German Bonds Decline After S&P Warning on Euro Ratings; Stocks Pare Losses

By Stephen Kirkland and Lynn Thomasson - Dec 6, 2011 4:07 PM GMT+0700

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Dec. 6 (Bloomberg) -- Timothy Moe, a Hong Kong-based strategist at Goldman Sachs Group Inc., talks about the outlook for Asian stocks and Europe's sovereign debt crisis. He speaks from Singapore with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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Dec. 6 (Bloomberg) -- Jonathan Garner, the chief Asia and emerging-market strategist at Morgan Stanley in Hong Kong, talks about the region's stock markets. Garner also discusses Europe's sovereign debt crisis. He speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

French and German bonds declined after Standard & Poor’s said it may cut the credit ratings of 15 European nations. Stocks pared losses on speculation the European Central Bank will be forced to take more steps to avert a deepening debt crisis.

The yield on France’s 10-year bond jumped 11 basis points at 8:54 a.m. in London, with the similar maturity German bund yield climbing three basis points. The euro weakened 0.2 percent to $1.3376, while the Swiss franc depreciated against all 16 major currencies tracked by Bloomberg. The Stoxx Europe 600 Index slid 0.2 percent, and S&P 500 Index futures increased 0.1 percent. Nickel and wheat led commodities lower.

Germany, France and four other nations may lose their AAA credit ratings depending on the result of a summit of European Union leaders on Dec. 9, S&P said yesterday. ECB President Mario Draghi will probably cut interest rates a quarter point to buoy the economy when policy makers meet Dec. 8, according to economists in a Bloomberg survey.

“The rating action may force the ECB to be more aggressive in inking up the presses if they want to avert a crisis,” Jim Reid, a strategist at Deutsche Bank AG in London, wrote in a research note. “2012 is looking to us like a year that will be decided by whether the ECB is a very different institution to what it is today. Thursday’s ECB post-meeting conference is shaping up to be a very interesting event for the week.”

The cost of insuring against default on European sovereign debt rose for the first time in seven days, with the Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments climbing six basis points to 326.

Nickel dropped 1.6 percent and wheat fell 1.4 percent. Copper declined 1.3 percent and oil in New York slipped 0.3 percent to $100.72 a barrel.

----With assistance from, Claudia Carpenter, Mark Gilbert, Abigail Moses and Daniel Tilles in London. Editors: Stephen Kirkland, Stuart Wallace

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net;

To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net