European stocks retreated, with the Stoxx Europe 600 Index paring an earlier tumble, after the euro area forced Cyprus to adopt a levy on bank deposits, prompting concern that the region’s debt crisis will reignite.
UniCredit SpA, Italy’s largest lender, fell as banks posted the worst performance among the 19 industry groups on the Stoxx 600. Ericsson AB posted its largest retreat in more than two months after agreeing to end its unprofitable chip venture with STMicroelectronics NV. Eurasian Natural Resources Corp. led a decline by commodity producers as metal prices slid.
The Stoxx 600 retreated 0.2 percent to 296.81 at the close of trading, paring a slide of as much as 1.2 percent. The equity benchmark has still risen 6.1 percent this year as reports on U.S. payrolls and Chinese exports bolstered confidence in the global economic recovery and central banks continued their stimulus measures. Cyprus and Greece closed their markets for a public holiday today.
“This creates a precedent and is a bit scary today,” Matthieu Giuliani, who helps oversee $5.3 billion as a fund manager at Palatine Asset Management in Paris, said in a phone interview. “In the short term, it hurts the market. But this is a case specific to Cyprus. I don’t see Germany or the European Union imposing such a thing on Spain or Italy. It would create panic in the banking system.”
The volume of shares changing hands in companies listed on the Stoxx 600 was 5 percent greater than the average of the last 30 days, according to data compiled by Bloomberg. The VStoxx Index, a gauge of expected volatility in the euro area, soared 15 percent today, its biggest increase since Feb. 26.
National benchmark indexes fell in every western-European market that opened today except Ireland and Iceland. The U.K.’s FTSE 100 and France’s CAC 40 lost 0.5 percent, while Germany’s DAX declined 0.4 percent. Luxembourg’s LuxX Index dropped 2.2 percent today, its biggest slide in seven months.
While Cyprus accounts for less than half a percent of the 17-nation euro area’s economy, the raid on bank accounts risks a resumption of the financial crisis that began in 2009 in Greece. Moody’s Investors Service said that the move limits support for bank creditors across Europe and shows that policy makers will risk disrupting financial markets to avoid sovereign defaults.
The levy enabled the euro area to lower its bailout of Cyprus to 10 billion euros ($13 billion) from an original figure of about 17 billion euros. President Nicos Anastasiades will try to persuade lawmakers to back the plan. Parliament postponed a vote due to take place this afternoon. Cyprus will leave its banks closed until March 21, a government official said, declining to be identified.
Morgan Stanley recommended that investors hold more European equities than are represented in benchmark indexes in a note dated March 17. Strong recent performance and positive investor sentiment suggest volatility will increase in the second quarter. The brokerage added that the economy remains supportive for stocks in the longer term.
A gauge of bank shares sank 1.5 percent for the worst performance on the Stoxx 600. UniCredit lost 3.6 percent to 3.69 euros, while Societe Generale SA, France’s second-largest lender, slid 3.3 percent to 28.98 euros. Banco Santander SA, Spain’s biggest bank, dropped 2.3 percent to 5.83 euros.
Ericsson lost 2.2 percent to 83.50 kronor after agreeing to wind down the ST-Ericsson joint venture and divide the assets. The electronics companies failed to find a buyer for the business. STMicroelectronics will incur cash costs of $350 million to $450 million, lower than the charges it had estimated in January. The shares climbed 5.4 percent to 6.17 euros.
ENRC slumped 7.2 percent to 321.9 pence after the Independent on Sunday reported that the Kazakh metals producer may announce a writedown of more than $1 billion this week. The newspaper cited figures from Deutsche Bank AG. Kazakhmys Plc, the biggest copper producer in Kazakhstan, retreated 6.1 percent to 505.5 pence, its lowest price since April 2009.
Marks & Spencer Group Plc surged 6.9 percent to 398.1 pence, its biggest gain in almost four years. The shares earlier rallied as much as 9.4 percent after the Sunday Times reported that Qatar Investment Authority has considered an 8 billion-pound ($12 billion) bid for the U.K.’s largest clothing retailer. The newspaper cited unidentified people working in the City of London. A person close to the sovereign-wealth fund said today that QIA has not considered making an offer.