Bloomberg News

European Stocks Post Weekly Drop as Banks Plunge on Debt Concern

July 08, 2011

July 9 (Bloomberg) -- European stocks declined this week as concern deepened that the region’s debt crisis will spread and a report showed U.S. employers added fewer workers than forecast, fueling speculation the economic recovery is slowing.

UniCredit SpA, Italy’s biggest lender, and Portugal’s Banco Espirito Santo SA led declines in banking shares, sliding more than 7 percent. British Sky Broadcasting Plc fell the most since 2008 on speculation its acquisition by News Corp. will be delayed amid a phone-tapping scandal at the News of the World. CSM NV plummeted 15 percent after the world’s largest maker of bakery ingredients said earnings declined.

The benchmark Stoxx Europe 600 Index slid 0.4 percent to 273.76 this past week. The gauge has fallen for 9 weeks out of the past 10, bringing its decline since this year’s high on Feb. 17 to 6 percent.

“The Europe crisis is not over and also we had a reminder that this is indeed a very weak recovery in the U.S.,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels. “There is plenty to make us think this will remain a very nasty and volatile summer with a lot of worries.”

European stocks erased their weekly advance yesterday after Labor Department data showed U.S. employers added 18,000 workers in June, the fewest in nine months. The median estimate in a Bloomberg News survey of economists called for a June gain of 105,000. The unemployment rate in the world’s biggest economy rose to 9.2 percent, the highest this year. Hiring by companies, excluding government agencies, was the weakest since May 2010.

Factory Orders

A separate Commerce Department report showed U.S. factory orders climbed 0.8 percent, missing the average economist forecast for an increase of 1 percent. The Institute for Supply Management’s index of non-manufacturing businesses in the country decreased to 53.3 in June from 54.6 a month earlier.

Alcoa Inc., the largest aluminum producer in America, will unofficially kick off the U.S. earnings season on July 11. Profits at companies in the Standard & Poor’s 500 Index will rise 13 percent in the second quarter, according to analyst estimates compiled by Bloomberg, the smallest gain in two years.

European Central Bank officials increased the key interest rate by 25 basis points to 1.5 percent this week, matching forecasts by all 55 economists in a Bloomberg survey. President Jean-Claude Trichet said the ECB will suspend its minimum credit-rating threshold on Portuguese bonds after Moody’s Investors Service lowered the country’s debt to junk.

Chinese Rates

China raised its benchmark interest rate for the third time this year on July 6 after inflation accelerated to the fastest pace since July 2008.

National benchmark indexes fell in 14 of the 18 western European markets. Germany’s DAX Index slipped 0.2 percent and France’s CAC 40 Index tumbled 2.3 percent, while the U.K.’s FTSE 100 was almost unchanged.

Italy’s FTSE MIB slid 7.2 percent, the most in 14 months, as UniCredit sank 20 percent and Intesa Sanpaolo SpA plummeted 14 percent.

Banco Espirito Santo, Portugal’s biggest publicly traded bank by market value, slumped 7.1 percent while Banco Comercial Portugues SA, the second-largest, retreated 13 percent to a record low. Moody’s cut Portugal’s credit rating to Ba2 as the nation joined Greece as the second euro-region country with a non-investment grade rating.

Credit Agricole SA, France’s third-largest bank, dropped 12 percent and National Bank of Greece SA slid 10 percent.

Stress Tests

European regulators will next week try to end the region’s banking crisis by forcing firms to publish details of capital shortfalls in a more stringent and detailed set of stress tests that will give firms six months to plug any gaps. Results of the second round of tests will be released on July 15, the European Banking Association said.

The yield on 10-year Italian government bonds jumped to a euro-era record over German bunds yesterday. Spanish, Irish and Greek securities also fell.

BSkyB fell 12 percent, the most since October 2008, after the U.K. government said it will take “some time” to consider responses to News Corp.’s proposed purchase of the stake in the broadcaster that it doesn’t already own amid public outcry over the actions of News Corp. journalists.

The media company controlled by Rupert Murdoch said on July 7 it will shut the News of the World, a 168-year-old Sunday tabloid, after allegations that its reporters tapped the voicemails of murder victims and their families.

CSM, ThyssenKrupp

CSM plunged 15 percent, the biggest drop since November 2008. The maker of bakery ingredients said earnings before interest, taxes and amortization, excluding one-off costs, came to about 80 million euros ($114 million) in the first half. It reported 102.5 million euros a year earlier.

ThyssenKrupp AG posted the biggest weekly drop in 14 months, falling 6.9 percent, as Germany’s largest steelmaker sold a 9.6 percent stake to reduce debt. The company sold 49.5 million shares at 32.95 euros each, raising 1.63 billion euros.

Dragon Oil Plc surged 7.9 percent to 548 pence in London as the Financial Times Alphaville blog reported that a Chinese company may make a bid for the oil explorer at 700 pence to 750 pence a share. It did not say where it got the information.

--With assistance from Alexis Xydias in London. Editor: Andrew Rummer

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net.

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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