European Stocks Post Biggest Weekly Retreat Since March; Commerzbank Sinks

European stocks posted the biggest weekly drop since March as concern mounted that the sovereign- debt crisis will spread to Italy and Spain and as rating companies said they may cut the U.S.’s top credit rating.

Commerzbank AG (CBK), Germany’s second-biggest lender, led a retreat in financial stocks. Thomas Cook Group Plc (TCG) slumped 44 percent after Europe’s second-largest tour operator cut its forecast. Temenos Group AG (TEMN) plunged 30 percent after reducing its prediction for revenue from licenses.

The Stoxx Europe 600 Index slid 2.5 percent to 266.91. The decline has left the index trading at about 12.5 times earnings, near its lowest since December 2008, according to data compiled by Bloomberg.

“I think markets are too expensive considering the risk,” said Jean Borjeix, a partner at Paris-based Platinium Gestion, which helps oversee about $170 million. “It is impossible to take the same risk for the market as we did before 2008 because now we have a public debt problem. We are not in the same environment, so it is not possible to price today at the same level.”

U.S. Treasury Secretary Timothy F. Geithner warned there’s no possible extension to the time limit to raise the debt ceiling as Standard & Poor’s joined Moody’s Investors Service in reviewing the U.S.’ s credit rating. The company said it will lower the long-term rating by one or more notches into the AA category in the next three months if it concludes that Congress and President Barack Obama’s administration haven’t found a credible solution to the government’s rising debt burden and aren’t likely to do so in the foreseeable future.

Moody’s Reviews U.S.

Moody’s put the U.S. on review for the first time since 1996 as talks to raise the country’s $14.3 trillion debt limit stalled, adding to concern that political gridlock will lead to default. Even a temporary default will probably have “large systemic effects” on the economy and Treasury finances by disrupting money funds, the repurchase-agreement market and foreign investors’ willingness to buy the government’s debt, JPMorgan Chase & Co. said.

Italy this week sold five-year bonds at the highest yield in three years. The Italian Treasury priced 1.25 billion euros ($1.8 billion) of 2016 bonds on July 14 at an average yield of 4.93 percent, compared with a yield of 3.9 percent at a previous auction on June 14.

Italy’s FTSE MIB Index (FTSEMIB) on July 11 plunged the most in more than a year, entering a bear market as its slide from this year’s high on Feb. 17 exceeded 20 percent. The gauge tumbled 3.1 percent this week.

National Indexes

National benchmark indexes declined in every western European market except Iceland, which finished the week unchanged. France’s CAC 40 Index slid 4.8 percent. The U.K.’s FTSE 100 Index and Germany’s DAX Index each dropped 2.5 percent.

Commerzbank sank 16 percent. EFG Eurobank Ergasias SA (EUROB), the second-largest bank in Greece, tumbled 15 percent. Ageas (AGS), an insurer, retreated 16 percent. Axa SA (CS), Europe’s second-largest insurance company by market value, lost 11 percent.

Thomas Cook plunged 44 percent. The company said on July 12 that its underlying operating profit for the year ending in September may fall to 320 million pounds ($517 million) from 362 million pounds a year earlier. That’s below the company’s prediction in May and less than the 382 million-pound average estimate of nine analysts compiled by the company.

TUI Travel Plc (TT/) slid 17 percent.

Technology shares sank 6.5 percent for the biggest drop among the 19 industry groups in the Stoxx 600 as Temenos tumbled 30 percent. The banking software provider on July 15 reduced its full-year outlook for license revenue, saying it now expects growth of 5 percent to 10 percent.

Missed Estimates

Software AG (SOW), Germany’s second-largest maker of business software, fell 22 percent after reporting second-quarter sales that missed analysts’ estimates due to currency moves and its failure to sell licenses. Software AG also said that demand to implement products from SAP fell from the same period a year earlier. SAP, the world’s biggest maker of business software, slipped 5.2 percent.

L’Oreal SA (OR), the world’s largest cosmetics maker, slipped 5.9 percent. The company on July 12 said second-quarter sales rose 0.9 percent to 4.99 billion euros. That missed the average estimate of eight analysts surveyed by Bloomberg for revenue of 5.07 billion euros.

Waertsilae Oyj decreased 15 percent. The world’s biggest maker of ship engines and power plants said on July 15 that its full-year sales will contract because of weaker marine-service markets.

Fresnillo Plc (FRES), the world’s largest primary silver producer, surged 14 percent as silver and gold prices rallied this week.

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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