July 14 (Bloomberg) -- U.K. stocks declined after Moody’s Investors Service said the U.S. may lose the top Aaa credit rating it’s held since 1917 and Italian government bonds fell as borrowing costs rose at a debt auction.
InterContinental Hotels Group Plc slid 3.2 percent after U.S. rival Marriott International Inc. forecast earnings that missed analysts’ estimates. Petrofac Ltd. dropped 3.8 percent after Barclays Plc downgraded the shares. Fresnillo Plc, the world’s largest primary silver producer, gained 4.9 percent after reporting record second-quarter volumes.
The FTSE 100 Index decreased 1 percent to 5,846.95 at the 4:30 p.m. close in London, the lowest since June 28. The benchmark measure has dropped 4 percent from this year’s high on Feb. 8 amid concern the European fiscal crisis is spreading. The FTSE All-Share Index also lost 1 percent today, while Ireland’s ISEQ Index fell 0.6 percent.
Moody’s put the U.S. debt rating on review for the first time since 1996 as talks to raise the country’s $14.3 trillion debt limit stalled, adding to concern that political gridlock will lead to default. Even a temporary default will probably have “large systemic effects” on the economy and Treasury finances by disrupting money funds, the repurchase-agreement market and foreign investors’ willingness to buy the government’s debt, according to JPMorgan Chase & Co.
“We believe U.S. politicians will arrive at a solution, but the longer they wait, the more they add uncertainty to financial markets,” said Michael Borre, chief equity adviser at Nordea Private Banking in Copenhagen. “That’s just the thing nobody needs now before the European bank stress tests being published tomorrow.”
European regulators are seeking to assuage investor concern that banks in the region are inadequately capitalized with a second round of stress tests to be released tomorrow.
Italy sold just under 5 billion euros ($7.1 billion) of four different bonds with maturities ranging from 5 to 15 years today. The Treasury priced 1.25 billion euros of five-year bonds to yield 4.93 percent, the highest since June 2008. That’s up from 3.9 percent at the previous auction on June 14.
Prime Minister Silvio Berlusconi survived a confidence vote in the Italian senate on his 40 billion-euro austerity package. The plan is aimed at taming the second-largest debt burden in Europe, which prompted investors to drive borrowing costs to a 14-year high of 6.02 percent on July 12.
‘Shock and Awe’
“It’s reasonable to expect the market mood to improve once we’ve passed the Italian vote on austerity measures, but as we’ve seen over the past two weeks it almost doesn’t matter what happens to politics,” said Graham Bishop, European equity strategist at Royal Bank of Scotland Group Plc. “Markets are almost at that point where they need convincing a shock-and-awe response is being seriously considered.”
Greece’s credit rating was cut three levels to Fitch Ratings’ lowest grade for any country in the world as the company followed rivals and said that a default is a “real possibility.”
Intercontinental Hotels retreated 3.2 percent to 1,241 pence after Marriott forecast third-quarter earnings of 25 to 29 cents per share. That fell short of analysts’ estimates for earnings per share of 30 cents.
Petrofac dropped 3.8 percent to 1,445 pence after Barclays downgraded the oil and gas engineer to “underweight” from “equal weight.”
Fresnillo rose 4.9 percent to 1,595 pence after saying silver output rose 7.2 percent to a record after it started production at its Saucito mine in Mexico. The precious metal has surged more than 7 percent over the past three days.
BHP Billiton Ltd., the world’s largest mining company, slipped 2.3 percent to 2,385 pence as non-precious metals from copper to aluminum retreated in London. Rio Tinto Group fell 1.2 percent to 4,387.5 pence.
Daily Mail & General Trust Plc slumped 4.1 percent to 421.3 pence, the lowest since December 2009. The publisher of the Daily Mail newspaper said advertising sales declined 7 percent in the 13 weeks through July 3.
Mothercare Plc decreased 1.4 percent to 405 pence, a sixth day of losses, as the retailer said U.K. sales fell 1.8 percent for the 15 weeks to July 9.
Associated British Foods Plc jumped 2.3 percent to 1,081 pence after reporting increased revenue. Sales at its Primark clothing stores advanced 15 percent in the 16 weeks ended June 25, faster than the 11 percent growth in the preceding six months.
Lloyds Banking Group Plc gained 3.2 percent to 45.82 pence after Goldman Sachs Group Inc. raised its rating on the U.K.’s largest mortgage lender to “buy” from “neutral,” saying it expects the company to deliver high returns and payout ratios.
--Editors: Will Hadfield, Andrew Rummer
To contact the reporter on this story: Peter Levring in Copenhagen at Plevring1@bloomberg.net
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