Bloomberg News

European Stocks Drop as Lower Spanish Bond Demand Fuels Concern

November 17, 2011

Nov. 17 (Bloomberg) -- European stocks fell after Spain’s borrowing costs surged to a euro-era record on waning demand at a bond sale, adding to concern the region’s sovereign debt crisis is deepening.

BNP Paribas SA and Societe Generale SA led a sell-off in banks, both dropping at least 3.9 percent as dollar funding costs for European lenders climbed to a three-year high. Mining companies tumbled with metal prices.

The benchmark Stoxx Europe 600 Index lost 1.3 percent to 233.97 at the close in London, extending the decline from this year’s high on Feb. 17 to 20 percent as the debt crisis spreads across the region’s core.

“You have a lot of pressure on yields, you have the structural issues, the liquidity issues, plus market fears -- it’s very bad,” said Patrick Legland, head of research at Societe Generale, on Bloomberg Television. “We are not very far from the point where the European Central Bank will need to intervene one way or another.”

Spanish bonds sank, driving 10-year yields to as much as 6.78 percent, the highest since before the euro was introduced, as borrowing costs climbed to the most in at least seven years at an auction of securities. The benchmark yield was trading at 6.49 percent at 4:39 p.m.

Spanish Bond Auction

At today’s sale, Spain sold 3.56 billion euros ($4.8 billion) of new 10-year benchmark at an average yield of 6.975 percent as demand dropped. That’s up from 5.433 percent when it sold 10-year bonds on Oct. 20 and is the highest rate since at least September 2004.

In France, the extra yield, or spread, investors receive for holding 10-year French debt instead of benchmark German bunds reached 2 percentage points for the first time in the shared currency’s history as the country sold 8.01 billion euros of notes and bonds.

Stocks briefly pared some of their losses after data showed fewer Americans than forecast filed first-time claims for unemployment insurance payments last week, an indication the labor market may be gaining traction. Builders broke ground on more homes than forecast in October and construction permits climbed to the highest level since March 2010.

National benchmark indexes fell in all but one of the 18 western-European markets today. France’s CAC 40 slid 1.8 percent, the U.K.’s FTSE 100 dropped 1.6 percent and Germany’s DAX lost 1.1 percent.

Dollar Funding

A gauge of European banks declined 2.2 percent as the three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, reached 131 basis points below the euro interbank offered rate in London, the most expensive since December 2008.

BNP Paribas, France’s largest lender, fell 4.6 percent to 28.49 euros. Societe Generale slid 3.9 percent to 16.95 euros. Credit Agricole SA lost 4.7 percent to 4.43 euros. Deutsche Bank AG, Germany’s largest bank, declined 3.7 percent to 27.29 euros.

KBC Groep NV sank 8.2 percent to 11.71 euros, for the second-worst performance on the Stoxx 600, after Bank of America Corp. said in a report that Belgium’s largest bank may reduce its dividend.

Antofagasta Plc paced a selloff in mining shares, falling 6.1 percent to 1,103 pence, while Vedanta Resources Plc lost 6.9 percent to 1,014 pence and Xstrata Plc retreated 3.9 percent to 958.8 pence.

Copper tumbled the most in a week in London on concern Europe’s debt crisis may spread to other economies, potentially eroding demand for metals.

Voestalpine AG plunged 9.2 percent to 20.84 euros after Austria’s biggest steelmaker cut its profit outlook for the full year, citing a “difficult economic environment.”

ASML Holding NV, Europe’s biggest semiconductor-equipment maker, dropped 3.2 percent to 28.65 euros after Applied Materials Inc., the world’s largest producer of semiconductor- making equipment, forecast first-quarter earnings that missed analyst estimates.

--With assistance from Francine Lacqua in London. Editors: Srinivasan Sivabalan, Will Hadfield

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

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


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