Bloomberg News

European Stocks Drop After Merkel Rejects Calls for Euro Bonds

November 24, 2011

Nov. 24 (Bloomberg) -- European stocks declined after German Chancellor Angela Merkel said she remains opposed to common euro-area debt sales, offsetting a report that showed German business confidence unexpectedly rose in November. U.S. index futures were little changed.

Novartis AG and Roche Holding AG led health-care companies lower, falling more than 1 percent. Dexia rebounded as the French and Belgian governments are preparing guarantees for the lender that will be agreed within days, a French official said.

The benchmark Stoxx Europe 600 Index dropped 0.2 percent to 219.98 at the close in London. The gauge had tumbled 7.1 percent over the past five days as soaring bond yields in Italy, Spain and France compounded concern that the region’s leaders are struggling to control the debt crisis.

“The market sees a ‘no’ and reacts to it,” said Martin Huefner, chief economist at Assenagon GmbH in Munich, which manages more than $4.7 billion of client assets. “We’re going to see a deterioration of equity markets in the coming months to the point where something will have to be done.”

Stocks declined after Merkel said that she remains opposed to joint euro bonds.

“Nothing has changed in my position,” Merkel said at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France.

“The market would be euphoric to get euro bonds,” Huefner said. “Apparently the pressure is not big enough yet.”

German Business Confidence

The Ifo Institute’s business-climate index, based on a survey of 7,000 executives, increased to 106.6 this month from 106.4 in October. That beat the median forecast of 105.2 in a Bloomberg News survey.

Futures on the Standard & Poor’s 500 Index expiring in December lost 0.1 percent to 1,158.5. The market is closed today for Thanksgiving and will end at 1 p.m. in New York tomorrow. Futures on the Dow Jones Industrial Average slid 18 points, or 0.2 percent, to 11,216.

National benchmark indexes fell in 13 of the 18 western- European markets. France’s CAC 40 Index was little changed. Germany’s DAX Index retreated 0.5 percent. The U.K.’s FTSE 100 Index slid 0.2 percent.

Novartis, Europe’s second-biggest pharmaceutical company, lost 1.7 percent to 47.80 Swiss francs, while Roche slid 1.3 percent to 134.70 francs in Zurich. Health-care companies were the worst performers in the Stoxx 600 index today, falling 1.4 percent.

Dexia Rebounds

Dexia rallied 28 percent to 34.4 euro cents, for an increase of 44 percent in the last two days. The Belgian lender has still lost 86 percent of its value this year after its breakup became inevitable last month as concern over its European sovereign-debt holdings caused its short-term funding to evaporate. Dexia was once the world’s largest lender to municipalities.

The French and Belgian governments will agree guarantees for Dexia within days, a French official said. The guarantees will reflect the terms of the October agreement to support Dexia, the official told reporters today in Paris.

Banco Espirito Santo SA and Banco Comercial Portugues SA, Portugal’s biggest lenders, tumbled 3.7 percent to 1.15 euros and 9.4 percent to 12.5 euro cents respectively, after Fitch Ratings cut the nation to below investment grade, citing rising debt levels and a weakening economy. Barclays Plc will remove Portugal’s debt from its Euro Treasury Index at the end of the month after the rating action, said Huw Worthington, a fixed- income strategist at Barclays Capital in London.

Mining shares advanced as copper rebounded from its lowest price in almost five weeks on the London Metal Exchange. Vedanta Resources Plc. jumped 2.8 percent to 955 pence. Rio Tinto Group increased 1.5 percent to 3,030.5 pence.

--With assistance from Alexis Xydias in London. Editors: Srinivasan Sivabalan, Will Hadfield

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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