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July 3 (Bloomberg) -- U.K. stocks dropped the most in more than a week after the Portuguese government lost the leader of its junior coalition partner, pushing the nation’s bond yields to their highest level this year.

Barclays Plc declined as Standard & Poor’s cut its rating on the lender’s debt, citing tighter regulation and the increased risk of litigation. Domino’s Pizza Group Plc dropped the most in three months after saying losses at its German outlets this year will exceed its initial forecasts. Tullow Oil Plc rose 2.7 percent after doubling its estimates for two oil discoveries in Kenya.

The FTSE 100 Index slumped 74.07 points, or 1.2 percent, to 6,229.87 at the close in London. The equity benchmark plunged 5.6 percent in June, paring its gain in the first half to 5.4 percent. The FTSE All-Share Index lost 1 percent today, while Ireland’s ISEQ Index slumped 0.9 percent.

“All the hard work that had made investors regain confidence in Portugal during these past few years has collapsed,” said Hugo Fontinha, who helps manage about $2.2 trillion at State Street Global Advisors in London. “I’m not sure the government can last until the weekend as this political wrangling is unsustainable. Portas’s resignation has returned the country to the headlines. This is bad news for Europe.”

Portugal’s Debt

Portugal’s government bonds slumped, sending the yield on 10-year bonds above 8 percent in intraday trading for the first time since November, as Prime Minister Pedro Passos Coelho lost Paulo Portas, his foreign minister.

Portas, who leads the CDS party supporting the ruling coalition government, quit after Secretary of State for Treasury Maria Luis Albuquerque replaced Vitor Gaspar at the Ministry of Finance. Portas said the new minister would offer “mere continuity” of the country’s deficit-cutting plans as the final 12 months of the nation’s bailout program collide with mounting austerity fatigue.

West Texas Intermediate crude surged as political uncertainty in Egypt escalated and an industry report showed that U.S. stockpiles shrank the most this year. Oil rose 1.6 percent to $101.15, its highest price since May 3, 2012.

Egyptian President Mohamed Mursi, seeking to avert a possible army takeover, proposed to end the nation’s political crisis by calling for an interim coalition government. Demonstrators demanded his resignation, while the country’s military issued a deadline to find a way out of the crisis.

Barclays, Domino’s

Barclays lost 0.8 percent to 280.8 pence. S&P downgraded the bank’s long-term counterparty credit rating, according to a statement late yesterday. The lender is among European banks that are most exposed to proposed rules that could reduce revenue from trading and investment-banking operations, the ratings company said.

Domino’s Pizza declined 4.1 percent to 641.5 pence, its biggest retreat since April 3. The company said losses in Germany, where it has 25 stores, may exceed the chain’s original forecast by as much as 3 million pounds ($4.6 million).

Spirent Communications Plc, a maker of testing equipment for phone systems, plunged 7.1 percent to 124.8 pence. The company said it may report sales of $92.7 million for the quarter ending in June because of slower sales for networks and applications. That compared with the $116.3 million average of three analyst estimates compiled by Bloomberg.

An index of London-listed mining stocks slumped to its lowest level in almost four years as Anglo American Plc slid 5.7 percent to 1,207 pence and Rio Tinto Group lost 1.7 percent to 2,649 pence. BHP Billiton Ltd., the world’s biggest mining company, dropped 2.4 percent to 1,670.5 pence, its lowest price since October 2011.

International Consolidated Airlines Group SA, the parent of British Airways, slipped 1.3 percent to 263.9 pence as European airline stocks fell on concern higher fuel prices will increase costs. The stock has still gained 45 percent this year.

Tullow Oil, the first explorer to find oil in Kenya, increased 2.7 percent to 1,061 pence. Two discoveries in the East African country’s Lokichar Basin may hold more than 250 million barrels of oil, the company said in a statement.

To contact the reporter on this story: Sofia Horta e Costa in London at

To contact the editor responsible for this story: Andrew Rummer at

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