Bloomberg News

European Stocks Post Weekly Drop as ECB Quells Bond-Buying Bets

December 12, 2011

Dec. 10 (Bloomberg) -- European stocks fell for the third week in four as the European Central Bank damped speculation it would boost debt purchases, overshadowing an agreement by the region’s leaders to step up measures to fight the debt crisis.

Metro AG, Germany’s biggest retailer, tumbled the most in three years after forecasting lower sales and earnings. Michael Page International Plc slumped 11 percent after saying profit will miss analysts’ estimates. Nokia Oyj slid 7.9 percent to lead a gauge of technology firms lower. Banco Sabadell SA rose the most since January after agreeing to buy stricken Spanish lender Caja de Ahorros del Mediterraneo.

The Stoxx Europe 600 Index slipped 0.1 percent to 240.51 this past week. The gauge dropped 1.5 percent on Dec. 8 as ECB President Mario Draghi said the central bank’s bond-purchase program is “neither eternal nor infinite.” The benchmark measure has still rallied 12 percent from this year’s low on Sept. 22 amid optimism policy makers would solve the crisis.

“The ECB signaled clearly, by saying bond buying will be limited, that turning to the ECB is not the solution to the debt crisis,” said Henrik Drusebjerg, who helps oversee $230 billion as senior strategist at Nordea Bank AB in Copenhagen. “Politicians are saying the right things, but the challenge will be if they can actually implement what they decided.”

ECB Rate Cut

ECB policy makers reduced the euro area’s benchmark interest rate by a quarter percentage point on Dec. 8 to 1 percent, matching a record low. They also loosened collateral rules so that banks can borrow more from the ECB and announced two unlimited three-year loans.

Draghi said he didn’t signal that the central bank would step up government bond purchases when speaking before lawmakers in Brussels on Dec. 1. He said he was “kind of surprised by the implicit meaning” that was given to his comments when he said the ECB could follow faster fiscal union with “other elements.”

“Draghi appeared to pour cold water on expectations of more bond purchases,” said David Jones, chief market strategist at IG Index in London. “This seemed to push responsibility firmly back on individual governments, a fact that perhaps still doesn’t sit too comfortably with a lot of investors.”

The Stoxx 600 pared its weekly decline yesterday as European leaders agreed to boost funds available to assist nations struggling with budget deficits. Policy makers meeting in Brussels added 200 billion euros ($267 billion) to their crisis-fighting war chest by funneling money from central banks to the International Monetary Fund. They also tightened rules to curb future debts and watered down demands that bondholders should shoulder losses in bailouts.

Italian Austerity

In the run-up to the summit, U.S. Treasury Secretary Timothy F. Geithner said Italy has a “strong program” of economic changes and European leaders are moving toward a “fiscal union” that will strengthen the euro-region firewall. Italian premier Mario Monti presented a 30 billion-euro package to reduce the European Union’s second-biggest debt to the Italian parliament, including more than 12 billion euros in spending cuts and plans to force workers to delay retirement.

In Asia, China’s inflation cooled to the slowest pace in 14 months in November, and industrial output climbed by the weakest amount in more than two years. Japan’s economy grew less than the government’s initial estimate last quarter and the Bank of Korea said the nation’s growth may slow next year.

Chinese Investment Fund

China’s central bank plans to create a new investment vehicle to manage $300 billion in foreign reserves, Reuters reported, citing two people familiar with the matter. The vehicle will manage two funds, targeting investments in the U.S. and Europe, and will be affiliated with China’s State Administration of Foreign Exchange, the news agency said.

Metro dropped 18 percent, the most since October 2008, after the retailer forecast that sales and earnings will fall this year following a weak start to the Christmas season.

Michael Page tumbled 11 percent as the recruiter said full- year pretax profit will miss analyst forecasts. Rival Hays Plc also retreated 11 percent for the biggest decline since August.

Technology shares had the second-biggest drop among 19 industry groups in the Stoxx 600. Nokia, the Finnish maker of mobile phones, sank 7.9 percent. STMicroelectronics NV, Europe’s largest semiconductor maker, slipped 6.2 percent in Milan.

Gartner Inc. cut its growth forecast for global semiconductor spending and Texas Instruments Inc., the second- biggest U.S. chipmaker, forecast sales that fell short of analysts’ estimates as demand for components weakened.

Commerzbank Capital

Commerzbank AG declined 11 percent as regulators told the lender it must raise more capital than previously estimated after some sovereign bonds tumbled. The European Banking Authority said Germany’s second-largest bank had a 5.3 billion- euro shortfall.

Sabadell rose 14 percent after agreeing to acquire CAM for one euro in a deal financed and guaranteed by Spain’s commercial lenders to shield the national budget from losses. The purchase will create a lender with 166 billion euros in assets, Spain’s fifth-largest, combining Sabadell with a savings bank that was seized by the Bank of Spain in July after souring property loans wrecked its business.

Raiffeisen Bank International AG, the third-biggest lender in Eastern Europe, climbed 9.6 percent as its main shareholder, the unlisted Raiffeisen Zentralbank Oesterreich AG, sought shareholder permission to fill a 2.5 billion-euro capital gap by selling new shares and other securities

RZB, which is controlled by eight regional Austrian cooperative banks, scheduled a shareholder meeting for Dec. 28. It may issue as many as 3 million new shares in RZB, or half of the outstanding, and sell non-voting securities known as participation capital, according to the agenda.

--Editors: Andrew Rummer, Will Hadfield

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

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


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