MARKET COMMENT : Crisis Worries Weigh Down European Stocks
07/09/2012| 12:57pm US/Eastern
By Barbara Kollmeyer
European stocks ended lower Monday as investors nervously awaited a meeting of euro-zone finance ministers, while resource stocks fell as China data added to worries about global growth.
The Stoxx Europe 600 index closed 0.4% lower at 253.46. The index fell 1% last week, triggered in part by global-growth worries. Fresh data overnight showed inflation eased in China last month as demand cooled. On Wall Street, stocks opened lower with Alcoa Inc. due to kick off the U.S. earnings season later.
Shares of oil major BP PLC fell 1%, leading decliners on the Stoxx 600, while Spain's Banco Santander SA fell 1.7%.
Spain's IBEX 35 index was out ahead of the rest of Europe on the losing side for most of the session. The index dropped 0.8% to 6,688.30 but had shed more than 6% at one point, as government bond yields hovered at a key psychological level. Shares of BBVA SA also dropped, down 1.4%.
Reports surfaced Monday that finance ministers plan to give Spain new leeway to meet deficit targets in exchange for more savings measures.
The draft also says Spain's budgetary position has "deteriorated sharply" over the last several months, in light of a sharp economic slowdown, reports said, citing people familiar with the matter.
The yield on Spain's 10-year bond rose 0.09 of a percentage point to 7.01%, according to electronic trading platform Tradeweb. Borrowing costs that persist at that level are seen as unsustainable for the already struggling Spanish government, say economists.
The yield on Italy's 10-year bond also rose, up 0.03 percentage point to 6.09%. Yields rise as bond prices fall.
"The current fragile environment, combined with investor disappointment following the lack of any signal of prospective nonstandard measures from the [European Central Bank] last week, leave peripheral sovereign markets vulnerable," said analysts at Goldman Sachs in a research note Monday.
ECB chief Mario Draghi told the a European Parliament committee on Monday that euro-zone leaders must aim toward deeper integration.
Bucking the overall sluggishness of Europe markets, the Portugal PSI 20 index rose 0.3% to 4,752.19, as Portugal Telecom SGPS SA gained 0.6% and Galp Energia SGPS SA rose 1.1%.
Keying off China worries, mining and energy stocks headed south Monday.
The resource-laden FTSE 100 index fell 0.6% to 5,627.33 in London. Royal Dutch Shell PLC sank 1.7% as BG Group PLC lost 1%. Xstrata PLC fell 2.2% and Anglo American PLC dropped 2.9%.
At the start of U.S. earnings season, blue-chip aluminum producer Alcoa is seen as a barometer for global manufacturing. The company's believed set to report a small profit amid estimates that have been cut in the face of Europe's debt crisis and slowing growth in China.
China worries weighed on luxury-goods companies as well. Along with inflation data, there were indications of slowing sales of high-end watches. In an interview with Bloomberg News, Tan Li, vice president of Hengdeli Holdings Ltd., said sales of luxury watches had slowed to "single digits in recent months." Hengdeli is the retail partner of Swatch Group AG, shares of which fell 2.2%.
Also within the luxury sector, shares of Burberry Group PLC gave up 2.6% in London.
And in Paris, luxury-goods maker LVMH Moët Hennessy Louis Vuitton SA slipped 1.7%. The French CAC 40 index ended 0.4% lower at 3,156.80.
On the upside, shares of Vivendi SA rose nearly 2%.
Retailers trading in Paris and Frankfurt were also lower. Carrefour SA fell 3.3%, while Metro AG dropped more than 6%. Olaf Koch, chief executive of Metro, said in an interview with Bild am Sonntag that he expected just a small rise in German consumption this year.
The DAX 30 index fell 0.4% to 6,387.57. Steelmaker ThyssenKrupp AG rose 2.2%.
-By Barbara Kollmeyer; 415-439-6400; AskNewswires@dowjones.com