European Stocks Fall on Italy Downgrade as Oil, Metals Decline

By Grant Smith

European stocks fell from a 4 1/2- year high and Italian bonds retreated after Fitch Ratingsdowngraded the nation’s debt. Oil declined as Saudi Arabia boosted output, and metals slipped after China’s industrial production trailed estimates.

The Stoxx Europe 600 Index dropped as much as 0.3 percent as of 9:45 a.m. in London, while Standard & Poor’s 500 futures fell 0.1 percent. Italy’s 10-year yield rose four basis points to 4.64 percent. Copper lost 0.7 percent and zinc as much as 1.5 percent in London. West Texas Intermediate crude fell from a one-week high. The Hungarian forint weakened amid changes at the country’s central bank. Fitch cut Italy’s debt rating after the close of equity markets on March 8 as European Union leaders prepared for a March 14-15 summit to discuss financial-rescue terms for Cyprus. China’s industrial output had the weakest start to a year since 2009 and retail sales growth slowed, data in the past two days showed. The Dollar Index (SXXP) traded near its highest level in seven months before a report this week that economists said will show retail sales improved.

“I do get a sense that the market has extended itself compared to the potential threat to the system,” said Yianos Kontopoulos, chief investment officer inAthens at Eurobank Ergasias SA. “All these issues, like the Fitch rating, will be used by the market to sell.”

Stoxx Decline

The Stoxx 600 slipped from the highest level since June 2008 after climbing 2.3 percent last week. Storebrand ASA slumped 8.2 percent to a six-month low in Oslo after Norway’s second-largest insurer said it will need to increase the amount of money it sets aside for longer life expectancy. ICAP Plc, the world’s largest broker of transactions between banks, lost 3.8 percent as UBS AG downgraded the shares to sell.

The decline in S&P 500 futures indicated the U.S. gauge will snap a six-day rally that has pushed the index to the highest level since October 2007.

Japan’s Topix (TPX) Index advanced as Honda Motor Co., which gets about 80 percent of its revenue outside Japan, rose 2.6 percent. The Topix has jumped 41 percent in the 74 days since the biggest rally for Japanese shares since 1987 began in November. After adjusting for the yen’s depreciation against the dollar, the return shrinks to 18 percent, or three percentage points more than the S&P 500, according to data compiled by Bloomberg.

Italy Downgrade

Fitch cut Italy’s credit rating one level to BBB+ with a negative outlook, saying an inconclusive election in February has produced political paralysis that threatens the country’s ability to respond to a recession and the European debt crisis. The grade is three levels above junk and one higher than Spain.

German 10-year bund yields fell three basis points to 1.50 percent. The euro was little changed at $1.3004 and 124.97 yen. Japan’s currency traded at 96.10 per dollar.

The cost of insuring against losses on French government debt jumped 4.5 percent after a report showed output from factories, mines, utilities and the construction industry fell 1.2 percent in January. Credit-default swaps protecting French sovereign debt increased 3.5 basis points to 78. Contracts on Italy climbed 6.5 basis points to 264.

The Hungarian forint retreated 1.2 percent versus the euro, sliding for a second day to the weakest level since June 1. The Hungarian central bank will complete management changes by the end of March, it said in a statement on its website today. Gyorgy Matolcsy, Magyar Nemzeti Bank’s new president, moved to solidify his authority by stripping two vice presidents appointed by his predecessor of their areas of responsibility, according to the regulator’s new articles of association published in the official gazette on March 8.

Kenyan Shilling

The MSCI Emerging Markets Index (MXEF) fell 0.1 percent from a two-week high. The Kenyan shilling strengthened 0.4 percent versus the dollar after Uhuru Kenyatta won the country’s March 4 presidential election with 50.07 percent of the vote. His main rival, Raila Odinga, plans to challenge the outcome in court. Last week’s election was the first since a disputed presidential vote in 2007 that triggered ethnic clashes in which more than 1,100 people died.

WTI, the U.S. crude benchmark, fell as much as 43 cents to $91.52 a barrel on the New YorkMercantile Exchange. Saudi Arabia’s output rose in February from a 20-month low, according to an official with knowledge of the country’s oil policy.

Copper for three-month delivery fell to $7,688 a metric ton on the London Metal Exchange. Zinc retreated 1.4 percent to $1,947.50 a ton. All six main industrial metals traded on the exchange declined.

Palladium for immediate delivery lost 1.6 percent to $770.65 an ounce, snapping a four-day rally. Wheat and corn futures gained at least 0.9 percent.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

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