Bloomberg News

U.K. Stocks Drop on Concern Debt Crisis Is Spreading to Italy

November 07, 2011

Nov. 7 (Bloomberg) -- U.K. stocks declined for a second day on concern that surging Italian sovereign bond yields signal the debt crisis is spreading to the euro area’s third largest economy.

Royal Bank of Scotland Group Plc fell 1.3 percent and Barclays Plc retreated 1 percent. Ryanair Holdings Plc climbed 3.9 percent in Dublin after Europe’s largest discount airline raised its earnings forecast.

The benchmark FTSE 100 Index fell 28.71, or 0.5 percent, to 5,498.45 at 11:23 a.m. in London. The gauge trimmed an earlier loss of as much as 1.7 percent on a report that Italian Prime Minister Silvio Berlusconi will resign today. The FTSE All-Share Index slid 0.5 percent. Ireland’s ISEQ Index lost 0.5 percent today.

“The market wants to see more action rather than words,” said Philipp Baertschi, chief strategist at Bank Sarasin & Cie. AG in Zurich, where he helps oversee the equivalent of about $110 billion. “What’s needed is more urgency in terms of Greece and Italy,” he said in a Bloomberg Television interview with Owen Thomas.

The FTSE 100 has fallen 7.2 percent this year as the sovereign-debt crisis threatened to spread across the euro area. The U.K. is still the third best performing equity market in western Europe, only after Iceland and Ireland, as investors favor companies that are less dependent on the region for sales.

Italian Yields

Italy’s record bond yields are sending the nation down the same path taken by Greece, Portugal and Ireland in the days before they were forced to seek rescues.

With almost 1.6 trillion euros ($2.2 trillion) of bonds outstanding, Italy has more liabilities than Spain, Portugal and Ireland combined, making it vulnerable to increases in borrowing costs. Berlusconi triggered the latest surge in yields after bowing to domestic demands to water down a 45.5 billion-euro austerity package.

Berlusconi’s majority is unraveling before a key parliamentary vote tomorrow on the 2010 budget report, with allies pressuring him to step aside after contagion from the debt crisis pushed Italy’s borrowing costs to euro-era records.

The prime minister may step down within “hours,” according to an article written by former minister Giuliano Ferrara in the online edition of Il Foglio, news agency Ansa reported. “Some people say it could be minutes,” Ferrara wrote on the website, according to Ansa.

Greek Pause

The FTSE 100 tumbled 3.1 percent last week, snapping a five-week rally, after a failed attempt by Greek Prime Minister George Papandreou to hold a referendum on the latest bailout package roiled financial markets and spurred concern Greece may default. Papandreou yesterday agreed to step down to allow the creation of a new government intended to secure international financing and avert a collapse of the country’s economy.

He met with Antonis Samaras, the main opposition leader, and agreed to form a government to lead the country to elections immediately after the implementation of the bailout package that was completed on Oct. 26. Papandreou has stated he won’t lead the new government.

RBS slid 1.3 percent to 22.8 pence. Barclays declined 1 percent to 181.8 pence.

BP Plc fell 1.1 percent to 447.5 pence after its agreement to sell a stake in Argentine crude producer Pan American Energy LLC to China’s Cnooc Ltd. collapsed.

Weir, Ryanair

Weir Group Plc fell 4.7 percent to 1,841 pence. The company said it is confident full-year results will meet expectations.

Ryanair advanced 3.9 percent to 3.48 euros after the airline raised its full-year profit forecast by 10 percent to 440 million euros ($606 million) as higher ticket prices offset a slowdown in growth. The Dublin-based company reported a 22 percent increase in second-quarter earnings to 404 million euros, in line with analysts’ estimates.

Carphone Warehouse Group Plc, Europe’s largest mobile-phone retailer, rose 1.2 percent to 349 pence after founder Charles Dunstone agreed to sell the company’s stake in its U.S. and Canadian mobile phone joint venture to partner Best Buy Co. for 838 million pounds.

--Editors: Srinivasan Sivabalan, Andrew Rummer

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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


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