FRANCE: Paris Attacks, Investors Ignore Fears Of Threat Of New Border Controls

Travel companies bear the brunt of sell-off but hints at more government spending are set to provide succour for stagnant French economy.

Global markets shrugged off the impact of the worst terrorist attack on European soil for over ten years on Monday, pouring back into equities in a tentative day of trading.

France's benchmark CAC 40 index finished the day flat after fears of a sharp sell-off failed to materialise.

The bourse fell by as much as 1.2pc at the opening bell, but reversed most of its losses to close down just 0.08pc in the first day of trading since the deadly attacks in the French capital on Friday night.

Germany's Dax ended the day up 0.05pc while the FTSE 100 was Europe's best performer, closing up 0.5pc

Europe's travel and leisure companies bore the brunt of investors anxiety about the state of tourism in the aftermath of the shootings and bombings in the eurozone's second largest economy.

Hotel group Accor plunged as much as 6pc, while Air France KLM tumbled 5.8pc and Eurotunnel slipped 4.5pc. The Euro Stoxx 60 Travel and Leisure index saw €2.6bn wiped off its value amid fears that tourism is set to take a nosedive in the wake of events in the French capital.

Tourism contributed $57bn to the French economy in 2013 and accounts for around 2pc of GDP.

Analysts warned that the declaration of a three month "state of emergency" announced by President Francois Hollande could hit the struggling French economy and dent consumer confidence.

Mr Hollande, addressing the nation in a landmark speech at the palace of Versailles, also called for a temporary suspension of the Schengen free movement system.

Economists fear that the measures will see shopping days lost, a decline in tourists numbers, and a disruption to business activity as a result of ramped up border security.

But the European Central Bank's chief economist, Peter Praet said the terror attacks were only likely to have a "transitory effect on the economy" and would not immediately alter the central bank's approach to monetary policy.

"This is not a priori a reason to change the way we see the evolution of the European economy", said Mr Praet.

In more encouraging signs, Socialist president Hollande also hinted at the beefed up security spending his government would undertake in response to the threat of Islamic State.

Expansionary fiscal policy of this kind is set boost stagnant French GDP in the short-term and allow the country to waive a 3pc deficit limit imposed by the EU's Fiscal Compact, suggested Mr Hollande.

The European Commission will provide its latest verdict on the budgets of 19 member states in Brussels on Tuesday. France has been a persistent flouter of the rules and was afforded an extended two-year period to move towards the debt and deficit limits earlier this year.

The euro also fell to a six-month low, slumping to $1.68 against the dollar and extending a fall that has now reached more than 5pc since October.

News of the French and US governments pounding Islamic State targets in Syria on Sunday night, helped brent crude prices rally, before they fell back on renewed concerns about insipid global demand.

The export price of a barrel of Opec produced oil fell below $40 for the first time since 2009 on Monday, highlighting the perils of excess production from12-nation cartel.

The International Energy Agency - the world's global energy watchdog - said last week that record stockpiles of oil would help shield the world from adverse supply shocks and the eruption of geopolitical tensions in the Middle East.

Investors sought out the safety of gold, with the yellow metal enjoying its best day of trading in over a month. An ounce of gold spiking by 1.2pc to $1,097 amid the turmoil.

Events in Paris could may yet "compound" Europe's economic and social problems, said ECB vice-president Vitor Constancio.

Speaking in Frankfurt on Monday, Mr Constancio added that the market reaction to events so far had been muted.

"If there would be no further consequences, the impact would not be very significant" he said.