U.K. stocks fell for the first time in five days as borrowing costs climbed at an auction of Italian debt and Spain struggled to recapitalize its banks, adding to concern the euro-area debt crisis is spreading.
Royal Bank of Scotland Group Plc and HSBC Holdings Plc declined more then 2 percent as the cost of insuring against default on Spanish sovereign bonds rose to a record. Vedanta Resources Plc and Xstrata Plc led mining shares lower as copper retreated for a second day.
The benchmark FTSE 100 Index sank 93.86 points, or 1.7 percent, to 5,297.28 at the close in London, halting its longest streak of gains this month. The FTSE All-Share Index also declined 1.7 percent as 32 of the gauge’s companies traded without the right to their latest dividend. In Ireland, the ISEQ Index slid 1.5 percent.
“Everything seems to be going out the window,” Chris Beauchamp, a market analyst at IG Index in London, said in a phone interview. “Yields have shot up once again; it really looks as if Spain is teetering on the brink. It feels like we are getting to a similar point before we saw the bailout of Portugal and Ireland.”
Portugal, Ireland and Greece sought aid from the European Union and International Monetary Fund after their bond yields breached 7 percent in 2010 and 2011. The FTSE 100 has lost 11 percent from its 2012 high on March 16 as Greece failed to form a government and Spain’s borrowing costs surged.
The euro weakened to the lowest level in almost two years against the dollar and the pound fell to a four-month low as Spanish bond yields increased.
The decline in Spanish five-year notes drove the yield to more than 6 percent for the first time this year. Credit-default swaps linked to the Spain’s debt climbed 29 basis points to a record 589.5, according to data compiled by Bloomberg.
Italian borrowing costs also climbed at a bond auction as the country sold less than the maximum amount of debt. The Treasury priced the 10-year debt to yield 6.03 percent, the highest since Jan. 30.
Stocks also fell as economic confidence in the euro area declined more than economists forecast in May to the lowest in 2 1/2 years and as a poll in Greece showed that anti-austerity party Syriza had the support of 30 percent of voters, compared with 26.5 percent for New Democracy, which backs the terms of a European Union bailout.
RBS tumbled 3 percent to 20 pence, HSBC, Europe’s largest bank, lost 2.1 percent to 503.5 pence and Lloyds Banking Group Plc dropped 2.3 percent to 25.3 pence.
A gauge of U.K. bank shares dropped 1.9 percent even as the European Commission called for direct euro-area aid for troubled lenders and touted common bond issuance as an antidote to the debt crisis now threatening to overwhelm Spain.
The commission, the European Union’s central regulator, sided with Spain in proposing that the euro’s permanent bailout fund inject cash to banks instead of channeling the money via national governments.
Elsewhere, mining stocks retreated as copper fell for a second day in London trading. Vedanta Resources dropped 5.4 percent to 940.5 pence, Xstrata slid 1.9 percent to 939.4 pence and Rio Tinto Group lost 4.1 percent to 2,801 pence.
BG Group Plc declined 4.6 percent to 1,224 pence as the U.K.’s third-largest gas producer said Chief Executive Officer Frank Chapman sold 368,185 shares yesterday at an average of 1,285 pence apiece.
Energy shares fell as crude oil tumbled more than 3 percent in New York. Royal Dutch Shell Group Plc fell 1.3 percent to 1,988.5 pence and BP Plc slid 2.1 percent to 398.3 pence. Tullow Oil Plc lost 3.3 percent to 1,427 pence.
National Grid Plc, an operator of energy networks in the U.K. and North America, slipped 4.5 percent as the shares traded without the right to the latest dividend, removing 4.2 points from the FTSE 100. Adjusting for the payment, the stock declined 0.8 percent to 650 pence.
Essar Energy Ltd. paced advancing shares, soaring 22 percent to 141.8 pence after a group of Indian ministers recommended that cabinet approve coal blocks alloted to Reliance Power Ltd. and a venture of Essar Energy and Hindalco Industries Ltd. The recommendation is a step toward ensuring coal supplies for power plants being built by the companies.
Booker Group Plc jumped 10 percent to 87 pence after the company agreed to buy the Makro U.K. unit of Metro AG to expand the range of food products it wholesales to caterers, retailers and businesses. That was the biggest gain since July.