Bloomberg News

Stocks, Euro Decline on Debt Concern as Italy Bond Yields Climb

November 15, 2011

Nov. 14 (Bloomberg) -- Stocks and the euro slid as Italy’s borrowing costs increased to a euro-era record at an auction today, deepening concern Europe will struggle to contain its debt crisis. German bunds rose, while copper climbed as Japan’s economy grew for the first time in a year.

The Standard & Poor’s 500 Index lost 1 percent to close at 1,251.78 at 4 p.m. in New York after rallying 2.8 percent in the previous two sessions. The Stoxx Europe 600 Index dropped 1 percent as UniCredit SpA slid on plans to sell shares. The euro weakened 0.9 percent to $1.3628. The yield on the Italian five- year bond rose 17 basis points and Spanish 10-year rates surged to a euro-era record above German yields.

Italy sold 3 billion euros ($4.1 billion) of five-year notes priced to yield 6.29 percent, the highest since June 1997. U.S. stocks extended declines after German Finance Minister Wolfgang Schaeuble said Europe’s permanent bailout fund may not be implemented before 2013 and German Chancellor Angela Merkel’s party voted to offer euro states a way to leave the currency area.

“There’s still a lot of work to be done to make Italy an ongoing financial viable situation,” Kevin Shacknofsky, who helps manage about $5 billion for Alpine Mutual Funds in New York. “At some point, the market will end up becoming a bit desensitized to it. At the moment, it’s still taking the cues from Europe.”

Losses Extended

The S&P 500 advanced 0.9 percent last week, bringing the gauge to a 0.5 percent 2011 gain as of Nov. 11, as economic data improved and Greece and Italy worked toward installing new leadership. Today’s drop left it down 0.5 percent this year.

Declines today were led by financial companies, with JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. falling more than 2 percent to pace losses. Bank of New York Mellon Corp. tumbled 4.4 after the custody bank said it would book a charge of as much as $100 million for cost-cutting measures.

Boeing Co. rose 1.5 percent after the jetmaker secured the biggest order in its almost 100-year history, signing a $26 billion agreement with Emirates airline for as many as 70 of its 777 aircraft.

Ten-year U.S. Treasury yields slipped two basis points to 2.04 percent. Oil in New York fell 0.9 percent to $98.14 a barrel, while copper, lead and zinc jumped more than 1 percent amid speculation China may ease monetary policy to spur the economy.

European Shares

Italy’s FTSE MIB Index lost 2 percent and Spain’s IBEX 35 sank 2.2 percent to lead European national benchmarks lower. More than four shares fell for every one that gained in the Stoxx 600. Hochtief AG sank 11 percent after Germany’s largest construction company delayed the sale of its airport operating business and reported third-quarter earnings that missed estimates.

UniCredit SpA, Italy’s biggest bank, slid 6.2 percent after announcing plans to raise as much as 7.5 billion euros ($10.3 billion) by selling new shares to boost capital. The bank reported a 10.6 billion-euro loss for the third quarter after almost 10 billion euros in goodwill impairments and writedowns, and said it won’t pay a dividend for 2011.

U.S.-traded shares of Credit Suisse Group AG, the second- biggest Swiss bank, tumbled 3.4 percent after Moody’s Investors Service said the Swiss lender may have its long-term credit rating cut. Moody’s statement was released after the shares stopped trading in Zurich.

‘Credibility Lost’

The yield on Italy’s 10-year bond increased 25 basis points to 6.70 percent, compared with a euro-era record last week of 7.48 percent. Demand at today’s auction was 1.47 times the amount on offer, compared with 1.34 times last month, when the yield was 5.32 percent. Former European Union Competition Commissioner Mario Monti was asked yesterday to set up a government faced with trying to cut the euro region’s second- biggest debt.

There was “decent bidding” at today’s auction, Annalisa Piazza, an economist at Newedge Group in Italy, said in a report. “Dealers remain cautious. Credibility has been lost and it will take a while for market participants to believe that the country is back on the right track.”

The 10-year French yield increased four basis points to 3.42 percent, reversing earlier declines, while the Spanish yield increased 25 basis points to 6.11 percent and its spread above benchmark German bunds reached a euro-era record of as much as 4.34 percentage points. The Greek two-year note yield surged 67 basis points, or 0.67 percentage point, to 109.57 percent.

“These blip-ups in yields put more uncertainty in the market,” Peter Tuz, who helps manage about $800 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia, said in a telephone interview. “Stabilization on that front would be really important. Just because they’ve had a bit of good news coming out of Europe last week, it doesn’t mean they don’t still have a lot of work to do to get their financial houses in order.”

Euro, Dollar

The euro weakened 1 percent against the yen. The pound dropped 1 percent versus the dollar after an index of U.K. employers’ hiring intentions weakened as the crisis in the euro region damped demand for labor, data from the Chartered Institute of Personnel and Development showed. The dollar gained against 12 of its 16 major counterparts.

The Nikkei 225 Index surged 1.1 percent. Japan’s gross domestic product grew an annualized 6 percent in the last quarter as exports recovered from the record earthquake on March 11, government data showed.

The MSCI Emerging Markets Index climbed 0.4 percent, led by Asian markets. South Korea’s Kospi Index and Taiwan’s Taiex Index rose more than 2 percent. The Hang Seng China Enterprises Index in Hong Kong jumped 2.8 percent. Hungary’s forint sank 1.7 percent against the euro and the BUX Index of stocks lost 2.8 percent after S&P said it may cut the country’s debt rating to speculative grade.

--With assistance from Julie Cruz in Frankfurt, Claudia Carpenter, Andrew Rummer, Daniel Tilles, Paul Dobson and Jason Webb in London. Editors: Michael P. Regan, Nick Baker

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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