European Stocks Decline, Trimming Seventh Weekly Gain

European Stock Futures Little Changed; Heineken Shares May Move
Financial traders work at their computers at the Frankfurt Stock Exchange in Frankfurt. Photographer: Hannelore Foerster/Bloomberg

European stocks dropped, paring their seventh successive weekly advance, as the yield premium for Spanish benchmark bonds over German bunds surged to a record, sparking concern the euro-area debt crisis is deepening.

Vodafone Group Plc lost 1.7 percent after posting quarterly service sales that trailed forecasts. Nokia Oyj tumbled 7.4 percent after Fitch Ratings downgraded the company’s debt. Scania AB, the Swedish truckmaker controlled by Volkswagen AG, rallied 3.9 percent.

The Stoxx 600 fell 1.4 percent to 258.17 at the close in London. The gauge still rallied 0.8 percent this week, its longest winning streak since January 2006, as companies reported better-than-expected quarterly earnings.

“Caught in a pincer movement between waning domestic demand for its debt and the rapid withdrawal of foreign investors since the end of last year, Spain’s ability to access funding markets is imperiled,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, wrote in an e-mail. “For the time being, Spain remains the focal point for investor anxiety. But the greater the pressure on Spanish spreads, the bigger the concern about Italy.”

Spanish bonds declined, pushing the extra yield investors demand to hold the nation’s 10-year securities instead of similar-maturity German bunds to the most on record. The similar spread for Italy surged above 5 percentage points for the first time since Jan. 16. Bunds, which serve as a haven for investors pulling money out of troubled economies, extended a third weekly gain.

Spanish Bailout

Euro-area finance ministers gave the final approval for the bailout of Spanish banks for as much as 100 billion euros ($122 billion). Today’s decision, made on a conference call, paves the way for a first payment from the region’s temporary rescue fund, the European Financial Stability Facility.

The EFSF can now raise 30 billion euros, including a 10 billion-euro “longer-term prudential cushion.” The money will held in reserve and available in emergencies, according to a draft of today’s agreement. Banks will be able to receive payments once they have submitted approved restructuring plans.

National benchmark indexes dropped in all of the 18 western European markets today, except in Iceland and Greece. Germany’s DAX fell 1.9 percent, while the U.K.’s FTSE 100 lost 1.1 percent. France’s CAC 40 slid 2.1 percent. Spain’s IBEX 35 slumped 5.8 percent, the most since May 2010, and Italy’s FTSE MIB declined 4.4 percent.

‘Additional Stress’

Spain’s plan to offer cash-strapped regional administrations emergency loans leaves the Treasury with 12 billion euros ($15 billion) of additional funding needs that the government says won’t affect its borrowing plans.

Economy Minister Luis de Guindos yesterday said the region’s funding mechanism won’t add “additional” stress to the market, at a time when investors demand more than 7 percent to lend to the central government for a decade.

Spain said the recession will extend into next year as the region of Valencia prepared to seek a rescue from the central government and European finance ministers approved the bailout of Spanish banks.

Gross domestic product will fall 0.5 percent in 2013 instead of rising 0.2 percent as the government predicted April 27, Budget Minister Cristobal Montoro said after the Cabinet met today in Madrid. The government will spend 9.1 billion euros ($11 billion) more paying interest than in 2012, he said.

Vodafone, Nokia

Vodafone, Europe’s largest mobile-phone company, fell 1.7 percent to 180 pence after saying that its service revenue, excluding currency swings and the impact of acquisitions, gained 0.6 percent in the three months through June. Analysts had predicted growth of 0.8 percent, according to the average of estimates in a Bloomberg survey.

Nokia dropped 7.4 percent to 1.42 euros after Fitch Ratings cut the company’s debt, already at junk status at the three biggest rating companies, two steps to BB- after the Finnish mobile-phone maker’s second-quarter loss widened.

Italian banks led a gauge of European lenders lower, with UniCredit SpA dropping 7.2 percent to 2.44 euros and Banca Popolare dell’Emilia Romagna Scrl falling 11 percent to 3.15 euros.

Orkla ASA slumped 3.8 percent to 41.80 kroner, the most since April 20, as the Norwegian industrial and branded goods company reported second-quarter net income of 285 million kroner ($47 million). That missed the 727 million kroner average analyst estimate.

Galenica Declines

Galenica AG retreated 5 percent to 591 Swiss francs after Carla Baenziger, an analyst at Vontobel Holding AG, cut the stock to reduce from hold and reduced her price estimate for the company’s shares by 3.4 percent to 536 francs.

Shares of European utilities as a group posted the second-worst performance on the Stoxx 600, dropping 3.1 percent.

RWE AG, Germany’s second-biggest utility, fell 6 percent to 31.87 euros and Electricite de France SA decreased 5.7 percent to 16.44 euros after UBS AG cut both stocks to sell from neutral.

Resolution Ltd., the insurance buyout firm founded by Clive Cowdery, tumbled 5.4 percent to 215.5 pence, the most since April 18, after it canceled plans to return 250 million pounds ($392 million) to shareholders, citing economic and regulatory uncertainty. The decision follows “careful consideration” of the capital requirements of Friends Life, its life insurance unit, Resolution said today.

Scania rallied 3.9 percent to 120.10 kronor. The company said second-quarter orders rose from the first three months of 2012 because of Russian demand, and it predicted a growing need in Europe to replace vehicles.

Sulzer AG climbed 2.7 percent to 124 francs after the pump maker reported first-half sales of 1.92 billion Swiss francs, topping the average 1.89 billion-franc analyst estimate, as new orders climbed 11 percent. The company also said it sees a high single-digit percent increase in full-year sales.