European Stocks Fall as Investors Consider U.S. Budget

European stocks fell for a second day as investors weighed an accord between U.S. lawmakers to limit automatic spending reductions and avoid another government shutdown, as well as a possible cut in Federal Reserve stimulus.

Royal Bank of Scotland Group Plc lost 2.9 percent as Nathan Bostock said he will quit as chief financial officer. Mediolanum (MED) SpA slipped 6.9 percent as its largest investor sold a stake. European Aeronautic, Defence & Space Co. surged the most in a year after reiterating plans to increase dividend payments. BAE Systems Plc added 2.6 percent as the U.S. budget deal provided $31.5 billion of relief from forced military spending cuts.

The Stoxx Europe 600 Index fell 0.5 percent to 313.3 at the close of trading. The equity gauge has rallied 12 percent this year as central banks around the world pledged to leave interest rates near record lows for a prolonged period of time.

“There isn’t anything new scaring the market, but most people have been long after the summer and that has paid well,” Nicola Marinelli, who helps invest $150 million as a portfolio manager at Glendevon King Ltd in London, said by telephone. “They’ve likely had a very good year and they don’t want to risk that performance in the last few week when there is usually less liquidity approaching Christmas and in the background, there can be a bearish announcement by the Fed regarding tapering.”

U.S. Congressional negotiators reached a budget accord to limit automatic spending cuts for the next two years, remove the risk of a government shutdown like the one in October and cut the deficit by as much as $23 billion. Both the Senate and the House of Representatives must pass the deal.

Compromise Deal

The compromise, worked out between chief negotiators Senator Patty Murray and Representative Paul Ryan, would set spending at about $1.01 trillion in the current fiscal year, higher than the $967 billion required in a 2011 budget plan.

“The budget deal itself is at best a signal that we won’t shut the government down at the start of the new year,” Alexander Friedman, chief investment officer at UBS AG’s wealth-management unit, told Anna Edwards on Bloomberg Television. “It’s a low base that we’re declaring victory from. The key message for 2014 is the real economy is getting better. For investors however, it’s probably not going to be the same sugar high we’ve seen for the last five years.”

Investors are also considering when the Federal Reserve, which meets next week, may reduce the pace of its monthly bond buying. Twelve out of 35 economists surveyed by Bloomberg on Dec. 6 predicted that Fed policy makers will begin to slow the asset-buying program at their Dec. 17-18 meeting. Nine said the central bank will buy fewer bonds from its January meeting and the remaining 14 said that tapering will start in March.

National Benchmarks

National benchmark indexes retreated in 16 of the 18 western European markets. The U.K.’s FTSE 100 slid 0.2 percent, France’s CAC 40 dropped 0.1 percent and Germany’s DAX lost 0.4 percent.

RBS dropped 2.9 percent to 326.9 pence, its biggest decline since Nov. 1. The bank, which has been under pressure to shore up earnings hurt by souring loans and past regulatory missteps, said in a statement that Bostock informed the board of his plans to step down, with a formal resignation expected soon. He will remain in his role “to oversee an orderly handover of his responsibilities” and a successor will be announced “in due course.”

Bpost SA slid 5.3 percent to 14.43 euros when trading in the stock resumed after being suspended late yesterday. CVC Capital Partners Ltd.’s Post Invest Europe SARL sold a 19.7 percent stake in Belgium’s state-controlled postal service for 580 million euros ($800 million), according to a statement.

Mediolanum Falls

Mediolanum dropped 6.9 percent to 5.98 euros. Fininvest SpA, the investment company of Silvio Berlusconi’s family, raised 253 million euros from the sale of a 5.61 percent stake in the financial-services company, according to a statement.

Imagination Technologies Group Plc (IMG) tumbled 24 percent to 190 pence, its lowest price since October 2009, after posting half-year sales that missed analysts’ estimates. The U.K. designer of chip technology for phones and tablets said sales rose to 85.2 million pounds ($139.6 million) in the period to Oct. 31, compared with the 93.3 million average estimate compiled by Bloomberg.

EADS gained 7.5 percent to 52.86 euros after saying it will target a dividend payout ratio of 30 percent to 40 percent. BAE Systems added 2.6 percent to 426 pence, its biggest gain since July 4. The U.S. budget proposal includes a defense spending cap of about $520 billion for the 2014 fiscal year, compared with the current limit of $498 billion.

Natixis Advances

Natixis (KN) SA climbed 3.1 percent to 4.02 euros. Exane BNP Paribas raised its rating on the stock to outperform, similar to a buy recommendation, from neutral, citing a potential capital return and high payouts for shareholders. The French bank will probably have a dividend yield of 3.9 percent this year and 5.7 percent next year, according to data compiled by Bloomberg.

Stagecoach Group Plc (SGC) advanced 2.8 percent to 372 pence, extending its gains this year to 21 percent. The bus and train operator said six-month adjusted earnings increased to 14.6 pence per share, exceeding the average analyst estimate for profit of 13.7 pence per share.

The volume of shares trading hands today in Stoxx 600-listed stocks was 8.2 percent lower than the average of the past 30 days, data compiled by Bloomberg showed.

To contact the reporter on this story: Sofia Horta e Costa in London at shortaecosta@bloomberg.net

To contact the editor responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net

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