European Stocks Decline as Italian Yields Rise

By Sarah Jones - Nov 14, 2011 7:31 PM GMT+0700

European stocks dropped as Italy’s borrowing costs rose after the nation sold 3 billion euros ($4.1 billion) of bonds at the highest yield since 1997. Asian shares climbed and U.S. index futures fell.

Banks reversed earlier gains, led by Banco Bilbao Vizcaya Argentaria SA (BBVA) and UniCredit SpA (UCG), which both fell more than 2 percent. Hochtief AG (HOT) plunged 9.6 percent after the construction company said the sale of its airport-operating business has been delayed.

The benchmark Stoxx Europe 600 Index dropped 1.1 percent to 238.24 at 12:29 p.m. in London as all 19 industry groups declined. The MSCI Asia Pacific Index rose 1.1 percent and Standard & Poor’s 500 Index futures expiring in December retreated 0.5 percent.

“With Italy now in the firing line, the indications are that the euro-zone crisis is reaching a critical phase as we wait to see how quickly and decisively politicians and the European Central Bank will act,” wrote Peter Sullivan, head of equity research at HSBC Holdings Plc in a report dated today.

Stocks initially climbed after Mario Monti, a former European Union competition commissioner, was appointed Italy’s new prime minister, as the country tackles the euro region’s second-biggest debt.

Silvio Berlusconi resigned after defections ended his parliamentary majority and the country’s 10-year bond yield surged over the 7 percent threshold that prompted Greece, Ireland and Portugal to seek EU bailouts.

Italian Bond Auction

Italy sold 3 billion euros of five-year bonds, the maximum target for the auction, as borrowing costs climbed. The Rome- based Treasury sold the bonds to yield 6.29 percent, the highest since June 1997 and up from 5.32 percent at the last auction on Oct. 13. The yield on five-year Italian notes rose 11 basis points to 6.57 percent following the auction.

In Greece, the nation’s finance minister, Evangelos Venizelos, said his priority is to ensure the country gets a sixth loan under an EU-led bailout after Prime Minister Lucas Papademos took charge of a new interim government.

Spiegel magazine reported that German lawmakers are preparing for Greece’s departure from the euro if the debt- strapped country’s new government doesn’t commit to reforms. The magazine did not say where it got the information.

The Stoxx 600 advanced last week after Italy’s Senate approved austerity measures, easing concern the country would need a bailout. In Asia, stocks climbed today after Japan’s economy expanded for the first time in four quarters.

Bank Shares Slide

European lenders reversed earlier gains as Italy’s borrowing costs rose and the cost of insuring against default on sovereign and corporate debt advanced, according to traders of credit-default swaps.

BBVA, Spain’s second-biggest bank, dropped 2.8 percent to 6 euros and Banco Santander SA, Spain’s largest lender, slid 2.6 percent to 5.65 euros. UniCredit, which is said to be planning a 7.5-billion euro share sale, lost 3.3 percent to 79.8 euro cents.

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., told CNBC in an interview that he does not own any banks in the euro region and lenders will still need more capital.

Hochtief, Q-Cells

Hochtief declined 9.6 percent to 46.20 euros for the biggest drop on the Stoxx 600 after Germany’s largest construction company said that the “macroeconomic situation” has delayed the sale of its airport-operating unit. The company predicted it will post a net loss if the sale isn’t concluded this year.

Q-Cells SE (QCE) slumped 29 percent to 82 euro cents after the German solar cell and module maker posted a third-quarter loss before interest and taxes of 47.3 million euros, wider than analysts had estimated. Q-Cells also announced the resignation of its chief financial officer Marion Helmes.

Solarworld AG (SWV) dropped 15 percent to 3.26 euros after the company reduced its full-year sales outlook and reported third- quarter Ebit of 20.6 million euros, missing analysts’ estimates.

ITV Plc (ITV) climbed 2.5 percent to 65.3 pence after the U.K.’s biggest terrestrial broadcaster reported a 4.1 percent increase in nine-month revenue to 1.52 billion pounds ($2.4 billion). The company said it is “cautious” about the outlook for the TV market next year.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

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