European stocks declined for the second week in three as sovereign borrowing costs surged to record levels in the eurozone and policymakers disagreed over their response to the spreading debt crisis.
Cable & Wireless Worldwide Plc sank 35 percent after suspending future dividends. Dexia SA and KBC Groep NV, Belgium’s biggest lenders, slumped more than 20 percent. PSA Peugeot Citroen and Renault SA paced losses on a gauge of the region’s automakers. Voestalpine AG fell the most in more than three months after cutting its earnings outlook.
The benchmark STOXX Europe 600 Index dropped 3.7 percent this week to 232.17, its lowest close in six weeks, as Italian, Spanish and French bond yields soared, renewing concern that contagion from the debt crisis is infecting more euro members. The European Central Bank (ECB) was said to have bought government bonds throughout the week, offering bouts of respite to equities.
“If rates stay where they are now it will trigger a recession in Italy and Spain,” said Morten Kongshaug, chief equity strategist at Danske bank A/S in Copenhagen.
More bond-buying would be needed for stocks to stop reacting to every surge in bond yields, he said.
ECB bond purchases failed to stem the spread of the crisis as yields in Italy, the eurozone’s third-largest economy, increased for the sixth consecutive week and the extra yield investors demand to hold in French, Spanish or Belgian debt instead of benchmark German bunds jumped to the highest since the euro was created.
An Oct. 26 agreement to bolster the region’s bailout fund, the European Financial Stability Facility, stalled as Germany and France differed over how to tackle the crisis. France called for using the ECB as a crisis backstop, although Germany rejected it.
National benchmark indexes fell in all but two of the 18 western-European markets. France’s CAC 40 slid 4.8 percent, the UK’s FTSE 100 dropped 3.3 percent and Germany’s DAX lost 4.2 percent.
A gauge of lenders on the STOXX 600 fell 6.4 percent as policy makers debated how much loss bondholders must be asked to take on Greek bonds. BNP Paribas, France’s largest lender, fell 13 percent. Societe Generale dropped 12 percent and Credit Agricole SA slid 11 percent.
A gauge of European automakers underperformed all other industry groups in the STOXX 600, declining 8 percent as car sales dropped and economic confidence in the region fell.
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