The STOXX Europe 600 <.STOXX> closed 0.1 percent lower, adding to Friday's steep losses that sent the pan-European index to its lowest closing level for three weeks.

Generali (>> Assicurazioni Generali SpA), down 2.8 percent, was among the biggest drags on the STOXX after Intesa Sanpaolo (>> Intesa Sanpaolo SpA) said late on Friday it had decided not to pursue a possible tie-up with Italy's biggest insurer.

The decision, which helped Intesa gain 5.5 percent on relief that the Italian bank was not putting its dividend at risk to pursue the deal, prompted some analysts to downgrade Generali.

"As we do not expect another bidder our valuation now implies 10 percent downside," said RBC Capital Markets, which downgraded Generali to "underperform" from "outperform".

However, a rally for shares including Intesa Sanpaolo and Banco BPM (>> Banco BPM SpA) helped Italy's benchmark FTSE MIB <.FTMIB> index to surge 1.7 percent.

Banco BPM was up 6.1 percent, the top gainer in the STOXX 600, after the lender said late on Friday that it comfortably met the European Central Bank's capital requirements.

However, insurance stocks lost ground.

Britain's biggest motor insurers Admiral (>> Admiral Group plc) and Direct Line (>> Direct Line Insurance Group PLC) fell 2.5 percent and 7.2 percent respectively after the government announced new rules that push up lump sum payments for personal injury claims, a change the industry's trade body described as "crazy".

London Stock Exchange (LSE) (>> London Stock Exchange Group Plc) and Deutsche Boerse fell 1.1 percent and 2.4 percent respectively after the LSE said that its proposed merger with the German exchange was unlikely to be approved by the European Commission.

"It becomes clear that the merger with Deutsche Boerse is on a knife-edge... There is a long, long way to fall if this tie-up dies," ETX Capital market analyst Neil Wilson said.

Among other listed exchange operators, Euronext (>> Euronext) was down 2.2 percent.

Elsewhere, Dutch mail and parcel company PostNL (>> PostNL) fell 7.4 percent after its underlying cash operating income for the fiscal year came in below market expectations.

Adidas (>> adidas AG) rose 3.9 percent after UBS and RBC lifted their ratings in the first upgrade for the German sportswear group for seven months.

"We think upgrade cycle will continue this year and see opportunity for Adidas to surprise on sales growth, gross margin and operating leverage," UBS analyst Fred Speirs said in a note.

(Additional reporting by Atul Prakash; Editing by Louise Ireland)

By Danilo Masoni