European Stocks Resume Decline on Concern Sovereign-Debt Crisis Worsening

By Peter Levring - Nov 25, 2011 5:36 PM GMT+0700

European stocks declined for a seventh day after Italy’s borrowing costs rose to a euro-era record and the cost of insuring against default on financial- company debt climbed to a record. U.S. index futures and Asian shares fell.

Swedish banks retreated after their capital adequacy norms were raised. Blacks Leisure Group Plc (BSLA), the U.K. outdoor-clothing retailer, sank 26 percent after saying it will need more funding to execute a turnaround. Nokian Renkaat Oyj dropped 3.2 percent after saying its heavy tires unit will reduce output because of weaker demand.

The Stoxx Europe 600 Index dropped 0.6 percent to 218.61 at 10:32 a.m. in London for its longest losing streak since August. The benchmark gauge is headed for a weekly slump of 5.9 percent, the biggest slump since September, as policy makers differed on how to tackle the debt crisis. Standard & Poor’s 500 Index futures expiring in December retreated 0.8 percent. U.S. markets will open for half a day’s trading today until 1:00 p.m. in New York. The MSCI Asia Pacific Index (MXAP) fell 1.1 percent.

“The crisis is no longer about an individual country’s debt issues. It’s about confidence in the euro itself,” said Frank Velling, chief strategist at BankInvest Asset Management A/S in Copenhagen, which manages $17 billion. “Investors from outside the euro zone have begun dumping euro-denominated assets as long as European politicians keep squabbling and cannot agree on anything.”

Borrowing Costs

Italy sold 8 billion euros of six-month Treasury bills, the maximum target. The Rome-based Treasury sold the 183-day bills to yield6.504 percent, up from 3.535 percent at the last auction on Oct. 26. Demand was 1.47 times the amount on offer, compared with 1.57 times last month. The country’s bonds extended their decline after the sale.

Earlier, Spanish two-year notes slid, pushing the yield to more than 6 percent for the first time since the euro was created in 1999. The rate climbed as high as 6.01 percent and was at 5.97 percent.

German two-year debt rose for the first time in three days as Belgium’s de Tijd newspaper reported European Central Bank Governing Council member Luc Coene as saying the central bank may cut interest rates given the current situation.

The cost of insuring against default on European financial- company debt rose to a record, according to traders of credit- default swaps.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased five basis points to 350 and the subordinated gauge gained six basis points at 601, according to JPMorgan Chase & Co. An increase signals worsening perceptions of credit quality.

Bailout Fund

The European Financial Stability Facility may fail to raise enough funds to increase its capacity to more than 1 trillion euros as planned because of a deterioration in market conditions over the past month, the Financial Times reported, citing three unnamed senior euro-area officials.

Even a lower target suggested this month by Klaus Regling, head of the EFSF, might be difficult to reach and the funds’ eventual capacity is expected to fall “well short of its billing,” FT said, citing one of the officials.

Hungary lost its investment-grade rating at Moody’s Investors Service after 15 years as the Cabinet seeks International Monetary Fund help to boost confidence in the European Union’s most-indebted eastern member.

The foreign- and local-currency bond ratings were cut one step to Ba1, the highest junk-level score, from Baa3, the company said today in a statement.

ECB’s Role

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo urged euro-area politicians to take bold steps toward fiscal union to end the debt crisis, and said they should not rely on the ECB.

“Governments cannot expect the ECB to finance public deficits,” Gonzalez-Paramo said in a speech in Oxford, England yesterday. “It is now a time for politicians to be bold and courageous” and “complete as soon as possible the great project begun 60 years ago towards ever closer union,” he said.

Sweden’s four biggest banks, Nordea Bank AB (NDA), SEB AB, Swedbank AB (SWEDA) and Svenska Handelsbanken AB (SHBA) will be required to target common equity Tier 1 capital of at least 10 percent of their risk-weighted assets from January 2013, according to a joint statement today by the Stockholm-based Riksbank, Financial Supervisory Authority and Finance Ministry. The required ratio will rise to 12 percent in 2015, they said.

Nordea Bank fell 2.8 percent to 47.33 kronor. SEB slid 1.7 percent to 34.43 kronor. Swedbank lost 1.2 percent to 76.75 kronor.

Blacks Leisure

Blacks Leisure sank 26 percent to 3.25 pence. The company said full-year profits will be lower than expected as lower consumer spending continued to heap pressure on the outdoor clothing group.

The owner of the Blacks and Millets brands, which more than doubled pretax losses in the six months to August 27, said it continued to seek additional funding and other financing options to execute turnaround plan. The shares earlier fell as much as 63 percent, its lowest price since August 1989. Analysts said they see “little equity value left” in the company.

Nokian Renkaat Oyj (NRE1V), the Nordic region’s biggest tiremaker, lost 4.1 percent to 20.98 euros after saying its heavy tires unit will reduce production to reflect weaker demand.

Nokian Renkaat will reduce shifts, cutting the work of about 100 employees through temporary layoffs and potential job cuts, the Nokia, Finland-based company said in a statement today. The measures will continue indefinitely, it said.

To contact the reporter on this story: Peter Levring in Copenhagen at Plevring1@bloomberg.net or

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