By Barbara Kollmeyer and Sara Sjolin, MarketWatch
LONDON (MarketWatch) — Continued unease over the euro-zone’s debt crisis and Spain’s bailout package made for another day of pressure on Spanish and Italian bond yields, while stocks tried to stabilize on hopes for imminent European Central Bank action.
The Stoxx Europe 600 index XX:SXXP +0.49% inched 0.3% higher to 242.54. The index was largely flat in the prior session.
U.S. stock futures also pointed to a higher open on Wall Street.
“There’s belief that at some stage we’ll get a big intervention and the ECB will start printing money. There will be a recognition of the seriousness of the problems and that there’s a need for quantitative easing,” said Colin McLean, managing director at SVM Asset Management.
“Quantitative easing could trigger inflation, which would be good for stocks,” he added.
Focus remained on southern Europe as yields on Spanish and Italian 10-year government bonds were moving quickly higher, following dramatic moves upward the prior day. Those for Spain ES:10YR_ESP +2.27% ES:10YR_ESP +2.27% rose 15 basis points to 6.68%, while those for Italy IT:10YR_ITA +1.45% rose 11 basis points to 6.14%.
Spanish stocks, however, recouped some of the prior day’s losses, with the IBEX 35 index XX:IBEX +0.43% up 0.4% to 6,544.20. On Monday, Spanish stocks led a volatile session with the main index shedding all of what at one point was a nearly 6% gain as investors expressed disappointment over a plan for the European Union to loan as much as €100 billion ($125 billion) to the troubled banking sector.
“This solution is still some way off,” analysts at Credit Suisse said in a note. “Spanish GDP could end up falling another 5% on account of fiscal tightening, private sector leveraging, bank deleveraging and falling wages. This will have a negative impact on the fiscal arithmetic and credit quality.”
“We think Europe is only half way through resolving the crisis,” the analysts added. “In particular, we believe that we will need an ECB [European Central Bank] deposit guarantee or a €2 trillion 5-year LTRO [long-term refinancing operation].
Shares of heavyweight Telefonica SA ES:TEF +2.27% TEF +2.50% rose 1.6%.
Banking majors Banco Santander SA ES:SAN +0.83% STD +1.69% , up 0.3%, and BBVA SA ES:BBVA +1.24% BBVA +2.22% , 1% higher, largely shrugged off a Fitch Ratings downgrade of the lenders by two notches each the prior day.
Italian stocks trailed most of Europe, with the FTSE MIB index XX:FTSEMIB -0.22% shedding 0.4% to 13,012.89 as yields for 10-year bonds rose.
Banca Monte dei Paschi di Siena SpA IT:BMPS -3.48% lost 3.5%, while Banco Popolare SC IT:BP -0.33% declined 1.2%.
“Markets are concerned that it’s not clear how the intervention for Spain will be financed, so they are afraid there will not be anything left for Italy if it needs help,” McLean from SVM Asset Management said. “The pool of potential contributors to the rescue funds narrows each time a new country runs into problems and now Spain is asking for money. We’re left with Germany and to some extend France to contribute.”
Food and beverage stocks provided support for the main Stoxx 600. Nestle SA NSRGY -0.81% CH:NESN +1.19% was up 1%. As well, drug stocks underpinned the index, with Roche Holding AG CH:ROG +1.04% RHHBY -0.45% up 1.2%.
Julius Baer Gruppe AG CH:BAER +2.71% was one of the biggest gainers for the Stoxx 600, up 2.2%, after UBS lifted shares of the private bank to buy from neutral.
Amlin PLC UK:AML +2.44% rose 1.9% after the insurance and reinsurance group was upgraded to buy from hold at Deutsche Bank.
Among other indexes, the FTSE 100 index UK:UKX +0.42% added 0.4% to 5,452.17. British American Tobacco PLC UK:BATS +1.19% rose 1.7% and Unilever PLC UK:ULVR +1.13% UL +1.39% added 1.4%.
Data for the U.K. showed the seasonally adjusted index of production stayed unchanged for April on a monthly basis, although the index dropped for a 14th consecutive month year on year.
The French CAC 40 index FR:PX1 +0.43% rose 0.4% to 3,055.41, with oil group Total SA FR:FP +0.37% TOT +0.76% up 0.6%.
Cement maker Lafarge SA FR:LG +1.34% gained 1.3% as it announced a cost-cutting plan to reduce costs by €1.3 billion over the 2012-2015 period. Lafarge to speed cost cuts, lift sales, cut debt
The German DAX 30 index DX:DAX +0.65% rose 0.4% to 6,166.64. It was led by a 3% rise for E.ON AG DE:EOAN +2.42% after the utility was upgraded to buy from neutral at UBS. Also providing support, drug maker Bayer AG DE:BAYN +1.34% rose 1.6%.
TomTom NV NL:TOM2 +11.95% shares leapt 11.9% as the Dutch provider of navigation technology announced a mapping-data deal with Apple Inc. AAPL +0.45% TomTom shares leap on Apple deal
Barbara Kollmeyer is an editor for MarketWatch in Madrid.
Sara Sjolin is a MarketWatch reporter, based in London.
