts pointed to concern about escalating tensions between the U.S. and China as a factor weighing on the dollar Monday, as the fallout over China's seizure ofan American underwater drone continued even after both countries said China would return the device.

Yields on 10-year German bunds and U.S. Treasurys were down slightly at 0.315% and 2.576% respectively.

U.S. Treasury yields had settled at 2.600% on Friday, the highest in over two years, amid expectations of higher interest rates and signs inflation might be starting to creep up. Inflation chips away at bonds' fixed returns over time, reducing their attractiveness to investors.

Federal Reserve Bank of St. Louis President James Bullard said Friday that the climb in bond yields since the election indicates the need for a rate rise in 2017.

"The real rate going up on the order of 25, 30 basis points, we did take that on board and we think that's important," Mr. Bullard said.

Fed Chairwoman Janet Yellen is expected to deliver a speech on the state of the job market later Monday, just days after the bank's final meeting of the year.

Earlier, markets in Asia were mostly slightly lower, with the Shanghai Composite Index off 0.2% as a sharp selloff in Chinese government bonds raised concerns money is exiting the country's capital markets. The Hang Seng Index shed 0.9%.

Markets in Japan ended down 0.1%, just one day ahead of the conclusion of the Bank of Japan's final meeting of the year.

Australian stocks advanced 0.4%, however, as gains in oil prices boosted the energy sector. Brent crude was last up 0.5% at $55.48 a barrel.

Yifan Xie

and

Willa Plank

contributed to this article.

Write to Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

December 19, 2016 05:24 ET (10:24 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.