European Stocks Pare Gains on ECB Loans

By Adam Haigh - Dec 21, 2011 7:54 PM GMT+0700

European stocks fell, erasing earlier gains, as euro-area lenders sought more funds from the European Central Bank than economists had predicted. U.S. index futures declined while Asian shares rose.

SAP AG (SAP) lost 4.6 percent as Oracle Corp. reported sales and profit that missed analysts’ estimates, hurt by slower demand for databases, applications and computer servers. Carrefour SA (CA) slid 4.2 percent as retailers retreated.

The Stoxx Europe 600 Index dropped 0.5 percent to 237.36 at 12:53 p.m. in London. The gauge reversed an earlier rally of as much as 1.4 percent as the ECB provided more three-year loans to euro-area banks than economists had forecast in the central bank’s latest attempt to keep credit flowing to the economy during the sovereign-debt crisis.

“It’s another slight shrug of the shoulders,” said Richard Hunter, the London-based head of equities at Hargreaves Lansdown Plc. “The underlying story hasn’t changed with Europe’s debt crisis. The hope is that this money finds its way back into sovereign debt in the new year.”

The Frankfurt-based ECB awarded 489 billion euros ($640 billion) in 1,134-day loans, more than economists’ median estimate of 293 billion euros in a Bloomberg News survey. The ECB said 523 banks asked for the funds, which it will lend at the average of its benchmark rate over the term of the loans. They start tomorrow.

U.S., Asian Shares

Futures on the Standard & Poor’s 500 Index expiring in March slipped 0.2 percent today, while the MSCI Asia Pacific Index rallied 2.1 percent.

The Stoxx 600 gained 2 percent yesterday, its biggest advance since Nov. 30, as German business confidence unexpectedly rose for a second month. The benchmark measure has still lost 13 percent this year amid mounting concern that policy makers will fail to stop at least one member of the euro area from defaulting.

German Chancellor Angela Merkel’s government reduced its planned bond sales next year to 250 billion euros, compared with 270 billion euros proposed in the budget and 283 billion euros that it sold this year. The federal government will sell 170 billion euros in bonds and 80 billion euros in shorter maturities, the Frankfurt-based Federal Finance Agency said as it presented the provisional bond calendar for 2012.

The head of the world’s biggest bond fund said he sees a more than one-in-three chance that the euro area will break apart and trigger a financial crisis akin to the one that devastated the global economy in 2008.

‘Sudden Stop’

“It would be the equivalent of a sudden stop” in which financial markets seized up, Mohamed El-Erian, chief executive officer of Pacific Investment Management Co. in Newport Beach, California, said. “It would be really, really messy.”

European Union leaders will hold a summit on Jan. 30 to discuss jobs and economic growth, EU President Herman Van Rompuy said.

“I’m preparing this meeting intensively,” Van Rompuy said in a video message posted on the EU’s website. “It will be focused on jobs, and that’s a big challenge in a context where zero growth is expected in most of our economies. In some of them, there will even be a recession.”

In the U.S., a report from the National Association of Realtors will show that purchases of previously-owned homes increased to a 5.05 million annual rate in November from 4.97 million the prior month, according to the median forecast of 71 economists surveyed by Bloomberg News.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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