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European Stocks Post Biggest Weekly Drop in 13 Months

European stocks posted the biggest weekly slide in 13 months as Federal Reserve Chairman Ben S. Bernanke said the central bank may pare bond purchases, Greek wrangling threatened to fracture the government and China’s cash crunch worsened.

BHP Billiton Ltd. and Rio Tinto Group led a gauge of mining companies to the lowest level in almost four years. Saipem SpA slumped 35 percent after Italy’s largest oil and gas engineer cut its profit forecast. Konecranes Oyj, the Finnish maker of shipyard and harbor equipment, fell 12 percent after also trimming its earnings outlook.

The benchmark Stoxx Europe 600 Index plummeted 3.7 percent to 280.4 this week as all 19 industry groups dropped. The gauge has declined for five straight weeks, the longest streak of losses since June 2011. It has retreated 9.7 percent since May 22 after Bernanke said the Fed could start to reduce quantitative easing if the U.S. economy improves sustainably.

“The market was facing the cold turkey of less QE steroids and the result was a panic attack,” said Lorne Baring, who helps oversee about $500 million as managing director of B Capital SA in Geneva. “The result will be investors pushed back to looking at equity fundamentals instead of the central bank QE programs, which have been distorting markets.”

The Fed may “moderate” the pace of its $85 billion a month in bond purchases later this year and could end them in mid-2014 if the U.S. economy and labor market improve as forecast, Bernanke said on June 19. Yields (USGG10YR) on benchmark 10-year Treasuries climbed to 2.5 percent for the first time since 2011.

Volatility Jumps

The VStoxx Index, which measures the cost of using options to hedge against swings in the Euro Stoxx 50, rallied 13 percent to 24.05, the highest since February.

In China, benchmark money-market rates climbed to records yesterday as the People’s Bank of China refrained from using reverse-repurchase agreements to address a cash crunch. The seven-day repurchase rate rose 2.7 percentage points to 10.77 percent, the highest in data going back to March 2003.

As interbank borrowing costs surged, a report showed China’s manufacturing is shrinking at a faster pace this month. The preliminary reading of 48.3 for a purchasing managers’ index released by HSBC Holdings Plc and Markit Economics compared with the 49.1 median estimate in a Bloomberg survey of economists. May’s final reading of 49.2 was the first below 50 since October, indicating contraction.

Democratic Left

Greek Prime Minister Antonis Samaras lost one of his two coalition partners as the Democratic Left party’s ministers quit over his closure of state broadcaster ERT, sparking concern about the government’s stability. Without the 14 lawmakers from Democratic Left, the alliance between Samaras’s New Democracy and the Socialist Pasok party would control just 153 seats in the 300-seat parliament.

“It feels like everyone is packing up everything they can,” said Luis Benguerel, a trader at Interbrokers in Barcelona. “People just want out. We’ve spent years patching up holes in China rather than reforming that economy. One day it will just blow up. And the last thing we need is a resumption of the sovereign risk in Europe.”

National benchmark indexes fell in all of the 18 western European markets this week, except Iceland. The U.K.’s FTSE 100 dropped 3.1 percent, France’s CAC 40 lost 3.9 percent. Germany’s DAX Index (DAX) declined 4.2 percent, the biggest slide in a year. Greece’s ASE plunged 9.7 percent.

Miners, Automakers

Gauges of resources stocks and automakers tumbled the most of the 19 industry groups in the Stoxx 600. BHP Billiton and Rio Tinto, the world’s biggest mining companies, retreated 6.3 percent and 4 percent, respectively.

Randgold Resources Ltd., a producer of the precious metal in Africa, and Fresnillo Plc, the world’s biggest primary silver producer, each tumbled the most since 2008. The shares sank 14 percent and 17 percent, respectively, as gold and silver touched the lowest levels since 2010.

PSA Peugeot Citroen, France’s biggest carmaker, declined 12 percent and Daimler AG lost 8.7 percent.

Saipem slumped 35 percent. The oil and gas engineer reduced a forecast for earnings before interest and tax this year by as much as 750 million euros, saying that it won’t be able to recover rising costs for Algerian projects as talks with client Sonatrach have failed.

Konecranes fell 12 percent after saying full-year operating profit excluding restructuring costs will reach last year’s level instead of improving.

Imtech, Nokia

Royal Imtech (IM) NV slid 29 percent, the biggest drop in four months. The Dutch infrastructure provider reported a first-quarter net loss of 59.6 million euros ($78.2 million), citing the costs of a probe into fraudulent actions in Poland and Germany as a primary cause.

Nokia Oyj (NOK1V) rallied 8.9 percent after the Wall Street Journal reported the company held talks to sell its mobile-phone business to Microsoft Corp. The discussions failed amid concern over the price and Nokia’s market share, the newspaper said, citing people familiar with the matter.

The Financial Times reported that China’s Huawei Technologies Co. may be interested in buying Nokia. Huawei said it has no plans to acquire the company.

Celesio AG rose 6 percent as people familiar with the matter said the German pharmaceutical retailer held talks with CVS Caremark Corp. on a possible collaboration, including a potential acquisition. Manager Magazin reported that CVS Caremark is prepared to buy Franz Haniel & Cie GmbH’s 50.01 percent stake in the company.

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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