Fears the euro zone's sovereign debt crisis could flare up again caused some investors to switch out of southern European "peripheral" equity markets in favour of "core" northern Europe. The French and German stock markets rose on Monday.

The sole candidate for the Greek presidency, Stavros Dimas, a former European Commissioner, fell short of the 180 vote super majority needed to become president, and Greek Prime Minister Antonis Samaras announced a snap parliamentary election on Jan. 25.

Opinion polls point to a victory by the radical leftist Syriza party, which wants to wipe out a big part of Greece's debt, and cancel the terms of a bailout from the European Union and International Monetary Fund that Greece still needs to pay its bills.

The benchmark ATG Athex General Composite Share Price Index at one point slumped 11 percent, before then recovering to close down 3.9 percent, near levels not seen since 2012.

The Athens index had already retreated on expectations that Dimas would fall short, dropping 12.8 percent on Dec. 9, and it remains down by nearly 30 percent in 2014.

"This snap election allows the left-wing party Syriza to get its foot in the door, and potentially disrupt the tentative stability currently holding the euro zone together," said Spreadex financial analyst Connor Campbell.

GREEK CONTAGION LIMITED?

The Greek result knocked assets in Spain and Italy, which narrowly escaped the sovereign debt crisis that led to Greece's 2010 bailout.

Spanish and Italian bond yields rose, pushing Madrid's IBEX stock market down 0.8 percent while Milan's FTSE MIB fell 1.2 percent.

However, German and French bond yields fell to record lows, while the Frankfurt DAX index rose 0.1 percent and the Paris CAC-40 index advanced 0.5 percent.

Britain's FTSE 100 also climbed 0.4 percent, helped by a 4.6 percent rise in Royal Mail after one of its main competitors, City Link, went into administration over Christmas.

Some traders are hoping the European Central Bank (ECB) will announce stronger economic stimulus measures next month to minimise any contagion from the Greek vote on Jan. 25.

"As grim as the outlook in Greece is, I feel the problem isn't as contagious as the debt crisis a number of years ago," said IG market analyst David Madden.