German Stocks Decline After Italian Bond Sale at Record Yields

German stocks dropped, snapping two days of gains, as record yields at Italy’s bond sale today highlighted investor skepticism that euro area’s leaders will struggle to push through reforms needed to end the debt crisis.

RWE AG fell after Berenberg Bank cut its price target on the shares of Germany’s second-biggest utility. Hugo Boss AG slumped 6.4 percent after majority shareholder Permira Advisers began selling part of its stake in the German luxury clothier. Hochtief AG sank 11 percent after saying the sale of its airport operating business has been delayed.

The DAX Index lost 1.2 percent to 5,985.02 at the close in Frankfurt, after earlier rising as much as 1 percent. The gauge has climbed in six of the past seven weeks and rallied 18 percent since this year’s low on Sept. 12 on growing optimism that policy makers will protect Italy and Spain from the crisis. The broader HDAX Index also retreated 1.2 percent today.

“Events in Italy this weekend were quite significant but it takes time to implement reforms to take us through the crisis,” said Morten Kongshaug, chief equity strategist at Danske Bank A/S in Copenhagen. “Until reforms begin to have an impact we will sometimes need the European Central Bank to provide a sedative for markets and they’ve been holding back today on buying Italian bonds.”

Reform Challenges

Italian bonds today fell for the first time in three days, after the government sold 3 billion euros ($4.1 billion) of five-year notes, the maximum target, at the highest yield in more than 14 years. Rising yields highlighted the challenges faced by the new government headed by former European Union competition commissioner Mario Monti to win over investors.

German Chancellor Angela Merkel said it’s time to embrace a “political union” in Europe to send a message to bondholders that euro-area leaders are serious about ending the sovereign debt crisis.

“I believe this is important for those who buy government bonds: that we make it clear that we want more Europe step by step, that is that the European Union, and the euro area in particular, grows together,” Merkel said in an interview with ZDF television yesterday on the eve of her Christian Democratic Union party’s annual congress. “Otherwise people won’t believe that we can really get a handle on the problems.”

Euro-area Output

A report today showed euro-area industrial production declined the most in 2 1/2 years in September, led by capital and consumer goods, as the sovereign-debt crisis pushed the economy toward a recession.

Production dropped 2 percent from August, the European Union’s statistics office in Luxembourg said. Economists had forecast a drop of 2.3 percent, according to the median of 35 estimates in a Bloomberg News survey. From a year earlier, September production increased 2.2 percent.

In Greece, Finance Minister Evangelos Venizelos said his priority is to ensure the country gets a sixth loan under an EU-led bailout after Prime Minister Lucas Papademos took charge of a new interim government.

RWE dropped 2.6 percent to 29.39 euros after Berenberg reiterated its “sell” rating on the company and cut its price target to 35 euros from 48 euros.

Hugo Boss’s preferred shares tumbled 6.4 percent to 67.98 euros after Permira said it is selling part of its stake. The buyout firm, which has controlled the company since 2007, said today it is selling about 6.4 percent of the share capital through accelerated book building. The sale by Permira’s Red & Black Lux SARL unit will reduce its holding to 66 percent. It will still own 89 percent of the voting rights.

Hochtief, Q-Cells

Hochtief fell 11 percent to 45.55 euros, the biggest decline in a month, after Germany’s largest builder said the sale of its airport operating business has been delayed by the struggling European economy and that the company may post a loss if the deal isn’t concluded this year.

Q-Cells SE, a German solar panel maker, dropped 27 percent to 85 euro cents after reporting an operating loss of 47.3 million euros in the third quarter and saying its chief financial officer quit.

Solarworld AG, the biggest German solar panel maker, declined 15 percent to 3.29 euros after reporting a net loss of 9 million euros in the third quarter.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE