European Stocks Pare Losses as Region’s Central Bank Buys Government Debt

By Corinne Gretler - Nov 18, 2011 7:31 PM GMT+0700

European stocks pared their losses as the region’s central bank was said to buy sovereign bonds for the fifth straight day, even as Germany and France differed over the monetary authority’s role in ending the debt crisis. U.S. index futures climbed and Asian shares fell.

The benchmark Stoxx Europe 600 Index lost less than 0.1 percent to 233.93 at 12:28 p.m. in London. The gauge has retreated 2.9 percent this week as Italian and Spanish borrowing costs surged and Germany and France differed on the role of the European Central Bank in ending the crisis.

“The ECB remains the only institution that can credibly counter a collective loss of confidence on such a scale,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e-mail. “Yet the longer its intervention in the bond markets of Italy and Spain remains limited and intermittent, the greater the risk that the crisis will escalate further.”

Spanish and Italian bonds rose today after the ECB was said to buy the nation’s securities in its fifth consecutive day of sovereign-debt purchases.

Standard & Poor’s 500 Index futures expiring in December added 1 percent. The MSCI Asia Pacific Index slipped 1.5 percent as home prices in China fell in 33 of 70 cities monitored by the government in October, the worst performance since it expanded property curbs.

France vs. Germany

German Chancellor Angela Merkel yesterday rejected French calls to deploy the ECB as a crisis backstop, defying global leaders and investors calling for more urgent action to halt the turmoil. Merkel listed using the ECB as lender of last resort alongside joint euro-area bonds and a “snappy debt cut” as proposals that won’t work.

Europe is running out of options to fix its debt crisis and it is now up to Italy and Greece to convince markets they can deliver the necessary austerity measures, Finnish Prime Minister Jyrki Katainen said.

Greek Prime Minister Lucas Papademos won approval for the final 2012 budget designed to regain the confidence of creditors and secure resumption of international financing. The budget forecasts Greece’s debt as a proportion of gross domestic product will fall to 145.5 percent in 2012 from 161.7 percent this year.

Italian Vote

In Italy, Prime Minister Mario Monti faces a final confidence vote in his new government today after vowing to attack the euro-region’s second-biggest debt and spur growth in its third-largest economy.

“Investors want to see action from politicians and a plan over how to solve the European debt problem, not just firefighting,” said Lars Knudsen, who manages about $110 million at LGT Capital Management AG in Pfaeffikon, Switzerland. “It is as much a growth problem in Europe as a debt problem. Trading will continue to be influenced by news coming from politicians.”

In the U.S., a report at 10 a.m. New York time may show that the index of leading economic indicators increased in October. The conference Board’s gauge of the outlook for the next three to six months climbed 0.6 percent after a 0.2 percent gain in September, according to the median estimate of 56 economists in a Bloomberg News survey.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

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