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LONDON (Alliance News) - Stocks in London and Europe pulled back some of their worst intraday losses but still ended heavily lower Monday, as investors reacted to Greece's decision to hold a referendum on the debt bailout proposals by its creditors and to impose capital controls on its banks.

Throughout Monday, there were speeches from eurozone leaders on the Greece crisis. German Chancellor Angela Merkel said she is prepared to hold talks with Athens even after Greece's planned referendum next weekend.

"We have to find a compromise," Merkel insisted, but said Greece did not want a reach a compromise. She added that no one from outside Greece should try to influence the outcome of the July 5 referendum on the terms of the country's bailout.

European Commission President Jean-Claude Juncker urged Greeks to vote "yes" in Sunday's bailout referendum. A "no" vote would mean that Greece says "no to Europe," he said.

Juncker also called on Greek authorities to "tell the truth" to their people, saying the bailout proposals put forward by the country's creditors do not feature wage or pension cuts. He said he feels "betrayed" by the Greek government in the bailout negotiations.

Connor Campbell, financial analyst at Spreadex, said Junker's speech shows the desperation of eurozone officials.

"This spectacle was in direct contrast to Merkel's claim that pressure shouldn't be put on the Greek people ahead of Sunday, but was perhaps a more honest reflection of the growing desperation in Europe than the German chancellor's speech," Campbell said.

"Even if Greece does vote 'yes', the region's flaws have been mercilessly exposed in the past few months, and Tuesday's [International Monetary Fund] payment is potentially looking like a very large nail in an increasingly likely coffin," the analyst added.

Greece is due to make a EUR1.6 billion debt payment to the IMF on Tuesday, but this now looks highly doubtful.

Over the weekend, the Greek parliament approved a referendum on the offered terms of the country's bailout. The referendum, which is due on Sunday, July 5, was pushed by Tsipras after he was left unhappy at the terms of the bailout offered by creditors, which rejected Greece's appeal to extend its bailout into July.

Tom Elliott, international investment strategist at deVere Group, said the IMF and Eurogroup should allow an extension of the debt payment deadline for a week to see the outcome of the referendum. If a vote to reject the Eurogroup's final offer comes to pass, then Grexit should be allowed to happen but a vote to accept the proposals will be a game changer, he said.

"Syriza would have to call elections, since it could not implement reforms that it has already rejected and will be campaigning against in the referendum. A new government that reflects the will of the people could then sign on the dotted line. The risk of Grexit subsides, Greece remains in the euro and the EU and the continent breathes a sigh of relief," Elliot said.

"Austerity will persist for years as the country pays off its massive debt. However, this could be alleviated by the Eurogroup agreeing to substantial debt relief as and when reforms to labour markets, pensions, tax collection and the breaking up of professional cartels take place. What will emerge will be a modern European country," Elliot added.

Prime Minister Alexis Tsipras also said Sunday that Greece is imposing capital controls and ordering the closure of banks, as Athens scrambles to avert the collapse of the country's financial system. Tsipras said the Greek central bank recommended the measures after the European Central Bank decided against raising the amount of emergency credit that it provides to the country's banks.

Amid the uncertainty over Greece, investors flocked to the traditional safe haven asset of gold. The price of the precious metal rose to a high of USD1,188.07 an ounce Monday, but fell back during the trading session. At the London equities close, it traded at USD1,1178.58 an ounce. The rise in the price of gold caused precious metals miners to be amongst the few gainers on the London Stock Exchange.

In the FTSE 100, Randgold Resources up 0.6% and Fresnillo up 0.4% were two of just three gainers, alongside testing services firm Intertek, up 2.1%. In the FTSE 250, Acacia Mining ended up 0.7% and Centamin up 0.4%.

The FTSE 100 closed down 2.0% at 6,620.48, having touched its lowest level since late January at 6,598.64. The index has given back most of its 2015 gains and now is up just 0.8% in the year so far. The FTSE 250 closed down 1.6% at 17,534.67 and the AIM All-Share down 1.7% at 755.13.

European stock markets suffered even more from the Greece fallout, with the French CAC 40 index closing down 3.7% and the German DAX 30 down 3.6%.

On Wall Street at the London close, the DJIA and S&P 500 were both down 1.1% and the Nasdaq Composite was down 1.4%.

Away from Greece on the economic front, Germany's inflation slowed from a seven-month high in June, preliminary data from Destatis showed. Consumer price inflation eased by more than expected to 0.3% year-on-year in June from 0.7% in May. Economists had forecast it to slow marginally to 0.5%. Nonetheless, this was the fifth consecutive rise in German consumer prices.

On the London Stock Exchange, travel stocks TUI Group, down 6.7%, and International Consolidated Airlines Group, down 3.9%, were the biggest FTSE 100 losers, following the attacks on tourists in Tunisia on Friday.

Grainger closed as the best FTSE 250 performer, up 2.2%. The residential property owner and manager said AIM-listed investment fund Crystal Amber Fund has acquired a 3.08% stake in the business. Crystal Amber Fund closed up 0.2%.

Ocado Group rose 1.6% after the Daily Telegraph reported that the online grocery company is close to securing a deal with an international retailer which will allow the company to expand outside of the UK for the first time.

In the economic calendar Tuesday, German unemployment is at 0855 BST, ahead of first quarter UK GDP and current account data at 0930 BST. Eurozone unemployment rate and inflation is at 1000 BST, while in the afternoon there is US Chicago Purchasing Managers Index at 1445 BST and consumer confidence at 1500 BST.

In the corporate calendar, there are full-year results from maritime engineering company James Fisher & Sons, light commercial vehicle hire firm Northgate, microchip maker Imagination Technologies Group, and carpet retailer Carpetright. Shopping centre investor Intu Properties issues half-year results, as does online grocery company Ocado Group.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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