European Stocks Fall as Borrowing Costs Rise at Debt Sale

European Stocks Drop as Borrowing Costs Rise at Debt Auctions
Traders work on the floor of the Frankfurt Stock Exchange in Frankfurt. Photographer: Hannelore Foerster/Bloomberg

European stocks declined as borrowing costs increased at debt auctions in Germany and Italy and as Sweden’s SKF AB reported weakening demand for its products in the second quarter.

SKF, the world’s largest maker of ball bearings, dropped

7.3 percent. Renault SA led a selloff by carmakers, sliding 4.2 percent. Etablissements Maurel & Prom SA surged the most since 2003 amid takeover speculation.

The Stoxx Europe 600 Index dropped 0.4 percent to 242.56 in London. The gauge yesterday climbed 0.6 percent as investors shrugged off a surge in Spanish borrowing costs. The Stoxx 600 has still fallen 11 percent from its high this year on March 16.

“The most interesting development for me has been the move higher in bund yields,” said Ioan Smith, a director at Knight Capital Europe Ltd. in London. “Investors are clearly becoming concerned about Germany’s growing liabilities associated with the euro zone and suggests there is an element of tail risk being priced in.”

Germany sold 4.04 billion euros ($5.08 billion) of 10-year bunds today at an average yield of 1.52 percent, up from a rate of 1.47 percent at the last auction on May 16. Investors bid for

5.81 billion euros of the bunds, above the 5 billion-euro maximum sales target for the auction, the Bundesbank said.

Italy Sells Debt

In Italy, borrowing costs surged at the sale of 6.5 billion euros of bills. The Rome-based Treasury sold the one-year securities at 3.972 percent, 1.6 percentage points more than the

2.34 percent at the previous auction on May 11. Investors bid for 1.73 times the amount offered, down from 1.79 times last month.

National benchmark indexes fell in 11 of the 18 markets in western Europe. France’s CAC 40 lost 0.6 percent, the U.K.’s FTSE 100 rose 0.2 percent and Germany’s DAX fell 0.1 percent. Spain’s IBEX 35 rose 1.4 percent as shares of Inditex SA surged to a record.

Stocks also slid today after retail sales in the U.S. slipped in May for a second month as slower employment and subdued wage gains damped demand. The 0.2 percent decrease followed a similar decline in April that was previously reported as a gain, the Commerce Department release showed.

In the euro area, industrial production declined for a second month in April. Output in the 17-nation currency zone slipped 0.8 percent from March, when it fell a revised 0.1 percent, according to the the European Union’s statistics office. Economists had projected a drop of 1.2 percent.

SKF Forecast

SKF tumbled 7.3 percent to 133.20 kronor in Stockholm, its biggest decline since August, after the company reported “slightly lower” demand for its products and services in the second quarter than in the same period a year earlier.

The Swedish engineering company, whose products are used by customers in the construction, automotive and aviation businesses globally, also said it has adjusted manufacturing to respond to weaker demand.

Konecranes Oyj, the world’s biggest supplier of industrial cranes, tumbled 7 percent to 18.52 euros. Schneider Electric SA and Alstom SA lost 5.1 percent to 41.67 euros and 5 percent to

23.30 euros, respectively in Paris trading.

Renault led a selloff by carmakers, falling 4.2 percent to

30.98 euros as Carlos Ghosn, chief executive officer of Renault and Nissan Motor Co., forecast “three to four more years of stagnation” in Europe’s auto industry, according to a Reuters report.

“We are preparing for tough times,” he said at an industry breakfast in New York yesterday.

European Tire Market

Pirelli & C. SpA lost 3.4 percent to 7.72 euros as Morgan Stanley said tire volumes were “not picking up and mass pricing is on its way down” after a visit to the Essen tire show, according to a report. Even so, Morgan Stanley reiterated its overweight recommendation for the shares.

Michelin & Cie. slid 3.5 percent to 46.40 euros and Continental AG lost 2.4 percent to 66.20 euros.

Elsewhere, J Sainsbury Plc dropped 2.6 percent to 283.5 pence after the company said revenue at stores open at least a year rose 1.4 percent in the 12 weeks ended June 9, excluding gasoline sales. That missed the 1.8 percent median estimate of nine analysts compiled by Bloomberg and was less than the previous quarter’s 2.6 percent increase.

Maurel & Prom Rallies

Maurel & Prom surged 18 percent to 12.31 euros, its biggest rally in nine years. The Guardian reported that Royal Dutch Shell Plc may be interested in the French oil explorer without saying where it got the information.

Spokesmen for Shell and Maurel & Prom declined to comment when contacted by Bloomberg News.

Last month, Shell’s bid for Cove Energy Plc was topped by PTT Exploration & Production Pcl, Thailand’s biggest oil producer. Shell rose 1.5 percent to 2,090.5 pence.

Inditex jumped 12 percent to 75.40 euros, its highest price since it issued shares to the public in 2001. The world’s largest clothing retailer reported a 30 percent jump in first-quarter profit to 432 million euros after increasing store openings in Asia. That beat the average analyst estimate of 381 million euros, according to data compiled by Bloomberg.

Nautical Petroleum Plc soared 55 percent to 462 pence after Cairn Energy Plc, the U.K. oil explorer with assets from Greenland to Nepal, agreed to buy the company for 414 million pounds ($645 million) to add fields in the North Sea. Cairn will pay Nautical shareholders 450 pence a share. Cairn shares slid

1.1 percent to 288.7 pence.