European stocks halted a two-week rally as better-than-estimated US economic data failed to allay concern that the sovereign-debt crisis will spread from Greece and Ireland to other euro-area nations.
Bank of Ireland PLC and Banco Santander SA led a selloff in banks, falling 19 percent and 3.9 percent respectively, as Moody’s Investors Service cut Ireland’s credit rating and put Spain on review for a possible downgrade.
The STOXX Europe 600 Index was little changed this week, rising 0.1 percent. Even so, the benchmark gauge has climbed 5.6 percent so far this month as economic data continued to bolster confidence in the global recovery and China refrained from raising interest rates even as its inflation rate surged. For the year, the STOXX 600 has rallied 8.9 percent.
“There has been a battle between continuing positive developments from US economic indicators and news of the debt situation in fringe European countries,” Knight Capital Europe Ltd director Ioan Smith said in London. “In truth, Europe does not yet have a convincing answer and the markets know it.”
National benchmark indices retreated in 12 of Europe’s 18 western markets. France’s CAC 40 Index gained 0.3 percent, the UK’s FTSE 100 Index rose 1 percent, while Germany’s DAX slid 0.3 percent. Italy’s FTSE MIB Index lost 2 percent as Italian Prime Minister Silvio Berlusconi fought off a challenge to his leadership, while Belgium’s BEL 20 Index fell 1.2 percent after Standard & Poor’s lowered its outlook on the country’s debt rating to negative.
EU leaders this week agreed to amend the bloc’s treaties to create a permanent debt-crisis mechanism in 2013 even as they struggled to bridge divisions over short-term steps to stabilize bond markets. The European Central Bank also said it would increase its capital base by 5 billion euros (US$6.6 billion) to 10.76 billion euros.