European Stocks Sink as Debt-Crisis Contagion Threatens Italy

European stocks tumbled the most in seven weeks, led by banks and insurers, as contagion from Greece’s debt crisis threatened to spread to the bigger economies of Italy and Spain.

Italy’s FTSE MIB Index plunged the most in more than a year, entering a bear market as its slide from this year’s high exceeded 20 percent. UniCredit Spa (UCG) and Intesa Sanpaolo SpA lost more than 6 percent and Germany’s Commerzbank AG (CBK) sank to a two-year low as a gauge of banks had the biggest two-day drop in 14 months. British Sky Broadcasting Group Plc fell as the U.K. government referred its purchase by News Corp. to regulators.

The Stoxx Europe 600 Index lost 1.4 percent to 269.9 at the 4:30 p.m. close in London. The measure has fallen for 9 weeks out of the past 10, bringing its drop since this year’s high on Feb. 17 to 7.3 percent, as concern about the debt crisis deepened and U.S. economic data trailed forecasts.

“What we’re seeing today is the result of 20 to 30 years of Western countries living beyond their means,” said Matthieu Giuliani, a fund manager at Palatine Asset Management in Paris, which oversees $5 billion. “We pulled on the thread a bit and everyone is naked underneath. I’m cautious on stocks. Emerging markets were the final motor. If we have to slow down that machine, that motor will be removed.”

Italian and Spanish government bonds tumbled today, driving the spreads investors demand to hold Italian, Portuguese and Spanish debt over German bunds widened to euro-era records.

EU Rescue Funds

German Finance Minister Wolfgang Schaeuble said “there’s no discussion whatsoever” of doubling the European Union’s rescue facility after Die Welt reported yesterday that the European Central Bank is seeking to increase the pool to 1.5 trillion euros ($2.1 trillion) to cover an Italian crisis. European leaders are prepared to accept that Greece should default on some of its bonds as part of a new bailout plan for the country that would put its total debt levels on a sustainable footing, the Financial Times said, citing unnamed senior officials.

China’s inflation accelerated to the fastest pace in three years in June, highlighting the challenge for policy makers of sustaining growth while taming prices. The consumer price index increased 6.4 percent, the National Bureau of Statistics said on July 9, exceeding the 6.2 percent median estimate of economists surveyed by Bloomberg News.

Alcoa Inc. (AA), the largest U.S. aluminum producer, will become the first company in the Dow Jones Industrial Average to report quarterly earnings after the close of New York trading today. According to analyst estimates compiled by Bloomberg, Profits at S&P 500 companies gained 13 percent in the second quarter, their smallest increase in two years.

Benchmark Indexes

National benchmark indexes declined in all 18 western European markets today. Germany’s DAX lost 2.3 percent and the U.K.’s FTSE 100 fell 1 percent. Portugal’s PSI-20 Index plunged 4.3 percent and Spain’s IBEX 35 sank 2.7 percent. Italy’s FTSE MIB Index slid 4 percent, bringing the retreat since February to 21 percent.

UniCredit, Italy’s biggest bank, tumbled 6.3 percent to 1.15 euros. Intesa Sanpaolo, the second-largest, plunged 7.7 percent to 1.53 euros as it was downgraded to “neutral” (ISP) from “overweight” at HSBC Holding Plc.

Fiat SpA (F) tumbled 5.4 percent to 6.86 euros as the carmaker was cut to “sell” at Societe Generale SA. (GLE) Fiat Industrial SpA, a maker of trucks and tractors, sank 1.6 percent to 8.22 euros. Azimut Holding SpA (AZM), which offers investment management services, slumped 7.4 percent to 5.50 euros and Parmalat SpA (PLT), a milk producer, slid 4.2 percent to 2.40 euros.

Short Sales

Italy’s financial-market regulator, known as Consob, last night ordered that short sellers must reveal their positions when they reach 0.2 percent or more of a company’s capital and then make additional filings for each additional 0.1 percent that they acquire. The measure takes effect today and lasts until Sept. 9.

Commerzbank, Germany’s second-biggest lender, dropped 8.6 percent to 2.71 euros, the lowest level since March 2009. Bank of Ireland Plc (BKIR) retreated 13 percent to 10.1 euro cents after Ireland’s largest lender said it plans to raise 1.9 billion euros in a share sale as it seeks to raise capital and avoid state control.

National Bank of Greece SA (ETE) lost 5.6 percent to 4.42 euros. Societe Generale, France’s second-biggest bank by market value, retreated 5.7 percent to 36.33 euros.

The Stoxx 600 Banks Index’s two-day decline was the biggest since May 2010. CA Cheuvreux said it expects second-quarter net income at the 31 largest European banks it covers to fall 19 percent from the first quarter.

Insurers Fall

A measure of insurers in the Stoxx 600 sank 3.7 percent, the biggest drop in 14 months. Ageas, the insurer formerly known as Fortis, retreated 9.4 percent to 1.57 euros, the lowest level since April 2009. Allianz SE fell 4.1 percent to 91.56 euros and ING Groep NV (INGA) slid 7.3 percent to 7.79 euros.

BSkyB (BSY) tumbled 4.6 percent to 715.5 pence, the lowest since November, as Hunt referred News Corp.’s 7.8 billion-pound ($12.4 billion) bid to buy all of the pay-TV operator to the Competition Commission.

Allegations last week that a News of the World employee intercepted messages left on murdered schoolgirl Milly Dowler’s mobile phone caused a public outcry and prompted Prime Minister David Cameron to pledge an independent inquiry.

Voestalpine AG (VOE) sank 4.3 percent to 36.07 euros after a report that Austria’s biggest steelmaker may lose German whistleblower protection against possible prosecution for antitrust violations.

Northumbrian Water Group Plc jumped 5 percent to 447.7 pence after the utility received a 465 pence-a-share, or 2.4 billion-pound, takeover proposal from Li Ka-Shing’s Cheung Kong Infrastructure Holdings Ltd.

International Power Plc advanced 2.6 percent to 309.1 pence. The energy utility said the Australian government’s new carbon tax will be important to its Australian operations and employees, but is not expected to be material to the entire group.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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