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Swiss Stocks Retreat as Euro Debt, Korea Send Banks Tumbling

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Swiss stocks plunged, falling the most in four months, as North Korea fired artillery shells into South Korea and concern continued that Europe’s sovereign-debt crisis will spread to Portugal and Spain.

Swiss banks decreased amid the global equities sell-off. Credit Suisse Group AG and UBS AG both declined 2.6 percent.

The Swiss Market Index of the biggest and most actively traded companies dropped 2.1 percent to 6,393.79 at the 5:30 p.m. close of trading in Zurich. Even so, the gauge has rallied 7.6 percent since its low this year in July amid optimism that the economic recovery will continue as companies reported better-than-estimated earnings and central banks from Japan to the U.S. said they will support growth. The broader Swiss Performance Index declined 2 percent today.

“While the Dear Leader’s son Kim Jong-un seeks to burnish his military credentials, an escalation of the shelling could impact confidence in stock markets,” said Graeme Herd, head of the international security program at the Geneva Centre for Security Policy.

South Korea scrambled fighter jets and returned fire after North Korea lobbed dozens of shells at one of its islands, killing two soldiers.

“The dilemma for the markets is that it’s coming in the week of Thanksgiving which is one of the more illiquid weeks of the year,” said Jim O’Neill, chairman of Goldman Sachs Asset Management in an interview with Bloomberg Television.

Credit-Default Swaps

Separately, credit-default swap contracts on Irish government bonds increased 25.5 basis points to 551, according to data provider CMA in London. The cost of insuring corporate debt for 15 Western Europe governments rose to a record today.

In China, the biggest banks are close to reaching annual lending quotas and plan to stop expanding their loan books to avoid exceeding the limits, according to four people with knowledge of the matter.

Industrial & Commercial Bank of China Ltd., Bank of China Ltd. and Agricultural Bank of China Ltd. are only extending new loans as existing ones get repaid, the people said, speaking on condition of anonymity.

Financials led declines in the SMI with Credit Suisse dropping 2.6 percent to 39.11 Swiss francs. London-based Helvea analyst Peter Thorne cut his dividend forecast for 2010 to 2013 to one franc from two francs per share, saying the bank is determined to reach new capital adequacy targets imposed by Swiss financial regulator Finma as soon as possible. Thorne maintained a “neutral” rating and a price estimate of 48.90 francs on the stock.

UBS Declines

UBS slipped 2.6 percent to 15.68 francs. Julius Baer Group Ltd., the 120-year-old private bank, declined 2.8 percent to 37.82 francs.

Actelion Ltd. fell for a second day, losing 2.8 percent to 54 francs, as a takeover bid by Amgen Inc. failed to materialize.

Sonova Holding AG slumped 7 percent to 124.40 francs after the hearing-aid maker said it’s voluntarily recalling the HiRes 90k cochlear implant after two instances in which the product experienced a “rare malfunction.” Redburn Partners LLP analyst Ilan Chaitowitz downgraded the stock to “sell” from “neutral.”

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