European stocks dropped the most in more than a week as Portugal’s coalition government splintered and crude oil surged above $100 a barrel amid rising political unrest in Egypt.
Banco Espirito Santo SA and Banco Comercial Portugues SA declined the most since 2011 as Portugal’s 10-year bond yield climbed above 8 percent for the first time since November. Air France-KLM Group followed airlines lower, falling 1.6 percent, amid rising oil prices.
The Stoxx Europe 600 Index lost 0.6 percent to 285.46 at the close of trading, extending the retreat from its 2013 high on May 22 to 8.1 percent. Portugal’s benchmark PSI-20 Index plunged 5.3 percent, its biggest drop since April 2010.
The selloff has resulted from a “convergence of factors,” said James Buckley, a London-based fund manager at Baring Asset Management, which oversees about $60 billion. “We are seeing some concerns in the periphery in Europe again, which never really went away. Investors have been in a selling mode now for the last six or seven weeks, so this is just an ongoing trade.”
National benchmark indexes retreated in all the 18 western European markets except Iceland. The U.K.’s FTSE 100 lost 1.2 percent. France’s CAC 40 fell 1.1 percent and Germany’s DAX also retreated 1 percent.
Espirito Santo, Portugal’s biggest bank by market capitalization, tumbled 11 percent to 54.5 euro cents. Banco Comercial plunged 13 percent to 8.1 euro cents. The country’s bonds slumped, pushing the 10-year yield above 8 percent, as two ministers resigned amid austerity fatigue.
Prime Minister Pedro Passos Coelho said in a televised speech yesterday he’s trying to hold his government together after losing both his finance minister and his foreign minister.
Secretary of State for Treasury Maria Luis Albuquerque replaced Vitor Gaspar at the Ministry of Finance. That prompted Paulo Portas, who leads the smaller CDS party in the coalition government, to quit, saying the new minister would offer “mere continuity” of the country’s deficit-cutting plans.
“The issues in Europe have always been there, but they had gone to the background a bit,” Nick Nelson, strategist at UBS AG, told Francine Lacqua on Bloomberg Television in London. There is “a credible safety net in place so whilst what we are seeing in Portugal is a concern, I don’t think it’s the same impact of Greece 12 to 24 months ago.”
Banks also fell as Barclays Plc, Deutsche Bank AG and Credit Suisse Group AG had their credit ratings lowered by S&P’s as new rules and “uncertain market conditions” threaten their business.
Long-term counterparty credit ratings for Barclays and Deutsche Bank were cut to A from A+, while Credit Suisse Group was reduced to A- from A.
Barclays declined 0.8 percent to 280.75 pence, Deutsche Bank dropped 1.4 percent to 31.46 euros and Credit Suisse slid 2.6 percent to 25.04 Swiss francs.
Airlines fell after West Texas Intermediate crude surged to as high as $102.18, its highest price since May 1, 2012, as political uncertainty in Egypt escalated and an industry report showed U.S. stockpiles shrank the most this year.
Egyptian President Mohamed Mursi defied protests calling for his resignation and instead proposed early parliamentary elections within months and power-sharing until then. Egypt’s army on July 1 had issued a 48-hour deadline for him to end the country’s political crisis or step down. Clashes between Mursi’s supporters and opponents intensified with at least 23 people killed over the past day, according to state-run media.
Air France, Europe’s largest airline, dropped 1.6 percent to 6.74 euros. Deutsche Lufthansa AG slid 3.9 percent to 15.27 euros and International Consolidated Airlines Group SA, the owner of British Airways, declined 1.3 percent to 263.9 pence.
C&C Group Plc slumped 7 percent to 3.85 euros in Dublin. The beer-and-cider maker predicted full-year operating profit of between 125 million euros ($162 million) and 132 million euros. That compared with a mean estimate of 132 million euros, based on nine analysts surveyed by Bloomberg.
Chr. Hansen A/S dropped 4.8 percent to 191.1 kroner after the world’s biggest maker of dairy enzymes cut its full-year sales forecast on lower prices for the red pigment carmine. Sales will probably rise 6 percent to 7 percent on a like- for-like basis, down from an earlier targeted range of 7 percent to 9 percent, the company said.
Spirent Communications Plc slid 7.1 percent to 124.8 pence, the biggest drop since Feb. 28, after the maker of testing equipment for phone systems said second-quarter sales were weaker than expected.
The company now expects revenue for the period of $92.7 million, compared with the $116.3 million median estimate of three analysts surveyed by Bloomberg.
The volume of shares changing hands in Stoxx 600 companies was 14 percent higher than the average of the past 30 days, according to data compiled by Bloomberg.