European Stocks Fall on Italy Auction, U.S. Budget Woes

European stocks declined as Italian bonds fell after a debt auction and concern grew that budget wrangling in Washington will lead to a government shutdown.

Vallourec SA plunged 8.2 percent after warning that slower drilling in Brazil and a weak real may hurt profit. Vestas Wind Systems A/S rose to its highest price since June 2011 after Mitsubishi Heavy Industries Ltd. and the Danish turbine maker agreed to form a venture to develop offshore wind energy.

The Stoxx Europe 600 Index fell 0.3 percent to 312.18 at the close of trading. The gauge lost 0.6 percent this week amid concern that U.S. politicians will fail to approve a budget for the new financial year. It has still climbed 5 percent in September as the Federal Reserve held off cutting its monthly asset purchases, and has surged 9.5 percent since the end of June, heading for the biggest quarterly gain in four years.

“It’s been a digestion period,” Andrew Arbuthnott, who helps oversee about $227 billion as fund manager at Pioneer Investment Management Ltd. in Dublin, said by telephone. “There are a few issues weighing on the markets like the budget negotiations in the U.S. and the focus on Italian politics.”

National benchmark indexes retreated in 12 of the 18 western-European markets. The U.K.’s FTSE 100 fell 0.8 percent, Germany’s DAX lost less than 0.1 percent and France’s CAC 40 Index was little changed. Italy’s FTSE MIB slid 1.3 percent.

The volume of shares changing hands in companies listed on the Stoxx 600 was 11 percent lower than the average of the past 30 days, according to data compiled by Bloomberg.

Italian Bonds

Italy’s government bonds fell as the nation auctioned 6 billion euros ($8.1 billion) of debt maturing in 2018 and 2024.

The yield on 10-year securities climbed eight basis points, or 0.08 percentage point, to 4.41 percent, extending this week’s advance to 13 basis points, amid speculation that traders who deal directly with the Treasury had to hold on to most of the securities on offer at today’s auction after political tensions deterred other buyers.

“The Italian auction was weak,” said Harvinder Sian, a senior fixed-income strategist at Royal Bank of Scotland Group Plc in London. “The issue is that it was a dealer-led affair and there wasn’t much real money buying. That -- allied to the political concerns -- means that sentiment toward Italian debt is poor.”

Italian bonds dropped yesterday amid concern the government will collapse after former premier Silvio Berlusconi’s allies threatened to step down if he is expelled from the Senate as a result of his conviction for tax fraud.

U.S. Budget

U.S. lawmakers have until Monday to agree to an emergency budget to keep the federal government operating from Oct. 1, the beginning of the 2014 fiscal year, through Dec. 15.

A shutdown of the U.S. government would cut fourth-quarter economic growth by as much as 1.4 percentage points depending on its length, economists said, as government workers from park rangers to telephone receptionists are furloughed. Mark Zandi of Moody’s Analytics Inc. estimated a three-to-four week shutdown would cut growth by 1.4 points. Moody’s projected a 3 percent rate of growth in the fourth quarter without a closure.

Confidence among U.S. consumers declined to a five-month low in September, according to data released today. The Thomson Reuters/University of Michigan final index of sentiment decreased to 77.5 this month from 82.1 in August. The median estimate in a Bloomberg survey called for a drop to 78, after a preliminary reading of 76.8.

Vallourec Slides

Vallourec sank 8.2 percent to 45.28 euros. The French producer of steel pipes for the oil and gas industry said after the close of trading yesterday that a weak Brazilian real and slowing of drilling in that country may hurt profit.

Tenaris SA declined 3.5 percent to 17.23 euros. Bank of America Corp. cut its rating on the steel-pipe maker to neutral from buy, citing lower near-term earnings expectations due to sluggish trends in North America and Europe.

Countrywide Plc dropped 4.9 percent to 518 pence. Alchemy Partners LLP is selling a 5.9 percent stake, about 12.9 million shares, in the U.K.’s largest property broker, according to terms obtained by Bloomberg News. Shares are being sold through an accelerated bookbuild.

Kemira Oyj slid 5.9 percent to 11.98 euros. Wolfgang Buechele, currently chief executive officer of Europe’s largest supplier of water-treatment chemicals, will take over as CEO of Linde AG. He will remain at Kemira until April 30, 2014.

Vestas Jumps

Vestas added 4.5 percent to 139.10 kroner, paring earlier gains of as much as 13 percent. Mitsubishi Heavy and the Danish turbine maker agreed to establish a venture to develop offshore wind energy. The partnership, to be formed in March 2014 and equally owned by the two companies, will design, procure, build and sell offshore wind power plants, Mitsubishi Heavy said in a statement to the Tokyo Stock Exchange.

SEB SA climbed 3.5 percent to 65.20 euros. The maker of Tefal pans and Rowenta household appliances was lifted to buy from hold at Societe Generale SA, which cited a recovery of sales in Europe, operating margin expansion in 2014 and an attractive valuation relative to competitors.

Telekom Austria AG advanced 2.7 percent to 6.09 euros. The phone company part-owned by Carlos Slim’s America Movil SAB is heading for its biggest weekly gain since 2009 amid speculation that the Mexican billionaire may take full control.

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