European Stocks Decline on Valuation; Peugeot Rallies

European stocks retreated, after the Stoxx Europe 600 Index reached its highest valuation in almost three years, offsetting gains by lenders as central-bank governors diluted a proposed liquidity rule.

Rolls-Royce Holdings Plc lost 1.5 percent following a report that it bribed an executive in China to win orders. A gauge of European lenders rose 1.1 percent after the Group of Governors and Heads of Supervision agreed to relax and delay the standard. Peugeot SA gained 5.6 percent after a brokerage said the company will probably start selling assets.

The Stoxx 600 declined 0.4 percent to 286.63 at the close of trading as more than three stocks dropped for every two that climbed. The equity benchmark closed at its highest level since February 2011 last week after U.S. lawmakers agreed on a compromise budget.

“It’s another positive for the banking sector, which could be an important barometer for investors,” said Daniel Bjork, who helps oversee about 52.6 billion Swiss francs ($57 billion) at Swisscanto Asset Management AG in Zurich. “The relaxation was more than what was expected both with increasing the liquidity range and with the longer phasing-in period.”

The price-earnings ratio for the Stoxx 600 reached 19.1 times trailing earnings on Jan. 4, its highest level since March 2010. The number of shares changing hands in Stoxx 600 companies today was 61 percent greater than the average of the last 30 days, according to data compiled by Bloomberg.

Debt Ceiling

In the U.S., Republicans are planning to use the need to raise the American government’s $16.4 trillion debt ceiling to force President Barack Obama to accept spending cuts to entitlement programs such as Medicare. Congress must act as early as mid-February to prevent a default.

National benchmark indexes fell in 11 of the 18 western-European markets. France’s CAC 40 Index fell 0.7 percent and Germany’s DAX lost 0.6 percent. The U.K.’s FTSE 100 retreated 0.4 percent.

Rolls-Royce fell 1.5 percent to 904.5 pence. Europe’s largest maker of commercial aircraft and ship engines bribed an executive at Air China Ltd. and China Eastern Airlines Corp. to obtain $2 billion of deals, according to a Sunday Times report. The company declined to comment on the article. The U.K.’s Serious Fraud Office is holding an enquiry into Rolls-Royce’s activity in several countries.

Infineon Technologies AG declined 2.2 percent to 6.43 euros, its biggest drop in a month, as Bank of America Corp. downgraded the shares to underperform, the equivalent of a sell recommendation, from neutral. The brokerage cited Infineon’s valuation.

RWE Slips

RWE AG retreated 3 percent to 30.94 euros as HSBC Holdings Plc downgraded the stock to neutral from overweight, meaning investors should no longer buy the shares. The brokerage said that asset disposals and lower energy prices in Germany indicate that earnings will decrease next year. RWE posted the biggest slide on a gauge of utilities.

The Stoxx 600 Banks Index rose 1.1 percent after central-bank chiefs meeting yesterday in Basel, Switzerland allowed lenders to use a wider range of assets to meet the so-called liquidity coverage ratio.

Officials such as European Central Bank President Mario Draghi argued that the eligible assets should include some equities and securitized mortgage debt to counter warnings that the original proposal would choke interbank lending, making it harder for the authorities to implement monetary policies.

The group of regulators also gave banks an extra four years to fully comply with the measure.

European Lenders

Barclays Plc and BNP Paribas SA climbed 3.8 percent to 287.2 pence and 1.9 percent to 45.21 euros, respectively. Deutsche Bank AG, Germany’s largest lender, increased 2.8 percent to 35.78 euros and Societe Generale SA, France’s second-biggest bank, added 2.7 percent to 30.13 euros.

Peugeot gained 5.6 percent to 6.52 euros. More than 17 percent of the French carmaker’s shares are out on loan, according to data compiled by Markit. Some investors borrow shares and then sell them, betting that the securities will drop before they have to be repurchased.

Europe’s second-biggest automaker will probably sell assets, starting with its majority stake in Faurecia, CM-CIC Securities said in a note today. The region’s largest maker of car interiors soared 5.3 percent to 13.35 euros, its largest gain in four months.

Wereldhave NV added 2.3 percent to 50.11 euros after agreeing to sell its U.S. real estate to Lone Star Funds for about $720 million. The Dutch property company plans to focus on shopping centers in western Europe and use the proceeds from the sale to reduce its debt.

The VStoxx Index, which measures volatility on the benchmark Stoxx Europe 50 Index, rose 4.7 percent to 16.82. The measure slumped 25 percent last week, its biggest weekly drop in more than six months.

Before it's here, it's on the Bloomberg Terminal.