European Stocks Fall on Spain Bonds, Fed Stimulus Stance

A Royal Bank of Scotland Group Plc Logo
Royal Bank of Scotland Group Plc slid 1.1 percent after three people familiar with the matter said the lender canceled a bond sale in February. Photographer: Mike Wilkinson/Bloomberg

European stocks fell the most in four weeks after Spain sold fewer bonds than its maximum target and the Federal Reserve damped expectations of more monetary stimulus for the U.S.

Volvo AB tumbled 4.8 percent after ACT Research said North American preliminary truck orders in March were less than expected. Carmakers declined, with Peugeot SA and Renault SA dropping at least 4 percent each, after a report showed U.S. sales of light vehicles rose less than forecast. Royal Bank of Scotland Group Plc lost 2.9 percent after people familiar with the matter said the lender canceled a bond sale.

The Stoxx Europe 600 Index retreated 2.1 percent to 258.76 at the close of trading, the biggest decline since March 6. The number of shares changing hands on the benchmark index was 25 percent more than the average over 30 days, data compiled by Bloomberg show.

“Clearly Spain is starting to have some problems of refinancing; we may need some more bailouts in Europe -- possibly one for Spain,” said Jean Borjeix, a strategist at Paris-based Platinium Gestion, which helps oversee about $170 million. “I believe we have reached a top in the market in the short term. Today, markets have included in their thinking that it will be difficult for Europe.”

Spanish Auction

Spain sold 2.6 billion euros ($3.4 billion) of bonds, near the minimum target, and borrowing costs rose in its first auction since the country said public debt will surge to a record this year. The Treasury had set a range of 2.5 billion euros to 3.5 billion euros for the sale.

The Fed is holding off on increasing monetary accommodation unless U.S. economic growth falters or prices rise at a rate slower than its 2 percent target, minutes released yesterday from a March 13 policy meeting showed.

Minutes from the meeting “were not encouraging if you are a bull who’s hoping to hear that the door is still open for further possible stimulus,” said Simon Denham, managing director of Capital Spreads in London. “After each rally people start to get excited that we could push higher and break through to new highs, but then the markets come up against resistance and fail to follow through.”

“A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below” 2 percent, according to the minutes.

ECB Holds

The European Central Bank left its benchmark interest rate unchanged at a record low of 1 percent. The euro-area’s economic outlook remains subject to “downside risks,” President Mario Draghi said at a press conference in Frankfurt. “The remaining tensions in euro area sovereign-debt markets are expected to dampen economic momentum.”

National benchmark indexes fell in all of the 18 western European markets, led by Sweden’s OMX 30 Index, which tumbled 3.6 percent. France’s CAC 40 Index dropped 2.7 percent, the U.K.’s FTSE 100 Index slipped 2.3 percent and Germany’s DAX Index retreated 2.8 percent.

The VStoxx Index, which measures the cost of options on the Euro Stoxx 50 Index, surged 16 percent, the largest gain since March 6.

Euro-area retail sales declined 0.1 percent from January, when they rose a revised 1.1 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast a drop of 0.2 percent in a Bloomberg News survey.

Euro-Area PMI

Euro-area services and manufacturing output contracted for a second month in March. A composite index based on a survey of purchasing managers in both industries dropped to 49.1 from 49.3 in February, London-based Markit Economics said today. That’s above an initial estimate of 48.7 on March 22. A reading below 50 indicates contraction.

In Germany, factory orders rose 0.3 percent in February, the Economy Ministry in Berlin said today. That’s less than the 1.5 percent-increase predicted by economists in a Bloomberg News survey.

Volvo lost 4.8 percent to 93.65 kronor after ACT Research said preliminary Class 8 truck orders in North America for March were 20,000 units, the second consecutive month that orders came in “below expectations.”

Shares fell in all 19 industry groups on the Stoxx 600, with an index of technology companies the worst performer.

U.S. sales of cars and light trucks rose to a 14.4 million seasonally adjusted annual rate, falling short of the 14.5 million median estimate of 16 analysts in a Bloomberg survey.

Peugeot SA plunged 5.8 percent to 10.77 euros, Renault SA slipped 4.5 percent to 37.26 euros, and Porsche SE retreated 2.4 percent to 43.46 euros.

RBS Falls

RBS slid 2.9 percent to 26.10 pence as three people briefed on the matter said the lender pulled a $207 million sale of bonds backed by its own derivative trades in February. Investors scarred by losses on exotic debt balked at the complexity of the deal, the people said.

Veolia Environnement SA slipped 5.2 percent to 11.31 euros after Les Echos said without citing anyone that the company may decide today to take sole control of Coriscan ferry services operator Societe Nationale Maritime Corse Mediterranee.

Hikma Pharmaceuticals Plc lost 3.4 percent to 659 pence after GlaxoSmithKline Plc and Pfizer Inc. sued the company for planning to sell an injectable blood-clot treatment, saying it infringes a patent licensed by Glaxo for argatroban.

Logica Plc tumbled 7.3 percent to 91.55 pence after the Anglo-Dutch computer services provider said Seamus Keating, the head of its Netherlands unit, resigned.

BTG Plc gained 2.6 percent to 347.10 pence after the company said sales for the year ended March 31 would reach as much as 195 million pounds ($309 million), more than previously forecast, because of higher-than-expected royalties from two drugs.

Ferrovial SA, Spain’s largest builder by market value, added 2.2 percent to 8.41 euros after Bank of America reiterated its buy recommendation on the shares and said Spain’s new tax rules won’t hurt the company.

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