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European Stocks Decline for Second Day; Carrefour, PostNL Drop

European stocks dropped, extending last week’s selloff, as Italian Prime Minister Silvio Berlusconi struggled to hold power before a budget vote and Greece worked on plans to form a new government.

Carrefour SA fell 2.6 percent as euro-region retail sales fell and Citigroup Inc. downgraded the shares. Metro AG (MEO), Germany’s largest retailer, lost 2.1 percent. PostNL NV (PNL) slid 7.4 percent as the biggest Dutch postal operator said profit decreased. National Bank of Greece SA (ETE) and Piraeus Bank SA (TPEIR) advanced more than 4 percent in Athens.

The Stoxx Europe 600 Index dropped 0.6 percent to 238.44 at the close of trading, having earlier climbed 0.3 percent and tumbled as much as 1.8 percent. The measure has still rallied 11 percent from this year’s low on Sept. 22 amid speculation euro-area leaders will contain the debt crisis and the U.S. economy will avoid another recession.

“We are all looking for the next policy maker’s speech,” Robert Talbut, chief investment officer at Royal London Asset Management, said in an interview with Bloomberg Television. “There is an enormous amount of uncertainty around how this crisis is going to play out.”

In Italy, Berlusconi’s majority is unraveling before a key parliamentary vote tomorrow on the 2010 budget report as contagion from Europe’s sovereign debt crisis pushed the country’s borrowing costs to euro-era records. The yield on Italy’s 10-year bonds surged to as much as 6.68 percent today.

Berlusconi’s Future

Stocks pared losses as Berlusconi’s former spokesman Giuliano Ferrara said the Italian premier is likely to decide on his political future “within hours,” with his formal resignation coming next week after he secures parliamentary approval of austerity and economic-growth measures. Reports of his resignation were “totally unfounded,” Berlusconi said in an interview with newspaper Libero.

“The market is trading on headlines,” said Jeremy Batstone-Carr, head of research at Charles Stanley & Co. in London. “In an environment such as this with a kaleidoscope of news coming out of Europe, we are going to see extraordinary volatility. It is a real swamp of a market for investors, there is no clear direction.”

The Stoxx 600 dropped 3.7 percent last week after a failed attempt by Greek Prime Minister George Papandreou to hold a referendum on the latest bailout package spurred concern Greece may default. Papandreou yesterday agreed to step down to allow the creation of a new national unity government intended to secure international financing and avert a collapse of the country’s economy.

Photographer: Chris Ratcliffe/Bloomberg

Italy's Prime Minister Silvio Berlusconi. Close

Italy's Prime Minister Silvio Berlusconi.

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Open
Photographer: Chris Ratcliffe/Bloomberg

Italy's Prime Minister Silvio Berlusconi.

Morgan Stanley Downgrade

Morgan Stanley advised investors to sell European stocks as politicians respond “inadequately” to the fiscal crisis and economic growth weakens. The bank downgraded its stance to “underweight” from “neutral.”

National benchmark indexes fell in 10 of the 18 western European markets today. The U.K.’s FTSE 100 slipped 0.3 percent while France’s CAC 40 and Germany’s DAX Index lost 0.6 percent.

Carrefour (CA) dropped 2.6 percent to 19.16 euros as Citigroup lowered its recommendation for the world’s second-biggest retailer to “sell” from “neutral.” Metro slid 2.1 percent to 34.89 euros, while Hennes & Mauritz AB slid 1.1 percent to 209.30 kronor in Stockholm.

European retail sales fell more than forecast in September as the debt crisis prompted households to cut spending. Sales in the 17-nation euro region decreased 0.7 percent from August, the European Union’s statistics office said today. The median economist forecast was for a drop of 0.1 percent.

PostNL Slides

PostNL retreated 7.4 percent to 2.95 euros after the company said third-quarter operating profit fell 22 percent as domestic mail deliveries declined. Earnings before interest, tax, depreciation and amortization fell to 104 million euros ($142 million) from 134 million euros a year earlier, PostNL, which is based in The Hague, said.

Sandvik AB lost 3.2 percent to 86.55 kronor after the world’s largest maker of metal-cutting tools offered 6.19 billion kronor ($933 million) to buy the remaining shares of its subsidiary Seco Tools AB to expand its new machine solutions business area. Seco rose 27 percent to 103.30 kronor.

Rentokil Initial Plc (RTO) fell 3.8 percent to 66.3 pence. The world’s biggest pest-control company cut its savings and earnings targets for the year as it pumps money into restoring profit at its City Link parcel-delivery service.

Greek banks limited losses in the Stoxx 600. National Bank of Greece advanced 5.4 percent to 1.94 euros, Piraeus Bank increased 4.6 percent to 25 euro cents and Alpha Bank SA gained 6.9 percent to 1.09 euros. Greece’s benchmark ASE Index rose 1.4 percent.

Ryanair Holdings Plc (RYA) added 5.1 percent to 3.52 euros after Europe’s largest discount airline raised its full-year profit forecast by 10 percent to 440 million euros ($606 million) as higher ticket prices offset a slowdown in growth.

Bayer AG (BAYN) advanced 2.5 percent to 46.03 euros after its blood thinner Xarelto won approval in the U.S. to prevent strokes in people with atrial fibrillation, an irregular heartbeat that affects more than 2 million Americans.

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

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

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