European Stocks Decline as Lower Spanish Bond Demand Fuels Crisis Concern

By Sarah Jones - Nov 17, 2011 8:10 PM GMT+0700
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A trading board displays the day's volume on the WIG20 index, at the Warsaw stock exchange in Warsaw, Poland. The Stoxx 600 declined 0.4 percent at 236.14. Photographer: John Guillemin/Bloomberg

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Nov. 17 (Bloomberg) -- Richard Corbett, adviser to European Council President Herman Van Rompuy, discusses the sovereign-debt crisis. He speaks from Brussels with Francine Lacqua on Bloomberg Television's "Countdown." (Source: Bloomberg)

European stocks fell after Spain’s borrowing costs surged to a euro-era record on waning demand at a bond sale, adding to concern the region’s debt crisis is deepening. U.S. futures fell and Asian shares were little changed.

BNP Paribas SA and Societe Generale SA led a selloff in banks, both dropping at least 3 percent as dollar funding costs for European lenders climbed to a three-year high. Mining companies tumbled with metal prices.

The benchmark Stoxx Europe 600 Index lost 1.4 percent to 233.74 at 1:08 p.m. in London, extending the decline from this year’s high on Feb. 17 to 20 percent as the debt crisis spreads across the region’s core. Futures on the Standard & Poor’s 500 Index expiring in December dropped 0.3 percent today. The MSCI Asia Pacific Index slid 0.2 percent.

“You have a lot of pressure on yields, you have the structural issues, the liquidity issues, plus market fears -- it’s very bad,” said Patrick Legland, head of research at Societe Generale, on Bloomberg Television. “We are not very far from the point where the European Central Bank will need to intervene one way or another.”

Spanish bonds sank, driving 10-year yields to 6.75 percent, the highest since before the euro was introduced, as borrowing costs climbed to the most in at least seven years at an auction of securities.

Spanish Bond Auction

At today’s sale, Spain sold 3.56 billion euros ($4.8 billion) of new 10-year benchmark at an average yield of 6.975 percent as demand dropped. That’s up from 5.433 percent when it sold 10-year bonds on Oct. 20 and is the highest rate since at least September 2004.

In France, the extra yield, or spread, investors receive for holding 10-year French debt instead of benchmark German bunds reached 2 percentage points for the first time in the shared currency’s history as the country sold 6.98 billion euros of notes.

A gauge of European banks declined 2.6 percent as the three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, reached 131 basis points below the euro interbank offered rate in London, the most expensive since December 2008.

BNP Paribas, France’s largest lender, fell 3.5 percent to 28.82 euros. Societe Generale slid 3 percent to 17.11 euros. Credit Agricole SA (ACA) lost 4.1 percent to 4.46 euros. Deutsche Bank AG (DBK), Germany’s largest bank, declined 2.8 percent to 27.57 euros.

Miners Decline

Antofagasta paced a selloff in mining shares, falling 4.3 percent to 1,124 pence, while Vedanta Resources Plc lost 5.1 percent to 1,034 pence and Xstrata Plc retreated 3.8 percent to 959.8 pence.

Copper tumbled the most in a week in London on concern Europe’s debt crisis may spread to other economies, potentially eroding demand for metals.

ASML Holding NV (ASML), Europe’s biggest semiconductor-equipment maker, dropped 2.5 percent to 28.87 euros after Applied Materials Inc., the world’s largest producer of semiconductor- making equipment, forecast earnings that missed analyst estimates.

Centrica retreated 2.1 percent to 288.7 pence after the U.K.’s largest residential gas and power supplier said 2011 earnings may be “marginally” lower than estimated because warmer-than-average weather has cut natural-gas demand.

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