European stocks fell for a third straight week after Fitch Ratings’ downgrade of Greek debt and disappointing economic reports in the US heightened concern that the global recovery is faltering.
The STOXX Europe 600 Index declined 0.3 percent to 279.65 this week.
Greece’s ASE Index dropped 4.3 percent to a 14-year low, the largest fall among 18 western European benchmarks, as the nation’s 10-year bond yields soared to a record.
“The European sovereign debt crisis is still unresolved,” Claudia Panseri, the Paris-based head of equity strategy at Societe Generale SA, wrote in a report on Friday.
Current valuations of European stocks “only partially reflect the risks underlying the euro zone.”
The STOXX 600 is trading at 11.2 times the estimated earnings of its companies, according to data compiled by Bloomberg, compared with this year’s low of 10.8. The gauge has fallen 1.5 percent this month as commodity producers tumbled with metal and oil prices.
Greece’s credit rating was cut three levels by Fitch, which said that even a voluntary restructuring of the country’s debt being considered by EU policy makers would be ruled a default.
In Germany, the Bundesbank said Europe’s largest economy would probably lose some growth momentum over the coming months after an “explosive” start to the year. Germany’s economy is powering the euro region after expanding a record 3.6 percent last year.
Companies are stepping up spending and hiring to meet booming export orders, while unemployment at a 19-year-low is encouraging consumer spending.
European indexes declined as a report showed US housing starts unexpectedly fell last month as home builders in the world’s largest economy continued to struggle almost two years into the recovery.
Separate figures showed sales of existing homes dropped and industrial production stalled.
In Europe, UK data showed inflation accelerated last month more than economists had forecast to the fastest pace since 2008.
German investor confidence declined for a third month this month as rising prices threatened to curb consumer spending.
National benchmark indexes retreated in 13 of the 18 western European markets over the week. Germany’s DAX sank 1.8 percent, the most in two months, and France’s CAC 40 declined 0.7 percent. The UK’s FTSE 100 rose 0.4 percent as Dixons Retail PLC rallied.
Still, equities remained the asset class of choice for investors this month as hedge funds raised the level of borrowed money invested in stocks to a three-and-a-half-year high, a Bank of America Merrill Lynch Global Research survey showed.