European Stocks Resume Decline as Monti Struggles to Win Political Support

By Julie Cruz - Nov 15, 2011 10:10 PM GMT+0700

European stocks resumed their decline 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.

Finmeccanica SpA (FNC) sank 18 percent, saying it will sell 1 billion euros ($1.4 billion) in assets after predicting a loss for this year. Cable & Wireless Worldwide Plc (CW/) plunged 21 percent as the company suspended future dividend payments and named a new chief executive officer. UniCredit SpA (UCG) slid 3.5 percent as banks posted one of the worst performances of the 19 industry groups in the Stoxx Europe 600 Index.

The benchmark Stoxx 600 fell 0.2 percent to 237.95 at 3:08 p.m. in London. The gauge has declined 18 percent from this year’s high on Feb. 19 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.”

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 has led to a surge in Italian borrowing costs with yields on the country’s benchmark 10-year bonds climbing above 7 percent earlier today. 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.”

National benchmark indexes fell in 14 of the 18 western- European markets today. France’s CAC 40 Index lost 1.3 percent, the U.K.’s FTSE 100 Index rose 0.2 percent and Germany’s DAX Index dropped 0.2 percent.

German Investor Confidence

A report today showed German investor confidence fell to a three-year low in November. The ZEW Center for European Economic Research in Mannheim, Germany, said its index of investor and analyst expectations, which aims to predict developments six months in advance, declined to minus 55.2 from minus 48.3 in October. That’s the lowest since October 2008.

A separate report showed the euro area’s economic expansion failed to accelerate in the third quarter. Gross domestic product increased 0.2 percent from the previous three months, when it rose at the same pace, the European Union’s statistics office in Luxembourg said. That matched the median forecast of 39 economists surveyed by Bloomberg News.

European stocks pared their losses after a U.S. Commerce Department report showed that retail sales climbed more in October than predicted as Americans bought iPhones and cars. The 0.5 percent gain beat the median forecast of 81 economists surveyed by Bloomberg News for an increase of 0.3 percent.

A separate report showed manufacturing in the New York region unexpectedly expanded in November. The Federal Reserve Bank of New York’s general economic index rose to 0.6 from minus 8.5 in October. Economists had projected the gauge would climb to minus 2, according to the median of 52 forecasts in a Bloomberg News survey.

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.

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