Euro Weakens as Spanish Yields Climb at Auction; European Stocks Decline

By Stephen Kirkland - Nov 15, 2011 6:13 PM GMT+0700

The euro weakened as the cost of insuring French bonds climbed to a record and Spanish yields rose at an auction. European stocks retreated for a second day after Finmeccanica SpA predicted a loss and Cable & Wireless Worldwide Plc suspended dividends.

The euro depreciated 0.8 percent to $1.3527 at 6:10 a.m. in New York, and the Dollar Index added 0.5 percent. The yield on French 10-year bonds climbed to a euro-era record relative to benchmark German bunds, as did Belgium’s and Spain’s. The Stoxx Europe 600 Index sank 1.5 percent, led by banks and insurers. Futures on the Standard & Poor’s 500 Index lost 1.1 percent. Copper fell 1.2 percent.

Spain sold 3.16 billion euros ($4.3 billion) of 12-month and 18-month bills, compared with a maximum target of 3.5 billion euros, the Bank of Spain said. Mario Monti, Italy’s premier-in-waiting, faced political resistance on forming a Cabinet during talks in Rome yesterday. Economic growth in Europe failed to accelerate in the third quarter, the European Union’s statistics office said today.

There “is a clear indication of the systemic risk which continues to gnaw its way through the euro-zone,” Jane Foley, a senior foreign-exchange strategist at Rabobank International in London, said in a report today. “With the core now suffering the effects of contagion, the euro can be expected to remain vulnerable.”

The euro dropped 0.8 percent against the yen, with the Japanese currency appreciating against a majority of its 16 most-traded peers monitored by Bloomberg.

Higher Costs

The yield on Spain’s 10-year bond rose 21 basis points to 6.32 percent and the two-year yield climbed 29 basis points to 5.29 percent. The average yield on the country’s 12-month debt was 5.022 percent at auction, compared with 3.608 percent when securities of the same maturity were sold on Oct. 18. The yield on the 18-month bills was 5.159 percent, up from 3.801 last month. Credit-default swaps on Spain climbed 24 basis points to a record 481.

The extra yield investors demand to hold French 10-year bonds instead of German bunds increased to 185 basis points, the most since the common European currency was started in 1999. The Spanish-German spread widened to a euro-lifetime high of 457 basis points, with the Belgian-German 10-year gap reaching 300 basis points for the first time since Bloomberg began collecting the data in 1993.

Credit-default swaps on French bonds climbed 16 basis points to 230, and contracts on Italy jumped 32 basis points to 595, both records.

Cancelling Dividends

All 19 industry groups declined in the Stoxx 600. Finmeccanica tumbled 14 percent after Italy’s biggest arms company canceled shareholder payouts and predicted a surprise full-year loss. Cable & Wireless sank 12 percent as the telecommunications company suspended future dividend payments and said profit and sales declined.

Electrolux AB, the world’s second-biggest appliances maker, slid 7.9 percent after saying raw-material prices will probably cut 2 billion kronor ($297 million) from 2011 earnings and less than 1 billion kronor off 2012 profit.

The EU’s gross domestic product increased 0.2 percent from the previous three months, when it rose at the same pace, according to EU data. That matched the median forecast of 39 economists surveyed by Bloomberg.

The decline in S&P 500 futures indicated the gauge will fall for a second day. Geron Corp. tumbled 17 percent in Germany after saying it is ending stem-cell therapy research to focus on cancer drugs. The yield on the 10-year U.S. Treasury note declined four basis points.

U.S. Retail Sales

A report today may show retail sales in the U.S. rose in October as demand for automobiles improved, giving the world’s largest economy a boost entering the final quarter of 2011.

The 0.3 percent gain would follow a 1.1 percent September increase, according to the median forecast of 78 economists surveyed by Bloomberg News. Wholesale prices fell and an index of New York-area manufacturing improved, other reports may show.

Copper dropped for the first day in three to $7,690 a metric ton. Oil in New York fell 0.4 percent to $97.75 a barrel while Brent crude gained 0.2 percent to $112.15 a barrel. Soybeans jumped 1.4 percent and heating oil advanced 0.6 percent to $3.1803 a gallon.

The MSCI Emerging Markets Index fell 0.9 percent, heading for the first decline in three days. South Africa’s rand led currencies lower, weakening 1.4 percent against the dollar.

The Hang Seng China Enterprises Index in Hong Kong lost 0.7 percent. Industrial & Commercial Bank of China (601398) Ltd., the nation’s biggest lender, dropped as much 2.3 percent after the International Monetary Fund called for China to expand oversight of banks. South Korea’s Kospi Index (KOSPI) retreated 0.9 percent and India’s Sensex Index sank 1.4 percent.

To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net

To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net