European Stocks Drop as Hochtief Plunges Following Report

European stocks declined the most in more than a month as the shutdown of the U.S. federal government entered its second day.

Hochtief AG slumped 7.9 percent after the Sydney Morning Herald reported allegations of corruption at the company’s Australian business. KappAhl AB dropped 9.8 percent after the clothing retailer proposed paying no dividend this financial year. Portugal Telecom SGPS SA jumped the most in almost four months after agreeing to merge with Brazil’s Oi SA to form a network operator with 100 million subscribers.

The Stoxx Europe 600 Index slipped 0.7 percent to 310.79 at the close in London, its biggest slide since Aug. 30. The equity benchmark jumped 0.8 percent yesterday as a senior minister in Silvio Berlusconi’s People of Liberty party said that lawmakers should vote for the incumbent prime minister in today’s confidence vote.

“With no progress and two sides implacably opposed to each other, the U.S. situation is still of the utmost importance,” Jeremy Batstone-Carr, head of research at Charles Stanley Group Plc in London, said in a telephone interview. “It is right that the markets send a signal to lawmakers that procrastination is not an option.”

The U.S. government began its first partial shutdown in 17 years yesterday as Republicans and Democrats failed to agree on a compromise budget to keep the federal government open into the new financial year. As many as 800,000 federal employees didn’t work and the government closed some services.

Government Shutdown

“Further improvements in corporate confidence could be negatively impacted by the U.S. government shutdown, but it very much depends on how long the Democrat and Republican impasse will last,” James Butterfill, who helps manage about $44 billion as head of global equity strategy at Coutts & Co. in London, wrote in an e-mail.

U.S. politicians also need to reach a deal to increase the federal government’s $16.7 trillion debt limit. Treasury Secretary Jacob J. Lew said in a letter yesterday that the U.S. will exhaust its extraordinary measures to avoid breaching the limit on Oct. 17 at the latest.

European Central Bank policy makers meeting in Paris left their benchmark interest rate unchanged at a record low of 0.5 percent. That matched the forecasts of all 52 economists surveyed by Bloomberg News. ECB President Mario Draghi refrained from saying that the euro area needs further help from the central bank to support its economic recovery.

National benchmark indexes retreated in 12 of the 18 western-European markets. The U.K.’s FTSE 100 fell 0.4 percent, Germany’s DAX lost 0.7 percent and France’s CAC 40 Index retreated 0.9 percent.

Italian Equities

Italy’s FTSE MIB added 0.7 percent as Prime Minister Enrico Letta won a confidence vote in parliament. During a debate before the vote, Berlusconi said that he would support Letta. The former premier had withdrawn the People of Liberty’s five ministers from the cabinet on Sept. 28, prompting Letta to call today’s vote in an attempt to rebuild a parliamentary majority.

Hochtief slid 7.9 percent to 60.20 euros after the Sydney Morning Herald reported allegations of corruption at its Australian construction unit Leighton Holdings Ltd. The newspaper cited internal company files. Hochtief spokesman Christian Gerhardus declined to comment to Bloomberg News on the Australian newspaper’s report.

KappAhl slumped 9.8 percent to 38.80 kronor after it proposed paying no dividend. The company also announced fiscal fourth-quarter net income of 7 million kronor ($1.1 million).

Jeronimo Martins SGPS SA lost 1.9 percent to 14.31 euros after Tesco Plc reported that same-store sales in Poland dropped 6.4 percent in the first half of its financial year. The Portuguese retailer generated 60 percent of its revenue from the east European country in 2012.

Portugal Telecom

Portugal’s PSI 20 Index gained 0.9 percent as Portugal Telecom, which accounts for 11 percent of the benchmark measure, surged 6.5 percent to 3.62 euros. The country’s largest phone company said that the merger will generate additional revenue and savings from cost cutting totaling 1.8 billion euros ($2.5 billion). “The merger will consolidate the position of both companies as the leading operator for Portuguese-speaking countries,” Portugal Telecom said in a statement.

Banco Espirito Santo SA jumped 4 percent to 84 euro cents. The lender owns a 10 percent stake in Portugal Telecom, according to data compiled by Bloomberg.

Intesa Sanpaolo SpA, Italy’s second-biggest bank, jumped 4.7 percent to 1.69 euros. Societe Generale SA, France’s second-largest bank, gained 2.5 percent to 38.80 euros.

MorphoSys AG climbed 7.2 percent to 61.35 euros after saying that Novartis AG had triggered a milestone payment for the company by starting a clinical trial.

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