Europe Stocks Drop as UniCredit Falls on Italy Wrangling

European stocks fell for the first time in three days amid political wrangling in Italy and as orders for U.S. durable goods declined more than forecast.

UniCredit SpA, Italy’s biggest bank, retreated 3.5 percent as members of former premier Silvio Berlusconi’s People of Liberty party threatened to topple Prime Minister Enrico Letta’s government. Royal KPN (KPN) NV advanced 3 percent as the Dutch phone carrier won the support of minority shareholder America Movil SAB for the sale of its German business after acquirer Telefonica SA sweetened its bid.

The Stoxx Europe 600 Index lost 0.1 percent to 304.48 at the close of trading, as two shares declined for each one that advanced. The volume of shares changing hands was 57 percent lower than the 30-day average as markets in London were closed for a holiday. The gauge has dropped 2 percent since May 22 amid speculation the Federal Reserve will start paring its bond-buying program as soon as next month.

“There is some concern about the renewed political uncertainty in Italy,” Raimund Saxinger, a fund manager at Frankfurt-Trust Investment GmbH, which oversees about $22 billion, said by phone. “It is just a simple risk on, risk off reflex. Banks are always at the forefront of this.”

Italy’s ruling coalition showed signs of fraying as members of Berlusconi’s People of Liberty party threatened to topple Letta’s government if the billionaire media magnate is ousted from the Senate following a tax-fraud conviction.

Yield Spread

The yield on Italy’s 10-year government bonds rose five basis points to 4.38 percent, pushing the premium over German bunds to 249 basis points. The gap touched a two-year low on Aug. 19. New York University Professor Nouriel Roubini said in an interview with la Repubblica today that a crisis in Letta’s government would increase the spread to more than 300 basis points “in a few days.”

Deputy Prime Minister and People of Liberty Secretary Angelino Alfano said Aug. 24 after a meeting of Berlusconi allies that voting the former premier out of the Senate would be “unthinkable” and unconstitutional, according to a statement on his website.

Orders for U.S. durable goods fell more than forecast in July after three months of increases. Bookings (DGNOCHNG) for goods meant to last at least three years decreased 7.3 percent, the most since August 2012, after a 3.9 percent gain in June, the Commerce Department said today in Washington. The median forecast of economists surveyed by Bloomberg called for a 4 percent drop.

Tapering Agenda

“On the one hand you want to see an improvement in the economy but if it does improve too much, tapering is back on the agenda,” Andreas Nigg, head of equity and commodity strategy at Vontobel Asset Management in Zurich, said in a telephone interview. “This is a dilemma for the markets. The best scenario is moderate growth. Durable goods numbers can be volatile and fluctuate a lot.”

European Central Bank policy makers can’t rule out lowering the benchmark interest rate from the record low of 0.5 percent even amid signs the euro-area economy is improving, Governing Council Member Panicos Demetriades said in an Aug. 24 interview. By contrast, Bank of Austria Governor Ewald Nowotny said Aug. 22 that he doesn’t see “many arguments now for a rate cut” after the recent “stream of good news.”

National benchmark indexes declined in 13 of the 17 western European markets open today. France’s CAC 40 (CAC) slipped 0.1 percent, while Germany’s DAX and the Swiss Market Index each climbed 0.2 percent.

Italian Shares

Italy’s FTSE MIB Index (FTSEMIB) lost 2.1 percent as UniCredit retreated 3.5 percent to 4.42 euros and Intesa Sanpaolo SpA, the nation’s second-biggest bank, dropped 3.3 percent to 1.51 euros. Mediaset SpA, the broadcaster controlled by Berlusconi, tumbled 6.3 percent to 3.15 euros.

Fiat Industrial SpA, the maker of commercial and agriculture vehicles spun off from Fiat SpA in 2011, slipped 1.7 percent to 9.49 euros after saying Chief Financial Officer Pablo Di Si resigned to pursue other interests.

KPN added 3 percent to 2.33 euros after Telefonica Deutschland said billionaire Carlos Slim’s America Movil has committed to vote in favor of the sale of the German mobile business, called E-Plus. The stake in Telefonica Deutschland that KPN will retain after completion will be increased to 20.5 percent from 17.6 percent, KPN said.

Telefonica Deutschland, controlled by Spain’s largest phone company and owner of the O2 brand in Germany, climbed 2.9 percent to 5.22 euros.

Sanofi Surges

Sanofi (SAN) rose 2.3 percent to 76.65 euros, for the biggest gain in the Stoxx 600 by index points. France’s largest drugmaker said tests showed superior benefits of its Fluzone High-Dose influenza vaccine relative to the standard dose of Fluzone treatment in preventing flu.

The Stoxx 600 Health-Care Index climbed 0.4 percent for the best performance among 19 industry groups in the Stoxx 600 after Amgen Inc. of the U.S. agreed to buy Onyx Pharmaceuticals Inc. in a $10.4 billion transaction.

K+S AG, Europe’s biggest potash producer, advanced 4.3 percent to 19.26 euros as Vladislav Baumgertner, chief executive officer of rival OAO Uralkali, was arrested in Belarus. Baumgertner was charged with abusing his office as chairman of Belarusian Potash Co., the trading venture known as BPC that Russia’s Uralkali and Belaruskali set up in 2005.

K+S has plummeted 27 percent since July 29 as Uralkali, the world’s largest potash producer, decided to end output restrictions that underpinned world prices and halt exports through BPC.

To contact the reporter on this story: Jonathan Morgan in Frankfurt at jmorgan157@bloomberg.net

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

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