European Stocks Drop as Monti Faces Resistance

By Julie Cruz - Nov 15, 2011 5:35 PM GMT+0700

European stocks fell for a second day as Italy’s premier in waiting Mario Monti struggled to get political parties to help form his new Cabinet and the country’s biggest defense company forecast an unexpected loss. Asian shares and U.S. index futures also dropped.

Finmeccanica SpA (FNC) sank 16 percent, saying it will sell 1 billion euros ($1.4 billion) in assets after predicting a loss for this year. UniCredit SpA (UCG) slid 4.8 percent as banking shares posted the worst performance among the 19 industry groups in the Stoxx Europe 600 Index. Cable & Wireless Worldwide Plc (CW/) plunged 12 percent as the company suspended future dividend payments and named Gavin Darby as chief executive officer.

The benchmark Stoxx 600 fell 1.2 percent to 235.69 at 10:34 a.m. in London. The gauge has declined 19 percent from this year’s high on Feb. 17 as policy makers struggle to contain a debt crisis that has Greece on the edge of a default.

“There is still a lot of tail risk in Europe,” Peter Garnry, an equity strategist at Saxo Bank A/S, said in an interview with Bloomberg Television from Hellerup, Denmark. “We want to be in a more hedged position going forward. In Europe and Asia, we would definitely take the position of being neutral. We’ve shifted towards consumer staples and health care.”

The MSCI Asia Pacific Index retreated 1 percent, while Standard & Poor’s 500 Index futures expiring in December dropped 0.8 percent.

Monti, a former European Union competition commissioner, struggled to get political parties to agree to participate in his so-called technical Cabinet during talks in Rome yesterday. A government lacking political representation will find it harder to muster support from the parties in parliament to pass unpopular laws. Monti said he’ll conclude his talks today.

Italy’s Borrowing Costs

The euro area’s inability to contain its sovereign-debt crisis led to a surge in Italian borrowing costs as investors bet on which nation will need aid next. Monti will try to reassure investors that Italy can cut its 1.9 trillion-euro debt and spur economic growth that has lagged behind the euro-region average for more than a decade.

“Market sentiment is reflecting the scale of the challenge in stemming the euro-zone debt crisis,” Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, said in an e-mail. “To a large extent, fixing Italy means fixing the euro zone.”

German, French GDP

European stocks slid even as a government report said gross domestic product in Germany, Europe’s largest economy, rose 0.5 percent from the second quarter, when it increased 0.3 percent. France, the euro area’s second-biggest economy, expanded 0.4 percent after contracting 0.1 percent in the previous period. Both reports matched the median forecasts in Bloomberg News surveys of economists.

The euro area’s gross domestic product increased 0.2 percent from the previous three months, the European Union’s statistics office in Luxembourg said. That also matched the median forecast in a Bloomberg News survey of economists.

In the U.S., a report today may show retail sales rose in October as demand for automobiles improved. A 0.3 percent gain will follow a 1.1 percent September increase, according to the median forecast of 80 economists surveyed by Bloomberg News. Wholesale prices fell and an index of New York-area manufacturing improved, other reports may show.

MSCI Inc. plans to announce the results of its semi-annual index review at 11 p.m. Paris time today. Investors and funds that track indexes may buy or sell stocks depending on their inclusion in gauges.

Finmeccanica Tumbles

Finmeccanica slumped 16 percent to 3.76 euros. The company forecast an adjusted loss before interest, taxes, amortization and restructuring of 200 million euros. The maker of helicopters and plane parts booked writedowns of 753 million euros tied to Boeing Co.’s B787 program.

Europe’s banking shares slid 1.8 percent as a group. National Bank of Greece SA (ETE) retreated 7.1 percent to 1.96 euros and Alpha Bank SA plummeted 7.4 percent to 1 euro. UniCredit, Italy’s biggest bank, lost 4.8 percent to 73.7 euro cents.

Vienna Insurance Group AG sank 3.2 percent to 27.10 euros. The insurer said third-quarter net income rose 3.9 percent to 98.2 million euros. That missed the average estimate of 102.8 million euros in a Bloomberg survey of six analysts. The insurer wrote down its Italian government bonds by 10 percent.

Cable & Wireless Worldwide

Cable & Wireless Worldwide plunged 12 percent to 26.6 pence, the largest drop in more than three months. The company, which provides telecommunications services to the U.K. police force, will pay an interim dividend of 0.75 pence per share in January 2012 and then suspend future dividend payments to “improve balance sheet strength and to enable investment in the business,” it said.

“Dividends will only be paid in the future when covered by free cash flow.”

Kabel Deutschland AG slipped 3 percent to 40.90 euros as Germany’s largest cable operator predicted sales growth in 2011 at the lower end of its forecast range of 6.25 percent to 6.75 percent.

Sonova Holding AG (SOON) fell 1.4 percent to 93.30 Swiss francs as the maker of hearing health-care products said profit and sales slid in its fiscal first half, hurt by the franc’s strength.

-- With assistance from Owen Thomas in London. Editors: Will Hadfield, Andrew Rummer

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

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