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European stocks fell for a third week, the longest losing streak since August, as Spain’s rising borrowing costs boosted concern the euro-area has yet to contain its debt crisis, and the U.S. Federal Reserve damped expectations for further monetary stimulus.
Banking shares led declines. Banca Popolare di Milano Scarl (PMI) and UniCredit SpA slid at least 12 percent each this week. Peugeot SA (UG) dropped 10 percent after a report showed U.S. sales of light vehicles rose less than forecast. Cairn Energy Plc (CNE) gained 3.7 percent after agreeing to buy Agora Oil & Gas AS to expand in the North Sea.
The Stoxx Europe 600 Index (SXXP) declined 1.6 percent to 259.07 this week. The benchmark measure climbed 7.7 percent in the first quarter, its best performance during the first three months of the year since 2006, as the ECB disbursed 1 trillion euros ($1.3 trillion) in three-year loans to the region’s financial institutions and U.S. economic reports beat estimates.
“The fact that Spain is back in the news makes equity investors nervous about where we go from here,” said Peter Dixon, global equities economist at Commerzbank AG (CBK) in London. “So long as we have some kind of concern to worry about, there are going to be limits to which equities will be able to take off.”
Spanish bonds fell for a third day on April 5, widening the spread between yields on 10-year Spanish and German debt to more than 400 basis points for the first time since Dec. 12.
National benchmark indexes dropped in 16 of the 18 western- European markets this week. France’s CAC 40 Index slid 3 percent, the U.K.’s FTSE 100 Index lost 0.8 percent and Germany’s DAX Index decreased 2.5 percent.
Spain is in “extreme difficulty,” Prime Minister Mariano Rajoy said April 4, raising the possibility of a bailout for the second time this week. The government has widened its budget deficit target to 5.3 percent of gross domestic product from 4.4 percent and warned on April 3 that public debt will surge to a record 79.8 percent of GDP this year.
Spain sold 2.6 billion euros of bonds, near the minimum target for the sale on April 4. Borrowing costs rose in its first auction since the country said public debt will jump to a record this year. The Treasury had set a range of 2.5 billion euros to 3.5 billion euros for the sale.
In the U.S., the Federal Reserve is holding off on increasing monetary accommodation unless U.S. economic growth falters or prices rise at a rate slower than its 2 percent target, minutes released from a March 13 policy meeting showed on April 3.
“A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below” 2 percent, according to the minutes.
The European Central Bank left its benchmark interest rate unchanged at a record low of 1 percent on April 4. The euro- area’s economic outlook remains subject to “downside risks,” President Mario Draghi said at a press conference later that day in Frankfurt.
“The remaining tensions in euro area sovereign-debt markets are expected to dampen economic momentum,” he said.
Euro-area services and manufacturing output contracted for a second month in March. A composite index based on a survey of purchasing managers in both industries dropped to 49.1 from 49.3 in February, London-based Markit Economics said on April 4. That’s above an initial estimate of 48.7 on March 22. A reading below 50 indicates contraction.
In the U.K., Bank of England Governor Mervyn King and his committee voted on April 5 to leave their asset-purchase program unchanged at 325 billion pounds ($514 billion), as predicted by all 39 economists surveyed by Bloomberg News.
In the U.S., a Labor Department report showed initial jobless claims fell to 357,000 in the week to March 31, the lowest level in four years. The median forecast of 43 economists in a Bloomberg News survey estimated a decrease to 355,000.
Manufacturing in the U.S. expanded more than forecast in March, according to a report on April 2. The Institute for Supply Management’s factory index climbed to 53.4 from 52.4 in February, data showed. Economists in a Bloomberg survey had estimated an increase to 53. Readings above 50 signal growth.
A report on April 3 showed that factory orders in the world’s biggest economy rose 1.3 percent in February, missing the median estimate of a 1.5 percent-gain predicted by economists in a Bloomberg News survey.
In China, a purchase managers’ index compiled by the logistics federation and the National Bureau of Statistics rose to 53.1 in March from 51 in February.
The index, which was released on April 1, has a pattern of gaining each March. In contrast, a PMI from HSBC Holdings Plc and Markit Economics fell to a four-month low of 48.3, showing that manufacturing contracted and export orders declined.
A gauge of banking shares was the worst performer among 19 industry groups on the Stoxx 600 Index this week.
Banca Popolare di Milano plunged 16 percent, while UniCredit (UCG) tumbled 12 percent.
Banco Santander SA (SAN), Spain’s largest bank, slipped 6.2 percent. Commerzbank AG, Germany’s second-biggest lender, lost 7.8 percent.
Auto companies were among the worst-performing industries on the Stoxx 600. A report on April 4 showed U.S. sales of cars and light trucks rose to a 14.4 million seasonally adjusted annual rate, falling short of the 14.5 million median estimate of 16 analysts in a Bloomberg survey.
Peugeot SA led losses, dropping 10 percent. Renault SA (RNO) slid 3.9 percent and Volkswagen AG (VOW3) decreased 2.2 percent.
Veolia Environnement SA (VIE) tumbled 9.9 percent this week. Deutsche Bank AG cut its recommendation on the shares to sell from neutral. Les Echos said on April 4 without citing anyone that the company may decide to take sole control of Societe Nationale Maritime Corse Mediterranee.
Logica Plc (LOG) plunged 10 percent. The Anglo-Dutch computer services provider said on April 4 that Seamus Keating, the head of its Netherlands unit, left after implementing a restructuring plan.
Cairn Energy rose 3.7 percent. The energy explorer agreed to buy Agora, a Norwegian company owned by RIT Capital Partners Plc and financier Jacob Rothschild, for an enterprise value of $375 million and net working capital of $75 million. Cairn will pay 43 percent in cash and 57 percent in shares.
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