European markets slipped and the euro traded lower Monday on the release of data showing German business confidence fell in September for the fifth straight month.

It was another sign that Europe’s debt crisis continues to weigh on the region’s biggest economy.

Those concerns weren’t helped by signs of a growing rift between the German and French leaders over a key issue in resolving the crisis.

In London, the FTSE 100 index of leading British companies closed down 0.24 per cent at 5,838.84 and France's CAC 40 dropped 0.95 per cent to 3,497.22. Germany's DAX shed 0.52 per cent to 7,413.16.

The euro was lower by 0.40 per cent at $1.29 US.

The closely-watched survey of business optimism in Germany, the Ifo index, dipped to 101.4, its lowest level in two and a half years, from 102.3 in August. The consensus in the markets was for no change.

The index is what economists call a leading indicator — it provides clues to where the economy is going in the coming months.

The index is based on surveys of 7,000 businesses in Germany. It is calculated using the 2005 average as 100.

The disappointing reading weighed on the price of oil, as traders worried about the possibility of slowing global growth.

Benchmark crude for November delivery closed down 96 cents at $91.93 US in New York. Oil fell more than six per cent last week.

In a speech in Germany on Saturday, chancellor Angela Merkel rejected an appeal by the French president, Francois Hollande, to urgently enact oversight of a banking union for the single-currency region, seen by the markets as an essential step to resolving the debt crisis.

Hollande had earlier said "the earlier, the better." But Merkel wanted to move more cautiously, saying the move "must be thorough, it must be of good quality and then we’ll see how long it takes."

Germany Europe’s powerhouse

Germany's government is in relatively good financial shape and its economy has performed strongly over the past couple of years when compared to the other 17 countries that use the euro as their currency.

The country is Europe's economic powerhouse with a €2.6 trillion ($3.29 trillion Cdn) gross domestic product — the region's largest.

The German economy grew 0.3 per cent in the second quarter from the quarter before, but some economists see the country heading for a recession in the second half of the year.

Fully 43 per cent of Germany's exports go to its euro partners and the troubles in the single currency zone are worrying businesses and consumers in Germany.

Growth is also stalling across the other 16 countries in the eurozone. Fears are mounting that Germany's economic clout will not be enough to stop the region from falling into recession.

Concerns over the eurozone debt crisis eased after the European Central Bank president Mario Draghi announced a plan to buy government bonds of indebted countries, such as Spain and Italy, if they agree to take steps to reduce their deficit. But growth prospects for the currency union remain weak.

Governments are cutting spending to reduce debt, withdrawing stimulus from their economies and sending unemployment higher.

On top of that, the high interest rates on government bonds in Spain and Italy — driven up by default fears — have filtered through to corporate borrowing, meaning businesses in those countries face an added burden of elevated interest costs for the credit they would need to invest and expand.

"Today's Ifo index shows that German companies remain sceptical about the economic impact of Mario Draghi's magic," ING analyst Carsten Brzeski said.

"Despite fears of a looming eurozone breakup clearly fading away, German businesses are downscaling their expectations. The structural adjustments in Germany's eurozone trading partners will take time and will dampen demand for German products."

With files from The Associated Press