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European Stocks Post Weekly Decline as Italy Sells Debt

Rome's Popolo Square
A woman sits and reads a book on a bench in Popolo square in Rome. Italy’s FTSE MIB Index slid 1.8 percent last week and bond yields jumped as borrowing costs climbed and demand fell at an auction of 10-year debt. Photographer: Alessia Pierdomenico/Bloomberg

European stocks posted their first weekly decline this month as Italian bonds fell after a debt auction, while concern mounted that political wrangling in Washington will lead to a shutdown of the U.S. government.

Vallourec SA slumped 9.1 percent after the supplier of tubing to the oil-and-gas industry said that the weak Brazilian real will hurt profit. Ladbrokes Plc slumped 11 percent as the bookmaker said operating profit from its digital division will fall short of analysts’ estimates. Telekom Austria AG rose 11 percent as a gauge of telecommunication shares posted the biggest gain by an industry group on the Stoxx Europe 600 Index.

The Stoxx 600 retreated 0.6 percent to 312.18 this week. The equity benchmark has still climbed 5 percent this month and 9.5 percent this quarter as the Federal Reserve unexpectedly refrained from reducing its monthly bond purchases at its last policy meeting. The gauge has rallied 12 percent in 2013 as the euro area emerged from recession and central banks pledged to keep borrowing costs low to support their respective economies.

“The week was dominated by the U.S. budget and debt impasse, alongside the inevitable political posturing taking place,” Richard Hunter, head of equities at Hargreaves Lansdown Plc in London, wrote in an e-mail. “The situation in the U.S. has been the main talking point of an otherwise dull week as investors seek a new catalyst for the market’s direction.”

Italy’s FTSE MIB Index slid 1.8 percent last week and bond yields jumped as borrowing costs climbed and demand fell at an auction of 10-year debt. The Italian Treasury sold 3 billion euros ($4.1 billion) of securities maturing in 2024 at an average yield of 4.5 percent, more than the 4.46 percent yield at a previous auction on Aug. 29.

Italian Stocks

Italian stocks and bonds dropped on Sept. 26 after Silvio Berlusconi’s allies threatened to resign from parliament if the Senate votes to expel the former prime minister because of his conviction for tax fraud. The coalition government relies on Berlusconi’s People of Liberty Party to pass new laws.

As European markets closed on Sept. 27, the U.S. Congress had yet to approve a federal budget for the new financial year starting on Tuesday. U.S. lawmakers have to pass an emergency budget to keep the federal government operating from Oct. 1, the beginning of the 2014 fiscal year. Failure to pass a bill may lead to a government shutdown.

Lawmakers also have to act to increase the federal government’s debt ceiling as total borrowing approaches the $16.7 trillion limit. Shutting the U.S. government would cut fourth-quarter economic growth by as much as 1.4 percentage points, according to Mark Zandi of Moody’s Analytics Inc. The rating company projected that gross domestic product will grow at a 2.5 percent annualized pace if the government stays open.

European Equities

National benchmark indexes declined in 14 of the 18 western-European markets this past week. France’s CAC 40 fell 0.4 percent and the U.K.’s FTSE 100 retreated 1.3 percent.

Germany’s DAX slipped 0.2 percent this past week as Angela Merkel’s Christian Democratic Union and its Bavarian sister party won the country’s election with 41.5 percent of the vote. The CDU/CSU needs to form a coalition with the Social Democrats or the Greens after its junior partner in the last government failed to poll the 5 percent share of the vote needed for its members to win seats in parliament.

Vallourec tumbled 9.1 percent this past week after the French company said that demand for its tubes will probably decline in Brazil through the middle of 2014. It said in a statement that Petroleo Brasileiro SA, which is also known as Petrobras, will focus on increasing production in the short term, thereby reducing demand for pipes for oil exploration.

Ladbrokes Plunges

Ladbrokes tumbled 11 percent to its lowest price in almost a year. The betting company forecast full-year operating profit before exceptional items from online gambling of 10 million pounds ($16 million) to 14 million pounds this year. The average analyst estimate had called for 27.5 million pounds, according to Ladbrokes.

Deutsche Wohnen AG slipped 4.2 percent as Blackstone Group LP sold a 4.8 percent stake, or 8.15 million shares, in Germany’s second-largest residential landlord.

Telekom Austria surged 11 percent. The telecommunications operator posted its biggest weekly gain in four years amid speculation that Mexican billionaire Carlos Slim’s America Movil SAB will make a bid to take full control of the company.

Telecom Italia SpA gained 1.7 percent. Spain’s Telefonica SA agreed to pay 324 million euros to increase its stake in Telco SpA, a holding company that owns 22.4 percent of Telecom Italia, to 66 percent from 46 percent.

Vestas Wind Systems A/S jumped 9.7 percent to its highest price since June 2011 after Mitsubishi Heavy Industries Ltd. and the Danish turbine maker agreed to form a joint venture to develop offshore wind energy. The partnership will design, procure, build and sell offshore wind-power plants, Mitsubishi Heavy said in a statement to the Tokyo Stock Exchange.

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