The European markets added to yesterday's losses on Tuesday, following the strong rally at the end of the previous trading week. Much of the weakness can still be attributed to profit taking, but there were also concerns about the situation in Spain. Shares of banks were under pressure Tuesday, as well as miners, automakers and oil companies.
The European Central Bank will assume the role of a banking supervisor only if it is fully equipped, ECB Governing Council member Ewald Nowotny reportedly said Monday. He said it is ambitious to expect the ECB to take on the responsibility of overseeing major banks by mid-2013.
European Central Bank Governing Council member Luc Coene said on Monday that the central bank has a number of options to ease policy, including cutting deposit rate below zero and offering more cheap loans to banks.
Negative rate on deposits at the ECB is one of the possibilities, reports said citing his remarks during a seminar in London. Coene, who heads the Belgian central bank, said extending the long-term refinancing operations (LTROs) is another option before the ECB to ease monetary policy, if required.
Coene also warned that rising bond yields may force Spain to place a bailout request. "If the markets see that Spain is not going to" ask for financial assistance, "it will not be long before spreads will rise again and Spain will be forced to come back" on its decision to request bailout and submit to ECB conditions, Coene said.
Spain's borrowing costs declined on Tuesday in the first debt auction since the European Central Bank announced plans to buy peripheral bonds earlier this month. The country is set to face a tougher challenge on Thursday, when it auctions a benchmark 10-year bond and a new three-year bond.
Despite the favorable auction results, Spanish bond yields remain high, given the lingering uncertainty as to whether the country would seek a bailout, paving way for the ECB to keep the Spanish yields lower by buying the country's bonds.
The Euro Stoxx 50 index of Eurozone bluechip stocks declined by 0.84 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, finished up by 0.15 percent.
The DAX of Germany fell by 0.76 percent and the CAC 40 of France lost 1.15 percent. The FTSE 100 of the U.K. dropped by 0.18 percent and the SMI of Switzerland decreased by 0.23 percent.
In Frankfurt, Deutsche Bank declined by 4.58 percent, after a brokerage downgrade. Commerzbank also finished lower by 3.22 percent.
Automakers were weak after data released by the European Automobile Manufacturers' Association showed registrations of new passenger cars in Europe dropped at a faster rate in August. BMW fell by 1.93 percent, Daimler lost 1.08 percent and Volkswagen decreased by 1.81 percent.
In Paris, Renault dropped by 4.04 percent and Peugeot declined by 4.32 percent.
Societe Generale finished down by 3.72 percent Tuesday. BNP Paribas decreased by 1.64 percent and Credit Agricole lost 3.11 percent.
In London, BHP Billiton fell by 1.43 percent. The mining giant said its chief executive officer Marius Kloppers' total pay fell to $9.82 million in fiscal 2012 from $11.63 million in fiscal 2011.
Vedanta Resources closed lower by 1.46 percent, Kazakhmys declined by 2.17 percent and Rio Tinto lost 0.70 percent.
BT Group lost 0.09 percent, after the communication services provider named Luis Alvarez as chief executive officer of BT Global Services, effective October.
Aviva declined by 3.95 percent, after Bank of America downgraded the stock to "Underperform" from "Neutral."
Barclays decreased by 1.14 percent and Royal Bank of Scotland fell by 2.48 percent. Lloyds Banking Group dropped by 2.40 percent and HSBC lost 0.93 percent. Shares of Standard Chartered finished lower by 1.92 percent.
German economic sentiment improved in September after easing for four straight months, as the European Central Bank's bond purchase plan calmed analysts' fears of a looming break-up of the region, results of a closely watched survey revealed Tuesday.
The ZEW Indicator of Economic Sentiment rose by a better-than-expected 7.3 points to -18.2, data from the Mannheim-based Centre for European Economic Research showed. The score was forecast to rise to -20 in September.
U.K. inflation slowed marginally in August despite an increase in fuel prices, which may provide room for more monetary policy easing. Nonetheless, inflation remains above the 2 percent target. Annual inflation eased to 2.5 percent in August, in line with expectations, from 2.6 percent in July, data from the Office for National Statistics revealed Tuesday.
Homebuilder confidence in the U.S. increased for the fifth consecutive month in September, according to a report released by the National Association of Home Builders on Tuesday, with the index of homebuilder confidence rising to its highest level in over six years.
The report showed that the NAHB/Wells Fargo Housing Market Index rose to 40 in September from 37 in August. Economists had been expecting the index to show a more modest increase to a reading of 38.
by RTT Staff Writer
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