European Stocks Retreat on Greece Deadline

By Peter Levring - Feb 6, 2012 4:16 PM GMT+0700

European (SXXP) stocks dropped, with the Stoxx Europe 600 Index trimming a six-month high, as Greece struggled to reach a deal with its international creditors. U.S. index futures fell, while Asian shares rose.

Societe Generale SA, France’s second-biggest lender, and Credit Agricole SA (ACA) lost more than 3 percent. Glencore International Plc slid 4.3 percent after the Financial Times reported that the commodities trader may offer 2.8 shares for each Xstrata Plc (XTA) share, citing people familiar with the merger discussions between the two.

The benchmark Stoxx 600 declined 0.7 percent to 262.81 at 9:14 a.m. in London. The gauge rallied 3.6 percent last week as a U.S. payrolls report showed the world’s biggest economy added 243,000 jobs in January, beating the median economist estimate in a Bloomberg News survey. Futures contracts on the Standard & Poor’s 500 Index expiring in March slid 0.6 percent, while the MSCI Asia Pacific Index climbed 0.4 percent.

“This week is crunch time for Greece,” said Witold Bahrke, a senior strategist at PFA Pension A/S in Copenhagen, which manages $45 billion. “We can no longer completely exclude extreme scenarios such as a disorderly default or -- a bit further down the line -- an exit from the euro area. Investors have become fairly resilient towards news from Greece, but we are seeing small signs negative sentiment is taking over after the positive mood dominating markets recently.”

Greece Funding Agreement

Greece’s Prime Minister Lucas Papademos struck a tentative deal with the leaders of the three parties supporting his interim government to boost economic competitiveness and extend spending cuts. The politicians agreed in a five-hour meeting yesterday to make additional reductions this year equal to 1.5 percent of gross domestic product, according to an e-mailed statement from the premier’s office in Athens.

The policy makers meet at about midday today to work on the detail of plans for bank recapitalizations, ensuring the viability of pension funds and measures to reduce wage and non- wage costs to boost competitiveness.

The euro area’s debt crisis will cut China’s economic expansion almost in half if it worsens, a scenario that would warrant “significant” fiscal stimulus from the nation’s government, the International Monetary Fund said.

Based on the IMF’s “downside” forecast for the global economy, China’s growth would drop by as much as 4 percentage points from the fund’s current projection, which is for 8.2 percent this year, the organization said in a report released today by its China office in Beijing.

Banks paced declines in European (SXXP) equities, contributing the most to the Stoxx 600’s slide. Societe Generale (GLE) slid 3.9 percent to 23.31 euros, while Credit Agricole fell 3.6 percent to 5.13 euros.

Glencore retreated 4.3 percent to 462.1 pence as the FT reported that the company may offer an 8 percent premium over Xstrata’s closing share price on Feb. 1.

Xstrata declined 2 percent to 1,257.1 pence in London.

ABB Ltd. (ABBN) decreased 1.8 percent to 19.75 Swiss francs after UBS AG cut the shares to “neutral” from “buy.”

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

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