By Simon Kennedy, MarketWatch
LONDON (MarketWatch) — European stock markets ended lower Tuesday as fears over the spread of the sovereign-debt crisis continued to drive selling, though a relatively successful Italian debt auction helped put a floor under losses.
The Stoxx Europe 600 index /zigman2/quotes/210599654/delayed XX:SXXP -0.66% dropped 0.6% to close at 268.16, adding to its 1.4% drop on Monday.
The index, however, pared losses of as much as 2.7% after Italy’s Treasury said it had sold 6.75 billion euros ($9.4 billion) of 12-month bills. The average interest rate on the debt was up 1.5 percentage points from a similar sale just last month, but demand was almost unchanged.
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Relief over the sale helped lift shares in Italian banks, which have been hammered in recent sessions. UniCredit SpA /zigman2/quotes/200769686/delayed IT:UCG -3.13% rose nearly 6% and Intesa Sanpaolo SpA /zigman2/quotes/206161760/delayed IT:ISP -1.64% gained 3.3%.
Those gains also followed unconfirmed reports that the European Central Bank had bought Italian- and Spanish-government bonds. An ECB spokesman had no comment on the rumors.
Italy’s FTSE MIB index rose 1.2% to 18,510.5. Spain’s IBEX 35 index /zigman2/quotes/210597995/delayed XX:IBEX -2.21% dropped 0.7% to 9,603.40.
Banking and insurance stocks were lower across most of the rest of Europe. Deutsche Bank AG /zigman2/quotes/205584254/delayed DE:DBK -1.22% dropped 1% in Frankfurt, where the DAX 30 index /zigman2/quotes/210597999/delayed DX:DAX -0.70% fell 0.8% to settle at 7,174.14.
National Bank of Greece /zigman2/quotes/203923076/delayed GR:ETE -0.51% erased a loss to rise 1.6% as the ASE Composite /zigman2/quotes/210597948/delayed GR:GD -0.71% slipped 0.2% to 1,216.51. Earlier Tuesday the index hit its lowest level since January 1997.
The broader losses came after European officials failed to convince markets that they could halt contagion in sovereign-debt markets. Euro-zone finance ministers said late Monday that they were ready to adopt further measures to prevent the crisis from spreading, but didn’t take any direct action.
“People have heard this all before. Those kind of statements have been around for a long time without any concrete measures,” said Predrag Dukic, senior equity salesman at CM Capital Markets in Madrid.
Analysts at Bank of America Merrill Lynch also issued a stark warning over the mounting pressure on Italy, saying the size of the Italian bond market means that further deterioration could be a threat to the global economic recovery. Read more: “Fate of Italian bond market crucial to euro.”
Without an expansion of the euro-zone bailout mechanism and a resolution of Italy’s internal political disputes, “the latest trend in the Italian bond market could potentially snowball into a major crisis for the global economy,” the broker said.
The euro was also lower, down 0.3% at $1.3994 but well off a four-month low set earlier in the day below $1.3840.
Alcatel-Lucent, chip stocks drop
Outside the financial sector, shares in telecom-equipment manufacturer Alcatel-Lucent dropped 3% in Paris after Deutsche Bank downgraded the stock to hold from buy, saying “key momentum indicators” for the firm are starting to slow down.
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The French CAC 40 index /zigman2/quotes/210597958/delayed FR:PX1 -1.22% fell 0.9%, according to FactSet. Pricing of the index had been suspended for several hours due to technical problems at Euronext. Trading of the underlying stocks was not affected.
Chip makers saw pressure, including a 3.6% drop for Infineon Technologies AG /zigman2/quotes/204995926/delayed DE:IFX -0.69% in Frankfurt and a 3.8% fall for STMicroelectronics NV /zigman2/quotes/204485995/delayed FR:STM -0.69% in Paris.
The falls came after Microchip Technology Inc. /zigman2/quotes/208326291/composite MCHP -2.05% late Monday cut its fiscal first-quarter earnings guidance, citing challenges tied to the earthquake in Japan.
Travel stocks also fell hard after U.K. mid-cap holiday company Thomas Cook Group PLC warned that its fiscal third-quarter results will miss expectations due to a bigger-than-expected impact from the unrest in the Middle East and North Africa.
Shares in Thomas Cook tumbled 28.4% in London. Rival TUI Travel PLC dropped 7.5% and Frankfurt-listed TUI AG /zigman2/quotes/206714402/delayed DE:TUI1 -4.48% fell 4.6%.
The U.K.’s benchmark FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX -0.71% finished 1% lower at 5,868.96, with chip maker ARM Holdings PLC falling 4.9%.
Among relatively few strong performers, several car makers reversed early losses after BMW AG /zigman2/quotes/209548467/delayed DE:BMW -1.66% lifted its sales and earnings guidance, citing a strong performance in international markets. Shares in BMW rose 0.7% and Daimler AG /zigman2/quotes/205332368/delayed DE:DAI -1.95% gained 1.3%.