European Stocks Retreat as Greek Credit-Default Swaps Surge

European stocks declined for the third time in four days, led by Greek, Spanish and Portuguese shares, as the cost of insuring against Greece defaulting on its debt surged to a record.

Alpha Bank SA (ALPHA), Greece’s third-largest lender, Banco Santander SA (SAN), the biggest Spanish bank, and Portugal’s Banco Espirito Santo SA all dropped more than 2 percent as credit-default swaps on the nations’ debt gained. Vedanta Resources Plc (VED) fell 2.7 percent as copper retreated in London. Oriflame Cosmetics SA (ORI) slumped the most in almost four years after reporting earnings that missed analysts’ estimates.

The Stoxx Europe 600 Index slid 0.6 percent to 268.23. Greece began talks today on activating a 45 billion-euro ($61 billion) emergency aid package as the International Monetary Fund called the country’s fiscal crisis a “wake-up call” on sovereign-debt risks. The government needs to raise about 10 billion euros before the end of May, and its soaring financing costs are lending urgency to the talks.

“There are still deficit concerns to digest and issues with financial companies,” said Andrea Williams, who helps manage about $1.9 billion at Royal London Asset Management. “Investors have to be selective.”

National benchmark indexes fell in 15 of the 18 western European markets. Greece’s ASE Index slid 1.3 percent, Portugal’s PSI-20 sank 2.3 percent and Spain’s IBEX 35 (IBEX) dropped 2.1 percent.

Greek CDSs

Greece led an increase in the cost of insuring against default on government debt. Credit-default swaps on the nation surged 31 basis points to a record 495, according to CMA DataVision prices. Contracts on Portugal jumped 27 basis points to 228 while Spain climbed 16 to 161. Greek 10-year government bonds fell for a seventh day, pushing the yield above 8 percent.

“The main risk is that, if unchecked, market concerns about sovereign liquidity and solvency in Greece could turn into a full-blown sovereign debt crisis, leading to some contagion,” the IMF said today in its World Economic Outlook. “This reinforces the importance of efforts by Greek authorities to re-establish the credibility of their fiscal policy.”

Alpha Bank sank 5.2 percent to 6.26 euros and Piraeus Bank SA (TPEIR) retreated 3.3 percent to 5.95 euros. Santander dropped 2.9 percent to 10.23 euros, while in Portugal, Banco Espirito Santo lost 4.6 percent to 3.72 euros.

Vedanta Falls

Vedanta led mining shares lower as copper, lead and nickel declined on the London Metal Exchange. The largest copper producer in India retreated 2.7 percent to 2,674 pence while Xstrata Plc lost 4 percent to 1,165 pence. BHP Billiton Ltd. (BHP), which today said it found evidence of possible breaches of anti-corruption laws, declined 2.8 percent to 2,118 pence.

Oriflame Cosmetics sank 13 percent to 408 kronor, the steepest decline since May 2006, after the cosmetics maker reported first-quarter sales and pretax profit that fell short of analysts’ estimates.

European technology shares rallied as Apple Inc. (AAPL) and Elpida Memory Inc., Japan’s biggest maker of computer memory, reported earnings that topped estimates.

Infineon Technologies AG (IFX), Europe’s second-biggest chipmaker, climbed 3.8 percent to 5.40 euros. ARM Holdings Plc (ARM), the U.K. designer of semiconductors used by Apple, surged 3.1 percent to 250.5 pence.

Separately, Intel Corp., the world’s biggest maker of chips for computers, said it’s considering acquisitions that would help get its processors into smartphones and consumer electronics.

‘Other Opportunities’

“We are looking at what we believe can accelerate our progress in those markets,” Chief Financial Officer Stacy Smith said in an interview at Bloomberg’s headquarters in New York yesterday. “As we see other opportunities like that, we think it’s a place where we can and will deploy capital.”

Volkswagen AG (VOW)’s preferred shares climbed 3.8 percent to 75.26 euros after Europe’s largest automaker said first-quarter profit almost doubled to 473 million euros as sales in China and at the Audi luxury brand jumped to records.

Earnings beat the average analyst estimate compiled by Bloomberg of 459 million euros. Sales rose 19 percent.

Fiat SpA (F) rose 1.7 percent to 10.60 euros, extending yesterday’s 9.3 percent advance. The Italian automaker said it expects to complete the spinoff of its industrial units by the end of the year.

Bic SA soared 8.1 percent to 61.22 euros, leading advancing shares in the Stoxx 600. The world’s largest maker of disposable pens said first-quarter net income rose 32 percent to 35.4 million euros.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.

To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net.

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