Stocks Fall as Moody’s Cuts Europe Ratings; Default Swaps Rise a Fifth Day

By Stephen Kirkland and Lynn Thomasson - Feb 14, 2012 7:30 PM GMT+0700

Stocks (SXXP) and the euro rebounded as German investor confidence jumped to a 10-month high and borrowing costs fell at Italian and Spanish auctions, even after Moody’s Investors Service downgraded the debt ratings of six European countries.

The Stoxx Europe 600 Index gained 0.2 percent at 7:25 a.m. in New York, after dropping 0.4 percent. Standard & Poor’s 500 Index futures added 0.1 percent. The euro appreciated less than 0.1 percent to $1.3195. The yield on Italy’s 10-year bond fell two basis points, sending the spread with benchmark German bunds three basis points lower. Oil climbed 0.5 percent, reversing earlier declines.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose to 5.4 this month from minus 21.6 in January, compared with a median forecast of minus 11.8, according to a Bloomberg survey of economists. The U.K. and France may be stripped of their top Aaa ratings, Moody’s said as it reduced the debt rankings of countries including Italy, Spain and Portugal. Italy sold 6 billion euros ($7.9 billion) of bonds, meeting its target.

“Signs that the European Monetary Union economy is stabilizing, rather than collapsing as some have feared, and hopes of a resolution of the EMU debt crisis seem to have supported the economic sentiment,” Annalisa Piazza, a fixed- income analyst at Newedge Group in London, said in e-mails. Italy’s debt offerings “were well absorbed, despite last night’s downgrade by Moody’s that, in our view, was somehow expected.”

Profit Drops

Two shares gained for every one that fell in the Stoxx 600. Royal Dutch Shell Plc gained 1.1 percent. Storebrand ASA, Norway’s largest publicly traded insurer, plunged 12 percent after fourth-quarter profit dropped and the company said no dividend would be paid for 2011. TDC A/S slid 4.4 percent as the Danish phone company’s private-equity owners offered about 750 million euros of stock for sale.

The S&P 500 advanced 0.7 percent yesterday. Data today may show U.S. retail sales rose in January by the most in four months, gaining 0.8 percent after a 0.1 percent increase in December, according to the median forecast of economists surveyed by Bloomberg News.

Eleven companies in the S&P 500 are due to release results today, including Goodyear Tire & Rubber Co. and Avon Products Inc. Of the 333 companies in the index that have reported earnings since Jan. 9, 70 percent had per-share profit that exceeded estimates, according to data compiled by Bloomberg.

Yields on Italy’s two-year bonds fell five basis points. The yield on Spain’s 10-year bond rose two basis point, paring an increase of as much as five basis points, after the government sold 5.45 billion euros of bills. The Greek two-year yield jumped to 197 percent from 183 percent yesterday. Greece, Belgium and the Netherlands also auction government debt today.

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