European Stocks Decline as Germany Rejects Merging Rescue Funds

European Stocks Erase Gains, Germany Rejects Combining Funds
Metro AG, Germany’s biggest retailer, declined. Photographer: Hannelore Foerster/Bloomberg

European stocks dropped after Germany rejected combining the current and permanent euro-area rescue funds and expressed pessimism over the outcome of a European Union summit this week.

Banca Monte dei Paschi di Siena SpA, Italy’s third-biggest bank, led a drop among lenders. ING Groep NV fell 4.7 percent after saying it plans to take a charge related to its U.S. annuity business. Airline shares slid after the International Air Transport Association forecast a decline in industry profits in 2012.

The benchmark Stoxx Europe 600 Index retreated 0.2 percent to 241.44 at the close in London, after earlier gaining as much as 1.2 percent. The gauge last week posted its biggest rally since November 2008 as central banks lowered the interest rate on dollar funding and China reduced its reserve ratio for banks. The Stoxx 600 slipped 0.3 percent yesterday after Standard & Poor’s put 15 euro-area nations on review for a potential downgrade.

“This once again highlights the difficulties European leaders are having in reaching agreement,” said Benoit Peloille, equity market strategist at Natixis. “Combining the two funds would have allowed them to rapidly attain the sufficient power to fight contagion. The rejection by Germany complicates matters.”

National benchmark indexes fell in 12 of the 18 western European markets. France’s CAC 40 Index declined 0.1 percent. Germany’s DAX lost 0.6 percent and the U.K.’s FTSE 100 retreated

0.4 percent.

‘No Change in Sequence’

Germany said it opposes any change in the agreed sequence in which the the region’s bailout funds will be used. It stands by the current agreement that the permanent European Stability Mechanism will take over from the European Financial Stability Facility by the middle of next year, a German government official told reporters in Berlin today on condition of anonymity because the negotiations are private.

The statement followed a report in the Financial Times that said officials are negotiating a plan to run the EFSF even after the ESM starts operations. The proposal is part of a bigger rescue effort they will discuss at the EU summit in Brussels tomorrow and Dec. 9. Enhancing International Monetary Fund’s support is another measure being debated.

Fiscal Union

German Chancellor Angela Merkel and French President Nicolas Sarkozy will push for rewriting EU treaties to tighten control of national budgets. This move won the backing of U.S. Treasury Secretary Timothy F. Geithner, who urged governments to work with central banks to erect a “stronger firewall” to end the debt crisis.

At its meeting tomorrow, the European Central Bank will cut its benchmark interest rate to 1 percent from 1.25 percent, according to the median estimate of economists surveyed by Bloomberg News.

Germany sold 4.09 billion euros ($5.5 billion) of five-year notes to yield 1.11 percent. The nation got bids for 8.67 billion euros. German bonds advanced after the auction.

Greek Prime Minister Lucas Papademos received parliamentary approval for the 2012 budget, a financial plan that aims to nearly halve the deficit shortfall from a debt writedown and ensure Greece remains a member of the euro area.

A gauge of European banks retreated 0.5 percent. Monte Paschi slipped 5.7 percent to 29.17 euro cents. Banca Carige SpA, an Italian bank, slid 6.5 percent to 1.44 euros. Societe Generale SA, France’s second-largest lender, fell 1.3 percent to 20 euros.


ICAP, the biggest broker of transactions among banks, fell

4.4 percent to 350.4 pence. The stock was cut to “equal weight” from “overweight” at Morgan Stanley.

ING Groep, the biggest Dutch financial-services company, dropped 4.7 percent to 6.01 euros. The company plans to take a charge of as much as 1.1 billion euros ($1.5 billion) as lower interest rates and stock markets hurt a U.S. annuity business the firm is winding down.

Metro slid 2.7 percent to 31 euros, extending yesterday’s 14 percent loss. The stock was cut to “sell” from “neutral” at Citigroup Inc. The stock also was downgraded at banks including Deutsche Bank AG and JPMorgan Chase & Co. after Metro yesterday forecast declines in sales and earnings this year.

International Consolidated Airlines Group SA, the holding company of British Airways and Spain’s Iberia, declined 1 percent to 152.7 pence as pilots at its Iberia unit planned to go on strike later this month, Efe newswire reported.

Aviation Profits

Separately, IATA said the airline industry’s profits next year will fall 49 percent, more than it had predicted previously. Deutsche Lufthansa AG, Europe’s second-biggest airline, declined 4.1 percent to 9.10 euros while SAS AB, the Scandinavian flag carrier, slipped 0.5 percent to 9.20 kronor in Stockholm.

Verbund AG, Austria’s biggest utility, climbed 3 percent to

19.57 euros. Morgan Stanley raised its shares to “overweight” from “equal weight.”

Carillion Plc, a British construction and services company, jumped 4.2 percent to 319.4 pence. The company said it expects its debt to drop below 100 million pounds ($156 million) by end of the year, beating its earlier target of 125 million pounds. The stock was raised to “buy” from “hold” at Collins Stewart Hawkpoint Plc.

Zodiac Aerospace, the world’s second-biggest maker of aircraft seats, added 2.8 percent to 62.99 euros. The stock was raised to “outperform” from “neutral” at Exane BNP Paribas.

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