Moody's U.S. Debt Warning Pressures European Shares
European shares fell on Thursday after Moody's warned the United States may lose its top credit rating if politicians fail to agree an increase in the borrowing limit, and after Italian bond yields soared following an auction.
Company news contributed to the market's decline. Technology shares slumped 2.2 percent, led by Software AG , which dropped 14 percent after saying late on Wednesday that delays in licensing sales and unfavourable currency effects hit second-quarter results.
At 1049 GMT, the FTSEurofirst 300 index of top European shares was down 1 percent at 1,088.70 points.
The Moody's statement "is potentially significant but it puts pressure on politicians to sort out the debt ceiling," said Gavin Launder, fund manager at Legal & General, which has 356 billion pounds under management.
"We should avoid the actual downgrade, eventually."
Italy had to pay the highest interest rates in three years to sell almost 5 billion euros of long-term debt on Thursday, highlighting the growing pressure on its public finances.
The auctions were seen as a key test of market appetite for the country's debt after it got sucked into the debt crisis, sending its benchmark 10-year yields briefly above 6 percent on Tuesday for the first time since the euro's launch in 1999.
The STOXX Europe 600 Banking Index fell 1.9 percent.
Italian banks Intesa SanPaolo and UniCredit were 3.3 and 1.3 percent lower, respectively, having been higher earlier in the session.
Italy's benchmark was down 1.5 percent.
Among other banks France's Credit Agricole and Societe Generale fell 2.7 and 2.6 percent respectively.
The pan-European index moved towards the lower end of a range defined by the 2011 high it hit in mid-February, 1,190.51 points, and the low of mid-March, 1066.62.
Launder said the index could break out on the downside if "a significant number of banks don't pass the stress tests and the IPO of Bankia in Spain doesn't go through".
He said shares might go up "if the U.S. goes through with a Q3-type package and agrees on a debt ceiling".
He said he favoured the auto sector, due to its prospects for exports to Asia. Autos , up 0.3 percent, was the only major sector to remain positive on Thursday, and has gained more than 11 percent in 2011.
U.S. BICKERING OVER DEBT DEAL
President Barack Obama and top Republicans face growing doubts on Thursday about the prospects for reaching a deal to avoid a potentially disastrous U.S. debt default.
Moody's said late on Wednesday it saw a rising possibility that the statutory U.S. debt limit will not be raised on a timely basis, leading to a default on U.S. Treasury debt obligations.
The dollar fell on Moody's warning and on hints of further policy easing from the U.S. Federal reserve. Gold , generally seen as a safe haven asset, hit a record high.
"Moody's comments may shift some attention from the euro zone to the U.S. However, given the uncertainty in the euro zone, our part of the world will continue to get more than its fare share of attention," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.
"Ahead of the EU bank stress test results on Friday, market tensions are likely to persist. The scenario of a nervous and volatile summer seems to be unfolding."
The European Banking Authority (EBA) will publish stress test results for 91 of the region's top lenders at 1600 GMT on Friday, July 15.