OREANDA-NEWS. February 04, 2015. Spanish and Italian shares led European equity indexes lower on Monday as investors grew more worried about the possible ramifications of Greece's debt negotiations over the rest of the periphery.

After a turbulent first week in office, Greece's new government has made clear it wants to end the existing arrangement with the European Union, the European Central Bank and International Monetary Fund "troika" when its aid deadline expires on Feb. 28.

While investors had so far taken the view that the impact of a Greek crisis could be contained, the prospect of tough negotiations between Greece and its lenders was starting to sour appetite for assets in countries such as Spain and Italy, where anti-austerity party have also gained popularity.

Analysts at Goldman Sachs wrote on Monday they were withdrawing their recommendation to buy Italy's FTSE MIB index and Spain's Ibex, which were down 0.6 percent and 2.2 percent at 1057 GMT.

"(W)e do think that (a Greek euro zone) exit would generate heightened volatility and a higher risk premia in other European equity markets, particularly in the periphery," the analysts wrote in a note.

On Saturday, tens of thousands marched in Madrid in the biggest show of support yet for Spanish anti-austerity party Podemos, whose policies have drawn comparisons with the Syriza party that now governs Greece.

Italian and Spanish banks, with their large holding of sovereign debt and high exposure to the domestic economy, fell 1.7 percent and 2.8 percent.

"The sector is being punished and will be until the situation in Greece is cleared up," Sara Carbonell, relationship manager at CMC Markets Spain in Madrid, said

Further denting investor sentiment on peripheral banks, Spain's third-largest lender Bankia fell 4.3 percent after saying it was delaying results due on Monday.

Greek shares recovered, however, rising 4.9 percent after a spokesman said the Greek government would not take any action that would hurt the share values of the country's banks and did not plan to appoint party officials at key management posts.

Athens's ATG index is still down 8.8 percent since Syriza was elected little over a week ago.

At 1100 GMT, the FTSEurofirst 300 index of top European shares was down 0.5 percent at 1,457.93 points. The benchmark posted its best monthly performance in over three years in January, rising 7.1 percent.