By Sara Sjolin, MarketWatch
LONDON (MarketWatch)—European stock markets dropped Wednesday, as the International Monetary Fund issued a warning about the impact of the euro-zone debt crisis and as Greece’s equity benchmark retreated 3.5%.
The Stoxx Europe 600 index /zigman2/quotes/210599654/delayed XX:SXXP -0.98% lost 0.6% to 268.71, following a 0.5% decline in the prior session, although bank shares in London advanced on eased capital rules. Investors also trained their focus on the failure of a proposed merger in the defense-aerospace sector.
Alcoa’s earnings top estimates
Alcoa kicks off earnings season with positive news, beating both profit and revenue estimates. (Photo: Getty Images.)
“It’s ‘glass-half-empty day’ where everybody seems to be picking on any news flow that is negative. We’re also about to go into earnings season, which is a concern,” said Frances Hudson, global thematic strategist at Standard Life Investments.
In the spotlight, shares of EADS NV traded up 5.3% in Paris, while BAE Systems PLC , sank 1.4% in London, after talks over a $45 billion merger between the two defense firms broke down amid government opposition. See: EADS-BAE merger collapses on government opposition
Away from London, banks posted some of Wednesday’s biggest losses, as the IMF cast dark clouds over the sector’s future. The fund warned that if European governments fail to solve the debt crisis, the region’s banks could be forced to sell as much as $4.5 trillion of assets. See: IMF: Europe banks may have to shed $4.5T of assets.
“This scenario was only if the measures that the European Union talked about this summer don’t get pushed through, so it’s a little early to make that call,” Hudson said. “You can’t accuse the policy makers of being speedy, but you have to allow time for things to play out.”
On Tuesday, the IMF slashed its global-growth estimates for 2012 and 2013 and forecast that several euro-zone countries will miss their deficit targets.
Shares of Spain’s Banco Popular Español SA dropped 4.5% in Wednesday dealings, while Italy’s Banca Monte dei Paschi di Siena SpA /zigman2/quotes/202470451/delayed IT:BMPS -0.65% lost 3.8%.
In Madrid, the IBEX 35 index /zigman2/quotes/210597995/delayed XX:IBEX -0.47% pulled back by 1% to 7,668.00, while Milan’s FTSE MIB index fell 0.4% to 15,440.63.
U.K. banks bucked the negative trend, rallying after a Financial Times report that the Financial Services Authority eased capital rules for banks in an effort to boost lending. A representative from the regulator confirmed the report and said efforts to ease the U.K. rules had been under way for some time. See: FSA eases rules for U.K. banks to spur lending.
Lloyds Banking Group PLC /zigman2/quotes/202285510/delayed UK:LLOY +0.49% /zigman2/quotes/200709414/composite LYG +2.04% gained 4% and Royal Bank of Scotland Group PLC added 2.1%, as Liberum Capital said those banks would benefit the most given their rapid deleveraging.
Patience with Portugal
Some news flow from European policy makers was also on investors’ minds. The region’s finance ministers said, after concluding a two-day meeting in Luxembourg late Tuesday, that Portugal has been given until 2014 to achieve its fiscal goals. The move will pave the way for the country to receive its next tranche of bailout aid, they said.
Portugal’s PSI 20 index /zigman2/quotes/210598164/delayed PT:PSI20 +0.14% dropped 1% to 5,310.47.
Elsewhere in the euro zone, the Athens General Index /zigman2/quotes/210597948/delayed GR:GD -0.95% tanked 3.6% to 799.42 as Greece’s main public- and private-sector labor unions called a 24-hour strike for Oct. 18 in protest of new austerity measures. See: Greek general strike called for Oct. 18: reports
In the U.S., aluminum maker Alcoa Inc. /zigman2/quotes/200686102/composite AA +1.45% kicked off the earnings season late Tuesday, with the blue chip’s adjusted profit and revenue beating analyst expectations. See: Alcoa swings to 3rd-quarter loss on charges
“It’s very early in terms of earnings, and we need to see what the strengths are. All indications are that earnings might be quite weak,” said Standard Life’s Hudson.
Shares of SAP AG /zigman2/quotes/203458330/delayed DE:SAP -1.41% dropped 2% in Frankfurt, after Barclays cut the software company to a rating of equal weight from overweight previously. The DAX 30 index /zigman2/quotes/210597999/delayed DX:DAX -0.92% closed 0.4% lower at 7,205.23.
In London, the gains for banks were not enough to push the main equities benchmark index into positive territory. The FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX -0.52% lost 0.6% to 5,776.71. See: Oil firms weigh on U.K. stocks; banks climb.
ARM Holdings PLC fell 2.9%, as Credit Suisse initiated coverage with a neutral rating, saying a “lack of near-term catalysts” balanced out ARM’s “strong earnings reliability.”
And in Paris, the CAC 40 index /zigman2/quotes/210597958/delayed FR:PX1 -0.85% moved 0.5% lower to 3,365.87. Compagnie de Saint-Gobain SA /zigman2/quotes/201813666/delayed FR:SGO -1.43% lost 2%, after UBS cut its rating on the building-materials firm to neutral from buy.