German Stocks Resume Advance; EON, Siemens Lead Gains

German stocks advanced to their highest level in nearly two weeks as speculation that the Federal Reserve will opt for more stimulus outweighed Fitch Ratings’ decision to downgrade 18 Spanish lenders.

EON, the country’s biggest utility, rose 2 percent after UBS AG raised its recommendation on the stock. Bayer AG climbed 1.5 percent. Siemens AG rose 1.1 percent. Deutsche Bank AG and Commerzbank AG, the country’s biggest lenders, fell at least 1 percent.

The DAX Index rose 0.3 percent to 6,161.24 at the close in Frankfurt, after swinging between gains of as much as 1.1 percent and a decline of 0.9 percent. The gauge has fallen 14 percent from its high on March 16 amid growing concern that Greece will have to exit the euro currency. The broader HDAX Index rose 0.2 percent.

“The negative impact of contagion risk is increasing, with Spain not out of the woods after the 100 billion-euro bailout, if deep reforms are not undertaken,” said Robert Halver, head of capital markets research at Baader Bank AG. “Italy is the next candidate for financial support.”

The Federal Open Market Committee holds its next policy meeting on June 20. Federal Reserve Bank of Chicago President Charles Evans said he would support a variety of measures to generate faster job growth.

Spain’s bond yields touched a euro-era record of 6.83 percent as Fitch Ratings’ prediction that Prime Minister Mariano Rajoy will miss budget deficit targets stoked concern a 100 billion-euro ($124 billion) lifeline for banks won’t be enough to stabilize the economy.

“Who will be buying Spanish bonds subordinated to the European Stability Mechanism?” asked Duarte Caldas, a market strategist at IG Markets in Lisbon. “We are trying to solve a problem by creating more debt.”

Spanish Banks Cut

Fitch also cut its long-term issuer default ratings on 18 Spanish banks, citing concern about further loan deterioration for lenders exposed to the construction and real estate industries.

EON added 2 percent to 14.62 euros after it was raised to buy from neutral by UBS, which said the utility had a total return opportunity of about 50 percent, with a two-year view.

Bayer, Germany’s largest drugmaker, increased 1.5 percent to 50.82 euros.

Siemens AG, Germany’s biggest engineering company, rose 1.1 percent to 65.81 euros.

Deutsche Telekom Gains

Deutsche Telekom AG jumped 1.7 percent to 8.01 euros. Telefonica SA and Royal KPN NV, weighing a $20 billion merger of their German businesses, would probably face protracted regulatory scrutiny delaying any savings and restricting potential stock gains.

A combination of Telefonica’s O2 and KPN’s E-Plus would cut the number of network operators in Germany to three and create the country’s largest wireless-service provider by customers. An antitrust review could drag into 2013, with possibly different outcomes depending on whether the European Commission or the German Federal Cartel Office takes on the case, said Frederik Wiemer, an antitrust lawyer at Heuking Kuehn in Hamburg.

Deutsche Bank fell 1 percent to 28.11 euros and Commerzbank retreated 1.4 percent to 1.35 euros.