By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets posted
broad-based losses on Wednesday, with banks leading the charge
south, following a setback in the latest attempt to form a
government in Italy.
The Stoxx Europe 600 index dropped 0.5% to close at 292.44,
after opening in positive territory.
The index had earlier this week moved between small gains and
losses, as contagion fears following a controversial Cyprus bailout
and upbeat U.S. data battled to be the key driver for
investors.
Wednesday's turnaround was sparked by comments from Italy's
Democratic Party leader Pier Luigi Bersani, whose effort to win
support for a center-left government from the anti-establishment
Five-Star Movement fell on deaf ears. Bersani ruled out forming a
grand coalition with Silvio Berlusconi's center-right alliance and
said "only an insane person would want to govern this country,
which is in a mess and faces a difficult year ahead."
The FTSE MIB index fell 0.9% to 15,353.85, with banks posting
some of the biggest losses. Banca Popolare di Milano Scarl lost
3.4%, while UniCredit SpA dropped 0.6%.
"Italy had never really gone away, it was just muscled out of
the spotlight by Cyprus," said James Ashley, senior European
economist at RBC Capital Markets.
"The alternative to a coalition is a minority government and
that does not strike me as a stable solution. Italy needs a strong
government in the state it's in right now and needs someone to
carry out reforms," he said.
Of further interest in Italy, the Treasury sold 6.91 billion
euros ($8.8 billion) of debt, with five-year borrowing costs rising
to a five-month high, according to Dow Jones Newswires.
On the euro-zone data front, the Economic Sentiment Indicator
fell to 90.0 in March from 91.1, the first decline since October
last year.
Most banking shares in Europe were mired in the red, following
days of uncertainty over the stability of the Cyprus banking
system. The island nation earlier in the week agreed to a bailout
package including a haircut on many bank deposits above EUR100,000,
fueling fears that the measures could set a precedent for solving
future banking crises in other euro-zone countries.
Cypriot authorities were planning to reopen the country's banks
on Thursday, but customers could find their access to money
limited. The government planned to launch aggressive limits on the
amount of cash that can be taken out of the country in efforts to
avoid a bank run, The Wall Street Journal Reported. The Cyprus
Stock Exchange was also closed for trading until Thursday. Read:
Three ways for Europe to regain control of its crisis--Nomura.
"The immediate tail risks have been taken off the table after
Cyprus agreed with the troika on the bailout program. The concern
now is what happens when the banks reopen tomorrow," Ashley
said.
"They are putting the capital controls in place for valid
reasons, but it's against one of the key principles in the EU, free
movement of capital. They hope to persuade people that their
deposits are not at risk unless they are part of the bailout
agreement and perhaps people will start to trust the banks and the
government," he added.
Movers
Greece's ATHEX Composite sank 4% to 849.62, with shares of
Hellenic Telecommunications Organization SA 9.4% lower. The company
said that its deposits in three of the largest Cyprus banks amount
to EUR3 million.
In Spain, shares of Banco Santander SA (SAN) dropped 1.1% and
BBVA SA (BBVA) fell 0.4%. The IBEX 35 index closed 1.1% lower at
7,900.40.
In France, BNP Paribas SA slumped 1.7% and Société Générale SA
fell 1%.
Also in Paris, shares of European Aeronautic Defence & Space
Co. (EADSY) shed 3.1%, after French media group Lagardere SCA Chief
Executive Arnaud Lagardère said in a report in the French daily Les
Echos that the firm will sell its 7.5% stake in the Airbus owner.
Lagardère fell 1.8%.
The CAC 40 index declined 1% to 3,711.64.
Germany's DAX 30 index fell 1.2% to 7,789.09. Shares of Allianz
SE declined 2.3%, as the insurer said it would buy 94% of Yapi
Kredi Sigorta, an insurance unit of Yapi Kredi, Turkey's fourth
largest private bank by assets.
The U.K.'s FTSE 100 index moved 0.2% lower to 6,387.56, with
energy firms tracking oil prices lower. Shares of BG Group PLC lost
1.5% and Royal Dutch Shell PLC (RDSB) dropped 0.5%.
U.S. stocks fell on Wall Street. Data showed pending-home sales
declined 0.4% in February, although longer-term trends showed
continuing growth.
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