Sun, Apr 08, 2012 - Page 10 News List

Spanish woes weigh on EU markets

‘EXTREME DIFFICULTY’:Madrid’s raising of its public deficit target to 5.3 percent, from 4.4 percent, of GDP this year stoked concerns of a second bailout for the nation

Bloomberg

European stocks fell for a third week, the longest losing streak since August, as Spain’s rising borrowing costs boosted concern the euro-area has yet to contain its debt crisis, and the US Federal Reserve damped expectations for further monetary stimulus.

Banking shares led the declines. Banca Popolare di Milano Scarl and UniCredit SpA slid at least 12 percent each this week. Peugeot SA dropped 10 percent after a report showed US sales of light vehicles rose less than forecast. Cairn Energy PLC gained 3.7 percent after agreeing to buy Agora Oil & Gas AS to expand in the North Sea.

The STOXX Europe 600 Index declined 1.6 percent to 259.07 this week. The benchmark measure climbed 7.7 percent in the first quarter, its best performance during the first three months of the year since 2006, as the European Central Bank (ECB) disbursed 1 trillion euros (US$1.3 trillion) in three-year loans to the region’s financial institutions and US economic reports beat estimates.

All stock exchanges in western Europe were closed for Good Friday.

“The fact that Spain is back in the news makes equity investors nervous about where we go from here,” said Peter Dixon, global equities economist at Commerzbank AG in London. “So long as we have some kind of concern to worry about, there are going to be limits to which equities will be able to take off.”

Spanish bonds fell for a third day on Thursday, widening the spread between yields on 10-year Spanish and German debt to more than 400 basis points for the first time since Dec. 12.

National benchmark indexes dropped in 16 of the 18 western-European markets this week. France’s CAC 40 slid 3 percent, the UK’s FTSE 100 Index lost 0.8 percent and Germany’s DAX fell 2.5 percent.

Spain is in “extreme difficulty,” Spanish Prime Minister Mariano Rajoy said on Wednesday, raising the possibility of a bailout for the second time this week.

The government has widened its budget deficit target to 5.3 percent of GDP from 4.4 percent and warned on Tuesday that public debt would surge to a record 79.8 percent of GDP this year.

Spain sold 2.6 billion euros of bonds, near the minimum target for the sale on Wednesday. Borrowing costs rose in its first auction since the country said public debt would jump to a record this year. The Spanish Treasury had set a range of 2.5 billion euros to 3.5 billion euros for the sale.

In the US, the Federal Reserve is holding off on increasing monetary accommodation unless US economic growth falters or prices rise at a rate slower than its 2 percent target, minutes released from a March 13 policy meeting showed on Tuesday.

“A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below” 2 percent, according to the minutes.

The ECB left its benchmark interest rate unchanged at a record low of 1 percent on Wednesday. The euro-area’s economic outlook remains subject to “downside risks,” ECB President Mario Draghi said at a press conference later that day in Frankfurt.

“The remaining tensions in euro area sovereign-debt markets are expected to dampen economic momentum,” he said.

Euro-area services and manufacturing output contracted for a second month last month. A composite index based on a survey of purchasing managers in both industries dropped to 49.1 from 49.3 in February, London-based Markit Economics said on Wednesday. That’s above an initial estimate of 48.7 on March 22. A reading below 50 indicates contraction.

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