European stocks on Monday finished in negative territory, kicking off the week lower as rising expectations the U.S. Federal Reserve will lift interest rates later this year poked the air out of a recent rally.

The Stoxx Europe 600 index SXXP, -0.15% lost 0.2% to close at 343.20, pulling back after a 1.1% climb last week.

The pan-European benchmark settled 0.5% higher on Friday, after Fed Chairwoman Janet Yellen, at a closely watched speech at Jackson Hole, Wyo., said the U.S. economy is improving, seen as a sign of confidence in economic growth world-wide. However, the central-bank boss also hinted a rate increase is on the cards in coming months, which weighed on U.S. markets on Friday and dragged stocks in most of Asia and Europe lower on Monday.

U.S. stocks closed higher Monday, led higher by financial stocks as investors warmed up to the possibility of a Federal Reserve rate hike this year. The Dow Jones Industrial Average [ s: djia] closed up 107.59 points, or 0.6%, at 18,502.99, with Travelers Cos. TRV, +1.14% American Express Co AXP, +1.13% J.P. Morgan Chase & Co. JPM, +1.10% and DuPont DD, +1.15% all finishing up more than 1%. The S&P 500 Index SPX, +0.52% finished up 11.34 points, or 0.5%, at 2,180.38, as the financial sector gained 1%, followed by a rise in materials stocks. The Nasdaq Composite Index COMP, +0.26% rose 13.41 points, or 0.3%, to close at 5,232.33.

Asian shares bounced on Tuesday as doubts the Federal Reserve really would hike interest rates as soon as September restrained the dollar, while investors continued to count on more policy stimulus elsewhere in the world.

Japan's Nikkei .N225 went flat as the yen stopped falling following a sharp drop late last week.

A raft of Japanese data, from unemployment to retail sales, mostly beat analysts' forecasts but did nothing to change expectations the Bank of Japan would eventually have to ease further.