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European Stocks Climb After France Auctions Debt; Carnival Drops

Fiat SpA and Daimler AG led a rally in carmakers after Goldman Sachs Group Inc. recommended the industry. Photographer: Alessia Pierdomenico/Bloomberg
Fiat SpA and Daimler AG led a rally in carmakers after Goldman Sachs Group Inc. recommended the industry. Photographer: Alessia Pierdomenico/Bloomberg

European stocks advanced to a five-month high, snapping three days of losses, as France auctioned debt at a lower borrowing cost even after Standard & Poor’s stripped the country of its top credit rating.

Fiat SpA and Daimler AG led a rally in carmakers after Goldman Sachs Group Inc. recommended the industry. Carnival Corp. tumbled 16 percent in London after its Costa Concordia cruise liner ran aground off Italy, killing at least six people. Holcim Ltd. retreated 1.6 percent as the cement maker said it will book a charge in the fourth quarter.

The Stoxx Europe 600 Index climbed 0.8 percent to 251.12 at the close, rising above its 200-day moving average to the highest level since Aug. 3. The benchmark measure earlier fell as much as 0.5 percent. The gauge erased its gains on Jan. 13, the final day of trading last week, amid reports S&P planned to downgrade several euro-area countries.

“Rating downgrades are always a bit of old news and everybody already anticipated the move from S&P, but a positive is that President Sarkozy will have less leverage against Chancellor Merkel, who’s getting more room to push her agenda,” said Witold Bahrke, a senior strategist at PFA Pension A/S in Copenhagen, which manages $45 billion. “We’ve seen a series of indicators showing macro-economic conditions have improved.”

S&P Downgrades France

The rating company downgraded France to AA+ from AAA with a negative outlook after the close of European trading on Jan. 13. It cut Cyprus, Italy, Portugal and Spain by two grades, while also lowering the long-term ratings on Austria, Malta, Slovakia and Slovenia. Germany, Belgium, Estonia, Finland, Ireland, Luxembourg and the Netherlands had their grades affirmed.

National benchmark indexes rose in every west-European market except Portugal and Spain. France’s CAC 40 Index jumped 0.9 percent, Germany’s DAX Index gained 1.3 percent and the U.K.’s FTSE 100 Index increased 0.4 percent.

The euro declined for a second day, falling to an 11-year low against the yen today even as the European Central Bank was said to buy Italian and Spanish bonds.

French borrowing costs fell at a sale of 51-week treasury bills in the first sale since the nation’s credit downgrade. France sold 1.895 billion euros ($2.4 billion) of one-year notes at a yield of 0.406 percent, down from 0.454 percent on Jan. 9. The Treasury sold a total of 8.59 billion euros in bills, including three and six-month paper.

Fiscal Deficit Rules

Euro-area leaders will this week try to rescue under-fire efforts to deliver new fiscal rules and cut Greece’s debt burden as they urge investors to ignore the S&P downgrades.

Greek officials will reconvene with creditors on Jan. 18 after discussions stalled last week, raising the threat of default. German Chancellor Angela Merkel and French President Nicolas Sarkozy will also meet as the ECB warns governments against “watering down” a revamp of budget laws.

Fiat led a gauge of carmakers to the biggest gain on the Stoxx 600 today as Goldman Sachs reiterated its “attractive” view on the industry. Fiat surged 7 percent to 4.16 euros, Fiat Industrial SpA increased 3.9 percent to 7.41 euros and Pirelli & C. SpA climbed 4.9 percent to 6.92 euros as analysts recommended all three companies’ shares and added Pirelli to their “conviction buy” list.

Daimler was also added to Goldman’s “conviction buy” list, while Renault SA was upgraded to “neutral” from “sell.” The carmakers climbed 3.6 percent to 39.35 euros and 2.9 percent to 30.87 euros, respectively.

“The sector is now discounting a substantial decline in returns in 2012,” wrote Goldman analyst Stefan Burgstaller in a report to clients dated today. “The European Union sector is in better financial and operational shape than in 2007, and we believe it is well placed to benefit from global economic realignment.”

Carnival Shares Tumble

Carnival tumbled 16 percent to 1,878 pence, the biggest drop since the shares started trading in London in 2000, after its cruise liner capsized off the Italian coast on Jan. 13, injuring about 60 people. The ship, carrying more than 4,000 passengers and crew, hit submerged rocks in the Tyrrhenian Sea. Rescuers are still searching for as many as 17 people.

Morgan Stanley lowered its recommendation for the shares to “equal weight” from “overweight.”

Holcim lost 1.6 percent to 51 Swiss francs. The world’s second-largest cement maker said it will book a 775 million-franc ($812 million) charge in the fourth quarter after writing off investments in South Africa and revaluing assets in sluggish markets from Spain to the U.S.

Lundin Drops

Lundin Petroleum AB sank 14 percent to 152.10 kronor after the company said it will probably reduce its estimates for the recoverable resources at the Avaldsnes discovery.

Cie. Financiere Richemont SA gained 2.8 percent to 52.10 francs after the world’s second-largest luxury goods maker reported 24 percent growth in third-quarter revenue to 2.62 billion euros, as sales of Cartier jewelry increased in Asia. That beat the median analyst estimate of 2.54 billion euros.

Rockhopper Exploration Plc jumped 10 percent to 303.75 pence, its biggest rally in a month, after the Sunday Times reported that Cairn Energy Plc has held talks with the U.K. company that discovered oil near the Falkland Islands off Argentina.

Rockhopper has hired Bank of America Corp. to find a partner to share development costs. The talks may lead to a takeover, the Sunday Times said, citing unidentified bankers.

Cairn Energy doesn’t comment on rumors, a spokesman, who declined to be identified citing company policy, told Bloomberg News by phone yesterday. Rockhopper spokesman Patrick d’Ancona declined to comment.

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