European Stocks Drop as Italy Auctions Bonds; Software AG Falls

July 14, 2011, 12:34 PM EDT By Adam Haigh

July 14 (Bloomberg) -- European stocks fell for the fourth day in five after Italy auctioned bonds and Moody’s Investors Service said the American government may lose the Aaa credit rating it’s held since 1917.

Petrofac Ltd., the U.K.-based oilfield services and engineering provider, decreased 3.8 percent as Barclays Plc advised selling the shares. Software AG plunged 16 percent, its largest slide in more than two years, after posting a decline in sales. SAP AG, the world’s biggest business-software maker, lost 2.8 percent.

The Stoxx Europe 600 Index sank 0.8 percent to 267.68 at the 4:30 p.m. close in London. The gauge has fallen 2.2 percent this week amid concern that the sovereign-debt crisis in Europe will spread to the larger economies of Italy and Spain.

“Moody’s action overnight was a response to the small but rising risk of a short-lived default,” wrote Jim Reid, a global strategist at Deutsche Bank AG in London, in a report today. “Moody’s is now the rating agency putting most pressure on Congress to act.”

Moody’s put the U.S. on review for the first time since 1996 as talks to raise the country’s $14.3 trillion debt limit stalled, adding to concern that political gridlock will lead to default. Even a temporary default will probably have “large systemic effects” on the economy and Treasury finances by disrupting money funds, the repurchase-agreement market and foreign investors’ willingness to buy the government’s debt, according to JPMorgan Chase & Co.

Italy Bond Auction

Italy sold five-year bonds at the highest yield in three years. The Treasury priced 1.25 billion euros ($1.8 billion) of 2016 bonds today at an average yield of 4.93 percent, compared with a yield of 3.9 percent at a previous auction on June 14.

Prime Minister Silvio Berlusconi won a confidence vote in the Italian Senate on an austerity package aimed at balancing the budget in 2014, paving the way for the Chamber of Deputies to pass the plan tomorrow.

Greece’s credit rating was cut three levels to Fitch Ratings’ lowest grade for any country in the world as the company followed rivals and said that a default is a “real possibility.”

European stocks had increased yesterday as Federal Reserve Chairman Ben S. Bernanke said he’s prepared to provide more stimulus if needed and as China’s economic growth beat estimates. The Stoxx 600 has rallied 87 percent including dividend income since March 2009 as governments and central banks from Washington to London enacted emergency stimulus measures to revive the economy.

U.S. Earnings Season

European stocks recouped some losses after JPMorgan Chase & Co. posted second-quarter earnings that topped estimates.

Germany’s Landesbank Hessen-Thueringen snubbed the European Union’s bank stress tests, refusing to give the European Banking Authority permission to publish all of its data. The stress test results will be published tomorrow after the close of European equity markets.

National benchmark indexes declined in all 18 western European market today. The U.K. FTSE 100 Index slid 1 percent, Germany’s DAX Index declined 0.7 percent and France’s CAC 40 Index retreated 1.1 percent.

Petrofac dropped 3.8 percent to 1,445 pence after the company was downgraded to “underweight” from “equal weight” at Barclays.

SAP, Software AG

Software AG tumbled 16 percent to 35.19 euros for the biggest decline in the Stoxx 600 as Germany’s second-largest maker of business software reported second-quarter revenue that missed analysts’ estimates due to currency moves and its failure to sell licenses. Software AG also said that demand to implement products from SAP fell from the same period a year earlier. SAP slipped 2.8 percent to 40.86 euros.

Accor SA and Intercontinental Hotels Group Plc fell 2.2 percent to 29.64 euros and 3.2 percent to 1,241 pence, respectively, after rival Marriott forecast third-quarter earnings of 25 to 29 cents per share. That fell short of analysts’ estimates for earnings per share of 30 cents.

Daily Mail & General Trust Plc slumped 4.1 percent to 421.3 pence after saying that advertising sales declined 7 percent in the 13 weeks through July 3.

Mothercare Plc decreased 1.4 percent to 405 pence as first- quarter U.K. comparative sales declined 4.3 percent.

Storebrand ASA surged 5.5 percent to 46.48 kroner for the biggest gain on the Stoxx 600. Norway’s largest publicly traded insurer posted second-quarter profit today that beat analysts’ estimates.

--Additonal reporting by Conor Sullivan in London. Editors: Will Hadfield, Andrew Rummer

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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