European Stocks Fall From 17-Month High Amid Budget Talks

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Former ECB Executive Board Member Jose Manuel Gonzalez-Paramo
Jose Manuel Gonzalez-Paramo, former member of the executive board of the European Central Bank (ECB), said Spain may escape a bailout, as the country has already confounded expectations by continuing to raise its own financing this year. Photographer: Peter Foley/Bloomberg

European stocks fell, dragging the Stoxx Europe 600 Index from a 17-month high, as U.S. consumer spending unexpectedly declined and American lawmakers continued to negotiate a deal on the federal budget.

Bankia SA, the nationalized Spanish lender, slumped 25 percent for the biggest drop in the Stoxx 600. Bank of Ireland Plc and National Bank of Greece SA also declined more than 5 percent. Gecina SA retreated 4.2 percent as Grupo PRA sold a stake in Paris’s largest publicly traded office landlord. Porsche SE increased 2.3 percent as carmakers rallied.

The Stoxx 600 dropped 0.2 percent to 275.78 at the close of trading, erasing gains in the final hour as Spanish and Portuguese bond yields rose. The measure has still climbed 0.9 percent this week and 2 percent in November as speculation grew that Congress will agree on a U.S. budget deal that avoids the so-called fiscal cliff. The index has climbed for six straight months, the longest streak of gains in more than six years.

“There is tension coming back into the bond market,” said Arnaud Scarpaci, fund manager at Montaigne Capital in Paris, which oversees $221 million. “We’ve also had a disappointment with the economic data out of the U.S. The market is consolidating a bit.”

Spending by U.S. consumers unexpectedly declined and incomes stagnated in October as superstorm Sandy kept some in the Northeast from getting to work or from shopping at malls and car dealerships. Purchases decreased 0.2 percent, the weakest reading since May, after a 0.8 percent gain in the prior month, Commerce Department figures showed.

Old Proposals

Congressional Republicans complained that a budget plan outlined yesterday by Treasury Secretary Timothy Geithner was little more than a rehash of old proposals. This set the stage for more contentious negotiations over the coming weeks to prevent $607 billion in spending cuts and tax increases from coming into effect at the start of 2013.

President Barack Obama visited a manufacturing plant in Hatfield, Pennsylvania, today to emphasize his call for an extension of George W. Bush-era tax rates for middle-income households. Speaker of the House John Boehner said to reporters in Washington yesterday that there’s been “no substantive progress” in budget talks.

In Europe, the yield on Spanish two-year government bonds rose six basis points to 2.86 percent, while Portugal’s climbed four basis points to 4.03 percent.

German lawmakers approved Greece’s latest rescue package as Finance Minister Wolfgang Schaeuble warned that a default in the country where the European debt crisis began could trigger the collapse of the euro. Legislators in Germany’s lower house of parliament, or Bundestag, voted 473 in favor, with 100 against and 11 abstentions.

National Indexes

National benchmark indexes declined in 11 of the 18 western European markets. France’s CAC 40 Index slipped 0.3 percent and the U.K.’s FTSE 100 fell 0.1 percent. Germany’s DAX Index added 0.1 percent.

Bankia, the nationalized Spanish lender, slumped 25 percent to 72 euro cents for the biggest drop in the Stoxx 600. Bank of Ireland sank 5.1 percent to 11 euro cents. National Bank of Greece lost 5 percent to 1.32 euros, the lowest price in more than three months.

Gecina declined 4.2 percent to 84.99 euros, the biggest retreat in almost two months, as Grupo PRA sold a 1.5 percent stake for 83 euros a share.

Automakers Advance

Porsche, the maker of the 911 sports car, advanced 2.3 percent to 57 euros and Fiat SpA, the majority owner of Chrysler Group LLC, gained 2.7 percent to 3.56 euros.

Taylor Wimpey Plc advanced 3 percent to 61 pence as UBS AG raised the U.K.’s second-largest homebuilder by volume to buy from neutral.

HeidelbergCement AG rallied 2.3 percent to 41.79 euros, a second day of gains. The world’s third-biggest maker of cement was upgraded to overweight, the equivalent of buy, from equal weight at Morgan Stanley, which named the stock as its top pick in the cement business.

LVMH Moet Hennessy Louis Vuitton SA added 1.3 percent to 134.90 euros, the highest since March, as Goldman Sachs Group Inc. upgraded the luxury-goods company to buy.

Other luxury-goods makers also climbed. Christian Dior SA gained 1.9 percent to 124.25 euros and Cie. Financiere Richemont SA added 1.7 percent to 71.45 Swiss francs. Both stocks have risen to the highest levels in at least two decades.

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