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Europe Stocks Post Second Weekly Drop Amid U.S. Shutdown

Photographer: Ralph Orlowski/Bloomberg

The DAX index curve is displayed on an electronic board at the Frankfurt Stock Exchange. Germany’s DAX retreated 0.4 percent, while the U.K.’s FTSE 100 lost 0.9 percent. Close

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Photographer: Ralph Orlowski/Bloomberg

The DAX index curve is displayed on an electronic board at the Frankfurt Stock Exchange. Germany’s DAX retreated 0.4 percent, while the U.K.’s FTSE 100 lost 0.9 percent.

European stocks posted a second week of losses as a standoff between U.S. lawmakers led to the first government shutdown in 17 years for the world’s biggest economy.

Unilever led food and beverage stocks lower, falling 3.7 percent, after posting a slowdown in quarterly sales growth. Nokian Renkaat Oyj tumbled the most in almost a year after cutting its earnings forecast. Mediobanca SpA and Banca Popolare di Milano Scarl led a rally in Italian banks as Prime Minister Enrico Letta won a confidence vote.

The Stoxx Europe 600 Index fell 0.7 percent to 309.89 this past week, after declining 0.6 percent in the previous five days. The gauge has still climbed 11 percent in 2013 as the euro area emerged from a recession and central banks maintained stimulus measures to support the global economy.

“The U.S. shutdown is a comment on the dysfunctional ways of U.S. politics,” Andrew Parry, who oversees about 2 billion euros ($2.7 billion) at Hermes Sourcecap Ltd. in London, said in a phone interview. “We came out of the summer months too optimistic about Europe, so some pause for breath was needed. We saw the profit warning from Nokian Renkaat and the numbers from Unilever. I think we’ll continue to get more profit warnings going into the earnings season.”

The U.S. government began a partial shutdown on Oct. 1 after Democrats and Republicans failed to agree on a budget, closing some services and placing as many as 800,000 federal employees on unpaid leave. A two-week halt could shave 0.25 percentage point off fourth-quarter economic growth, Federal Reserve Bank of San Francisco President John Williams forecast.

Debt Limit

In addition to passing a budget, Congress must authorize an increase to the $16.7 trillion debt ceiling this month to avoid a default. The Treasury has said it will exhaust measures to stay within the limit by Oct. 17 and warned that a default could have catastrophic consequences that might last for decades. The government will run out of cash to pay bills between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

House Republicans met in Washington yesterday to discuss their negotiating tactics, with Speaker John Boehner telling party members that he will not allow a U.S. default, according to a person in the room speaking on condition of anonymity.

“This is political posturing rather than any interest in achieving actual results,” Parry said. “We’re already getting hints of the Republican party backing down.”

National benchmark indexes fell in 11 of the 18 western European markets this week. Germany’s DAX retreated 0.4 percent, while the U.K.’s FTSE 100 (UKX) lost 0.9 percent. France’s CAC 40 decreased 0.5 percent.

Italy Vote

Italy’s FTSE MIB surged 3.7 percent, the most since July. Letta won a confidence vote on Oct. 2 with support from former premier Silvio Berlusconi, who reversed his position after initially trying to bring down the five-month-old government by withdrawing his ministers from the coalition.

Popolare di Milano surged 16 percent and Mediobanca gained 12 percent in Milan trading. UniCredit SpA, Italy’s largest lender, advanced 9.6 percent.

Unilever dropped 3.7 percent in London trading after saying Sept. 30 that underlying revenue for the third quarter rose 3 percent to 3.5 percent. The world’s second-biggest consumer-goods maker reported 5 percent growth in the first half and second quarter.

A gauge of food and beverage stocks was the second-worst performer among 19 industry groups in the Stoxx 600. Nestle SA, the world’s biggest food company, lost 1.7 percent.

SABMiller Plc slipped 4.8 percent for its biggest weekly decline since November 2011 amid a strike at its South African beer division.

Nokian Renkaat

Nokian Renkaat tumbled 9.7 percent, the biggest weekly drop since October 2012. Full-year net sales and operating profit will decline because of the ruble’s retreat against the euro, the Nordic region’s biggest tiremaker said.

Hochtief AG, which owns a controlling stake in Leighton Holdings Ltd., lost 4.9 percent for the largest slide since June. Leighton, Australia’s biggest builder, allegedly paid bribes to win contracts, the Age newspaper reported. Former chiefs Wal King and David Stewart were aware of the conduct, according to the report.

Leighton has been under investigation by the Australian Federal Police since at least February 2012 after the company reported potentially illegal activity at its subsidiary Leighton Offshore Pte. in Iraq. King denied the allegation and a spokeswoman for Stewart declined to comment.

Randgold Resources Ltd. slid 3.5 percent and Fresnillo Plc, which produces gold and silver in Mexico, tumbled 8.7 percent as prices of precious metals fell this week. A gauge of mining companies was the worst performing group on the Stoxx 600.

Schibsted ASA surged 11 percent to the highest price since at least 1992 after Goldman Sachs Group Inc. began coverage of Norway’s biggest media company with a buy rating.

“The company is quickly shifting focus to online classifieds, which offer much higher and more stable growth prospects,” Goldman Sachs analyst Markus Iwar wrote in a note, adding the stock to the brokerage’s conviction list.

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

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

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