European Stocks Drop on Concern Debt Crisis Is Deepening

European stocks dropped the most in a week as Italy failed to meet its maximum target at a debt sale, Spain struggled to bolster its banking system and a Greek poll showed increased support for parties opposed to spending cuts.

BASF SE (BAS), the world’s biggest chemical maker, declined 2 percent as Frankfurter Allgemeine Zeitung reported the company isn’t seeing the kind of dynamism it expected in Asia. BHP Billiton Ltd. (BHP) and Rio Tinto Plc (RIO) fell more than 2.5 percent as copper declined. Royal Dutch Shell Plc (RDSA), Europe’s biggest oil company, retreated as oil fell to a seven-month low.

The Stoxx Europe 600 Index declined 1.5 percent to 240.56 at the close in London. The benchmark measure has tumbled 12 percent from this year’s high on March 16 amid growing concern that Greece will be forced to leave the euro currency union.

“The rising yields at Italy’s bond auction show the nervousness of the market, impacted by the rising probability of a Greek exit as well as increasing pressure from the Spanish banking market,” said Kai Fachinger, who manages about $750 million at SAM Sustainable Asset Management AG in Zurich.

National benchmark indexes slipped all the 18 western European markets. The U.K.’s FTSE 100 dropped 1.7 percent and Germany’s DAX fell 1.8 percent, while France’s CAC 40 (CAC) slid 2.2 percent. Greece’s ASE Index slumped 3.2 percent.

Italian Bond Sale

Italian bonds fell for a fourth day, the longest stretch of losses in more than a month. The nation’s borrowing costs rose at an auction today as it sold 5.73 billion euros ($7.1 billion) of five-year and 10-year securities, short of its maximum target of 6.25 billion euros.

“The main threat to Italy’s debt market right now is external,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, wrote in an e-mail. “While things are going from bad to worse in Spain, the uncertainty surrounding Greece’s membership of the euro zone is weighing heavily on sentiment.”

In Greece, a VPRC opinion poll for Epikaira magazine showed that anti-austerity group Syriza had the support of 30 percent of voters, compared with 26.5 percent for New Democracy, which backs the terms of a European Union bailout. Greece holds new elections on June 17.

A separate survey indicated most citizens wanted the terms of the international financial rescue eased, even as they acknowledged that failure to abide by the austerity measures may lead to an exit from the single currency.

Spanish Yields

In Spain, the cost of insuring against sovereign default rose to a record today. Credit-default swaps linked to the nation’s debt climbed 29 basis points to 589.5, according to data compiled by Bloomberg. An increase signals worsening perceptions of credit quality. The yield on Spanish five-year notes rose to 6 percent for the first time since Nov. 30.

Egan-Jones Ratings Co. yesterday cut Spain’s sovereign credit rating to B from BB- on the country’s deteriorating economic outlook.

Elsewhere, a European Commission report showed that economic confidence in the euro region declined more than forecast in May to the lowest in 2 1/2 years. An index of executive and consumer sentiment in the 17-nation currency union fell to 90.6 from a revised 92.9 in April. That’s the lowest since October 2009 and below the 91.9 forecast by economists in a Bloomberg survey.

U.S. Property Market

The number of Americans signing contracts to buy previously owned homes fell in April by the most in a year, indicating the U.S. housing recovery remains uneven.

The index of pending home resales dropped 5.5 percent following a revised 3.8 percent gain the prior month, figures from the National Association of Realtors showed today in Washington. The median forecast of 42 economists surveyed by Bloomberg News called for no change in the measure.

BASF dropped 2 percent to 56.79 euros after Frankfurter Allgemeine Zeitung cited Deputy Chief Executive Officer Martin Brudermueller as saying the company isn’t seeing the kind of dynamism it expected in Asia. BASF is considering taking a partner in India, where a backlog of policy changes is holding back growth, the official said.

BHP Billiton and Rio Tinto declined 2.5 percent to 1,707.5 pence and 4.1 percent to 2,801 pence, respectively. Copper fell for a second day, poised for the biggest monthly drop since September.

Royal Dutch Shell decreased 1.1 percent to 24.91 euros in Amsterdam. BP Plc (BP/) declined 2.1 percent to 398.30 pence. Oil fell to its lowest since Oct. 20 on speculation that U.S. crude stockpiles climbed to the highest level since 1990.

Vallourec, Bankia

Vallourec lost 3.8 percent to 31.41 euros. The company is not witnessing a rebound in orders in Europe and Asia, Les Echos reported, citing an interview with Chairman Philippe Crouzet. The company would reduce production by a further 20 percent if the economy worsens, the report said.

Bankia SA (BKIA) slid for a sixth day, losing as much as 17 percent, after the Financial Times reported the European Central Bank rejected the Spanish plan for the nationalized lender as unacceptable, citing unidentified European officials. The plan could breach the EU’s “monetary financing” ban, the newspaper had reported.

The stock closed the session 8.6 percent lower at 1.04 euros after the ECB said the Spanish government hasn’t consulted it on any plans to recapitalize a major bank and that the central bank has not given any advice.

Banca Popolare di Milano Scarl (PMI) tumbled 4.9 percent to 30.5 euro cents, while National Bank of Greece SA (ETE) dropped 7.9 percent to 1.16 euros.

French Advertising Ban

Societe Television Francaise 1 (TFI), France’s most-watched television channel, slumped 5.7 percent to 6.00 euros after Kepler Capital Markets said the company may lose about 40 million euros in revenue if the French government lifts the advertising ban on France TV.

Fiat Industrial SpA (FI), the truck and tractor manufacturer that Italian carmaker Fiat SpA spun off in 2011, gained 1 percent to 7.97 euros after saying it will merge with tractor unit CNH Global and move its primary listing to New York.

Booker Group Plc (BOK), the biggest U.K. food wholesaler, rallied 10 percent to 87 pence, the highest since Feb. 2006. Metro AG (MEO) agreed to sell its Makro U.K. wholesale unit to Booker for 139.7 million pounds ($218 million) in cash and stock. Metro gained 1.3 percent to 22.90 euros.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

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

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