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European Stocks Fall in Last Week of 2012 on U.S. Budget

European stocks fell in the year’s last full week of trading, snapping a five-week rally, as the deadline neared for a U.S. lawmakers to agree a deal to halt $600 billion of automatic tax increases and spending cuts.

Bankia SA (BKIA) plunged 40 percent to a record low after Spain said the lender has a negative value of 4.15 billion euros ($5.5 billion). Banco Popular Espanol SA slid 7.3 percent. Clariant AG, a Swiss chemical company, rose 4.3 percent after selling three units. Porsche SE rallied 7.2 percent as a U.S. appeals court dismissed a lawsuit by hedge funds.

The Stoxx 600 Europe Index (SXXP) dropped 0.8 percent to 278.78 this past week. The benchmark measure has still rallied 14 percent in 2012, the biggest increase in three years, as the European Central Bank and the Federal Reserve moved to bolster the economy. Yesterday was the final trading day of the year for Germany, Switzerland, Italy, Denmark, Finland, Norway, Sweden and Austria. Markets in the U.K., France and the Netherlands, among others, are open on Dec. 31.

“While investors are still pinning their hopes on a last- minute deal to avert the U.S. fiscal cliff, congressional leaders are already playing the blame game, boding ill for an agreement before Dec. 31,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said yesterday. “Markets are only beginning to come to terms with the increasing likelihood that U.S. congressional leaders will fail to strike a deal in time.”

Washington Talks

President Barack Obama was due to meet yesterday with House Speaker John Boehner and Senate Minority Leader Mitch McConnell, who are Republicans, along with Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats. The president had been negotiating one-on-one with Boehner.

Obama returned early from his holiday in Hawaii as lawmakers disputed which party would be responsible for missing the deadline for a debt deal, a failure that could hurt the U.S. credit rating and cause an economic recession.

Confidence among U.S. consumers declined more than forecast in December as the budget debate soured Americans’ outlook for the economy. The Conference Board’s sentiment index fell to 65.1 from a revised 71.5 reading the prior month, figures from the New York-based private research group showed.

National benchmark indexes retreated in 16 of western Europe’s 18 markets this week. France’s CAC 40 dropped 1.1 percent and the U.K.’s FTSE 100 Index declined 0.3 percent. Germany’s DAX also slipped 0.3 percent, paring this year’s rally to 29 percent.

Annual Advance

The year’s gains in the Stoxx 600 have been led by automakers and insurance companies, with gauges of stocks in both industries surging more than 30 percent. Sky Deutschland AG, the German pay-TV provider half-owned by Rupert Murdoch’s News Corp., has been the best-performing company in the index in 2012, soaring 194 percent.

Bankia tumbled 40 percent for the biggest drop on the Stoxx 600 this week. Spain said the lender has a negative value of 4.15 billion euros in an exercise to determine how much of the rescued lender remains in shareholders’ hands. The stock will be excluded from the benchmark IBEX 35 as of Jan. 2.

Bankia group, including its parent, Banco Financiero y de Ahorros, is set to receive 18 billion euros of European funds, making it the largest recipient of the country’s bank bailout.

Banco Popular Espanol, Spain’s sixth-biggest bank, declined 7.3 percent.

D’Ieteren Drops

D’Ieteren SA (DIE) sank 19 percent, the biggest slide in 10 years. The owner of the world’s largest vehicle-glass repair company said on Dec. 21 that its 2012 profit decline will be deeper than earlier projections and forecast an earnings drop of at least 10 percent next year.

Clariant (CLN) rose 4.3 percent after selling units for 502 million Swiss francs ($550 million). The specialty-chemicals maker said it will get about 460 million francs in cash for selling the textile chemicals, paper specialties and emulsions businesses to SK Capital Partners, a U.S. buyout company.

Porsche advanced 7.2 percent. The maker of the 911 sports car won an appeals court ruling in New York state dismissing a lawsuit by hedge funds that accused the German carmaker of concealing a plan to corner the market in Volkswagen AG shares.

Atari SA retreated 6.4 percent after the video-game maker said it sees a “significant” fiscal-year loss. Atari also forecast a second-half operating loss exceeding its deficit in the first half and said it’s looking at all additional means of raising or preserving cash.

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