Stocks, Euro Decline on Debt Crisis Concern

By Stephen Kirkland and Lynn Thomasson - Jan 5, 2012 5:47 PM GMT+0700

Stocks (MXWD) and the euro declined on concern Europe will struggle to contain the debt crisis. Hungarian shares tumbled and the forint declined as borrowing costs climbed at an auction today.

The Stoxx Europe 600 Index (SXXP) lost 0.8 percent at 10:45 a.m. in London as UniCredit SpA, Italy’s biggest bank, tumbled for a second day. Standard & Poor’s 500 Index futures slid 0.8 percent. French 10-year bond yields were little changed after a government debt sale. The euro weakened 0.8 percent to $1.2845. Hungary’s forint sank 0.4 percent to 321.61 versus the euro.

Greek Prime Minister Lucas Papademos said yesterday deeper cuts in incomes and an agreement on international aid are the only way for the country to avert economic collapse and a “disorderly default.” France sold 10-year bonds at an average yield of 3.29 percent, up from 3.18 percent in December, and the yield on Hungary’s one-year bills climbed to the highest level since 2009. The U.S. service industry probably grew last month and jobless claims fell last week, economists said before reports today.

“We expect the euro-zone recession to deepen early in the year and for European financial-market pressures to remain intense in the next few months,” said Dominic Wilson, chief market economist at Goldman Sachs Group Inc. in Frankfurt.

The decline in the Stoxx 600 extended yesterday’s 0.6 percent drop. UniCredit slid 8.9 percent to the lowest level since 1992 after yesterday plunging 15 percent on plans to sell shares in a rights offer at a 43 percent discount.

Banks Decline

Societe Generale SA retreated 4.6 percent as the French bank said it plans to cut about 1,580 jobs at its corporate and investment banking unit. Banco Comercial Portugues SA and Banco Espirito Santo SA lost more than 6 percent in Lisbon.

The decline in S&P 500 futures indicated the U.S. equities gauge will drop for the first time this year. The Institute for Supply Management’s non-manufacturing index, due for release at 10 a.m. New York time, rose to 53 in December from 52 the previous month, according to a Bloomberg survey of economists. Fifty is the dividing line between expansion and contraction in the services gauge.

A separate release may show the number of applications for jobless benefits fell last week. The data comes before tomorrow’s payrolls report from the Labor Department, which is forecast to show the U.S. economy generated 150,000 jobs last month, according to an economist survey.

Aid Talks

Hungary’s BUX Index (BUX) fell 3 percent, taking its three-day decline to 5.7 percent. The average yield on Hungarian 12-month bills jumped to 9.96 percent from 7.91 percent at the last sale of the same maturity on Dec. 22, according to auction results on the state debt management agency’s Bloomberg page.

The yield on France’s 10-year bond was little changed at 3.31 percent. The extra yield (.FRANGER) investors demand to hold French 10-year debt instead of benchmark German bunds rose two basis points to 141 basis points.

The Dollar Index (DXY), which tracks the U.S. currency against those of six trading partners, climbed 0.6 percent. The euro slid 0.7 percent against the yen, approaching an 11-year low, and depreciated 0.3 percent versus the pound.

Oil in New York fell 0.8 percent to $102.42 a barrel, the first decline in three days.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net

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