European stocks declined for a third week as banks tumbled amid speculation that the region’s government-debt crisis would spread to France and Standard & Poor’s downgraded the US credit rating.
The benchmark STOXX Europe 600 Index slipped 0.6 percent to 237.49 this past week, entering a bear market for the first time since March 2009. The gauge sank 23 percent from the peak in February to the two-year low reached on Wednesday. The measure trimmed its weekly drop with a 3.7 percent rally on Friday, as France, Spain, Italy and Belgium imposed bans on short selling to stabilize markets.
“It was rather astonishing how France and French banks came under pressure this week,” said Markus Huber, head of German sales trading at ETX Capital in London. “The problem we are facing in Europe is that bailing out other countries is negatively influencing states like France and Italy.”
French President Nicolas Sarkozy and German Chancellor Angela Merkel will meet in Paris on Tuesday after concern that the sovereign-debt crisis would spread to the region’s larger economies rattled the French stock market.
“The US downgrade has been a tricky business working out whether it’s a financial or a political one,” said Daniel Weston, a portfolio adviser at Schroeder Equities GmbH in Munich. “On the path we are heading down now, there is probably good reason for future downgrades in European sovereigns to come.”
S&P downgraded the US’s sovereign-debt rating by one level to “AA+” after the close of trading on Aug. 5, citing political failure to reduce record deficits.
European stocks retreated this week even after the US Federal Reserve pledged to keep its benchmark interest rate at a record low at least through mid-2013 to revive a recovery that’s “considerably slower” than anticipated. The Fed said it was “prepared to employ” additional tools to bolster an economy hobbled by weak hiring and anemic household spending.
A report on Friday showed US consumer confidence plunged early this month to the lowest level since May 1980. Separate data showed industrial output in the euro area unexpectedly fell in June, led by a drop in capital goods such as machinery.
National benchmark indexes fell in 11 of the 18 western European markets this week. Germany’s DAX declined 3.8 percent, while the UK’s FTSE 100 added 1.4 percent. France’s CAC 40 slid 2 percent, rebounding over the past two days after a 5.5 percent plunge on Wednesday that was the biggest since 2008.
Societe Generale sank 11 percent. The French bank was among those targeted by investors because of its perceived dependence on short-term funding, according to analysts at Royal Bank of Scotland Group PLC.