Europe Stocks Drop for Second Week as Banks Fall to 16-Month Low

Madrid-Spain (Jan 11)   A slump in Spanish and Italian lenders sent European stocks down for a second week, the longest streak since October.

The Stoxx Europe 600 Index lost 1.3 percent to 337.93 at the close of trading in London amid concern that the European Central Bank’s bond-buying plans won’t be enough to shore up the economy, while a U.S. employment report showed a drop in hourly earnings. Today’s decline brought the measure down 1 percent for the week.

The ECB is studying models for buying as much as 500 billion euros ($591 billion) of investment-grade assets, a person familiar with the matter said. While the Stoxx 600 briefly erased gains after better-than-forecast U.S. jobs data, it then fell as much as 1.8 percent as earnings for all employees unexpectedly declined from a month earlier.

Shouldn't the ECB Buy Bonds, Too? »

“This has the potential to have a negative impact as it is only 500 billion euros,” said Soeren Steinert, who helps manage $24 billion as associate director for equities trading at Quoniam Asset Management GmbH in Frankfurt, referring to the potential ECB bond-buying models. “Other higher numbers were rumored -- even trillions -- and Draghi talked about unlimited firepower. So these dramatic words built up expectations. I don’t think this is big enough.”

The Stoxx 600 reversed a two-day gain. It rallied the most in three weeks yesterday, erasing losses for 2015, amid speculation that weak inflation data this week bolster the case for the ECB to start sovereign-bond purchases at its Jan. 22 meeting. The benchmark gauge has posted gains in January in three of the past four years, data compiled by Bloomberg show.

The volume of shares on the benchmark measure traded was 23 percent higher than the 30-day average, data compiled by Bloomberg show.

Santander Slump

Banks declined the most among 19 industry groups in the Stoxx 600, falling 3.2 percent to their lowest level since September 2013. Banco Santander SA (SAN) plunged 14 percent, the most since 1999, after its board approved plans to cut its dividend and sell shares for as much as 7.5 billion euros. Shares of Spain’s largest bank rose 3.3 percent yesterday before the Spanish regulator suspended them.

Banca Monte dei Paschi di Siena SpA tumbled 8.6 percent after the ECB told the Italian lender to increase its minimum capital ratio as part of its fundraising plan.

Spain’s IBEX 35 Index lost 3.9 percent, the most since September 2012, and the biggest drop among 18 western-European markets. Italy’s FTSE MIB Index slid 3.3 percent for the second-worst performance, and France’s CAC 40 Index lost 1.9 percent. A terror crisis in Paris deepened after a massacre at satirical weekly Charlie Hebdo left 12 people dead earlier this week.

Property Prices

In the U.K., homebuilders Taylor Wimpey Plc, Barratt Developments Plc and Persimmon Plc fell more than 5 percent as a report showed house-price growth in England and Wales slowed.

Among other stocks moving on corporate news today, Tesco Plc lost 2.5 percent. The U.K. grocer, which surged the most in more than 26 years yesterday after announcing measures from lower prices to store closures, was cut to below investment grade at Moody’s Investors Service.

Source: Bloomberg