Bloomberg News

European Stocks Gain for Fourth Week on Spain, Italy Debt Sales

January 16, 2012

Jan. 14 (Bloomberg) -- European stocks rose for a fourth week, the longest winning streak since October, as declining borrowing costs at sales of Italian and Spanish debt outweighed worse-than-forecast data on U.S. jobs and retail sales.

Royal Bank of Scotland Group Plc climbed the most in two years, leading gains in financial shares. UniCredit SpA, Italy’s biggest bank, advanced 11 percent, rebounding from the previous week’s 38 percent tumble. ING Groep NV, the largest Dutch financial-services company, rallied 11 percent. Retail stocks sank the most since August as Tesco Plc plunged after reporting Christmas sales that missed analyst estimates.

The benchmark Stoxx Europe 600 Index increased 0.7 percent to 249.18 this past week, even after falling 0.1 percent yesterday on concern that rating companies may downgrade several euro-area countries. The gauge has advanced 1.9 percent in 2012 as declining bond yields across Europe’s peripheral nations tempered concern that the region’s debt crisis is worsening.

“For all the talk of debt downgrades, the truth is that bond auctions have shown that the most worrisome countries can access credit,” said Francisco Salvador, a strategist at FGA/MG Valores in Madrid. “This has comforted investors.”

National benchmark indexes rose in 13 of the 18 western European markets. France’s CAC 40 climbed 1.9 percent and Germany’s DAX advanced 1.4 percent, while the U.K.’s FTSE 100 Index fell 0.2 percent.

Debt Sales

Spain auctioned 10 billion euros ($12.7 billion) of bonds maturing in 2015 and 2016 on Jan. 12, twice the maximum target set for the sale. The yield on the three-year notes was 3.384 percent, compared with 5.187 percent when the nation sold similar securities in December.

Italy issued 12 billion euros of Treasury bills, meeting its target as its borrowing costs plunged. The Rome-based Treasury auctioned 8.5 billion euros one-year bills at a rate of 2.735 percent, down from 5.952 percent at the last auction.

U.S. reports this week showed jobless-benefit claims climbed more than forecast while retail sales in December rose less than economists had projected. Germany, Europe’s largest economy, may be on the brink of recession after the economy contracted in the final quarter of 2011, according to an unofficial estimate from the Federal Statistics Office.

France and Austria face downgrades at Standard & Poor’s, government officials and people familiar with the matter said yesterday. France will lose its AAA rating for the first time, Agence France-Presse reported. Italy’s credit rating was cut two levels by S&P, a European Union official said.

Greek Talks

Talks between Greece and its creditor banks were put on hold after negotiations in Athens failed to yield an agreement. A proposal put forward by the steering committee representing financial firms has “not produced a constructive consolidated response by all parties,” the Institute of International Finance said.

The Stoxx 600 finished the week higher even after declining on four of the five days. The gauge jumped 1.8 percent on Jan. 10, the most in three weeks.

RBS rallied 18 percent this week. Britain’s biggest government-owned lender is to cut about 4,800 jobs including 3,500 at the investment bank as it jettisons unprofitable units, citing volatile markets and the cost of new U.K. regulation.

UniCredit rose 11 percent. Analysts at UBS AG and Citigroup Inc. recommended buying the shares after they fell to a record low on Jan. 9. Banca Popolare di Milano Scarl gained 15 percent, the most since September, and ING increased 11 percent.

Commerzbank Climbs

Commerzbank surged 16 percent. Germany’s second-largest lender plans to raise capital to levels required by the European Banking Authority without asking taxpayers for aid, said two people with knowledge of the matter.

The EBA may this year postpone the annual stress test for banks usually published in July, Handelsblatt reported.

Rio Tinto Group led mining companies higher as copper advanced. The shares added 7.5 percent, the most in more than a month. Vedanta Resources Plc climbed 7.9 percent.

Retail stocks posted the biggest decline on the Stoxx 600 this week. Tesco plunged 19 percent in London trading as the U.K.’s biggest supermarket chain canceled predictions for 10 percent earnings growth in the 2013 financial year. Smaller rival J Sainsbury Plc dropped 4.9 percent.

Home Retail Group slid 7.8 percent after the owner of the Argos and Homebase chains forecast a drop in annual profit and said it plans a “significant” dividend cut.

Delhaize Group fell 7.7 percent in Brussels trading, the most since August. The Belgian owner of the U.S. Food Lion supermarkets reported sales that missed analysts’ estimates and said it will close 146 unprofitable stores.

Metro AG, Germany’s largest retailer, declined 6 percent after UBS cut the stock to “sell” from “neutral”.

Elsewhere, Repsol YPF SA sank 6.2 percent after Spain’s biggest oil company sold 1.39 billion euros of shares at the low end of a pricing range.

--With assistance from Alexis Xydias in London. Editor: Andrew Rummer.

To contact the reporter on this story: Tom Stoukas in Toronto at astoukas@bloomberg.net

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


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