European Stocks Drop for Second Day as Bunds Advance on Greek Debt Talks

European stocks fell for a second day and German bonds gained as Greece held talks to secure rescue funds. The Australian dollar jumped to a six-month high after the central bank unexpectedly kept interest rates unchanged.

The Stoxx Europe 600 Index lost 0.4 percent at 10 a.m. in London. Standard & Poor’s 500 Index futures were little changed. The Shanghai Composite Index tumbled 1.7 percent, the most in three weeks, and copper declined for a second day. Germany’s 10- year yield slid one basis point to 1.88 percent, with the Greek 10-year yield rising seven basis points to 34.30 percent. The Australian dollar climbed versus all 16 most-traded peers, with the yen falling 0.2 percent against the dollar.

Greek Prime Minister Lucas Papademos is planning to meet political leaders today to discuss the implementation of additional fiscal measures needed to secure a second European Union-led bailout. China’s industrial output growth is likely to slow this quarter as the world economy cools and Europe’s debt crisis worsens, the government said. Federal Reserve Chairman Ben S. Bernanke speaks on the state of the U.S. economy.

“Vacillation within the Greek parliament is once again a source of incredulity amongst Euro-zone officials as the former’s interim government breaches a deadline for agreement upon bailout terms,” Neil Mellor, a strategist at Bank of New York Mellon Corp. in London, said in a report. “We watch, we wait.”

Five stocks fell for every one that rose in the Stoxx 600. UBS AG, Switzerland’s biggest bank, lost 1.1 percent after saying fourth-quarter profit dropped 76 percent. Swatch Group AG sank 5.7 percent after the largest maker of Swiss watches reported 2011 operating profit that missed analysts’ estimates.

Earnings

The S&P 500 index (SPX) fell yesterday for the first time in four days. Coca-Cola Co. and Walt Disney Co. are among 12 companies in the S&P 500 due to release earnings today, according to Bloomberg data.

The MSCI Emerging Markets Index lost less than 0.1 percent. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong dropped 0.6 percent. A “hard landing” for China is a key risk for the global economy, Andrew Colquhoun, the Hong Kong-based head of Asia-Pacific ratings for Fitch Ratings, said in an e-mail. Benchmark gauges in Poland, Hungary and India dropped at least 0.5 percent.

Copper dropped 0.5 percent. China is the biggest buyer of the metal. Corn fell 0.3 percent and wheat declined 0.4 percent as U.S. farmers will plant the most acres in a generation this year, led by the biggest corn crop since World War II.

Greek Auction

The price of the Greek October 2022 bond fell to 20.55 percent of face value, while the extra yield investors demand to hold the securities instead of bunds increased eight basis points. Greece is scheduled to auction 625 million euros of 182- day bills. The Dutch 10-year bond yield declined two basis points before the nation sells July 2022 securities.

The cost of insuring against a default on European government bonds fell to the lowest since Oct. 31, with the Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments declining four basis points to 316.5.

The euro was little changed against the dollar at $1.3135. The so-called Aussie appreciated 0.6 percent to $1.0791 after the Reserve Bank of Australia unexpectedly kept interest rates unchanged and signaled optimism global economic growth will strengthen.

The yen weakened versus all 16 most actively traded peers as Japan used so-called stealth intervention in November as the government sought to stem yen gains. Finance Ministry data released today showed Japan conducted 1.02 trillion yen worth of unannounced intervention during the first four days of November, after selling a record 8.07 trillion yen on Oct. 31, when the yen climbed to a post World War II high of 75.35 per dollar.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net;

To contact the editor responsible for this story: Stuart Wallace at Swallace6@bloomberg.net