Most European stock markets fell Thursday, as the retail sector came under heavy selling pressure after Tesco announced disappointing holiday trading sales. But well-received debt sales in Spain and Italy boosted banking shares.
The benchmark Stoxx Europe 600 index lost 0.2% to 249.50. The U.K.'s FTSE 100 index fell 0.15% to 5662.42 and France's CAC-40 index shed 0.15% to 3199.98, but Germany's DAX gained 0.4% to 6179.21, helped by strength in bank shares.
Tesco plunged 16% in London, sinking the rest of the European retail sector. J Sainsbury dropped 5.4%, while Wm. Morrison Supermarkets fell nearly 6% and Home Retail Group slid 4.9%.
German retailer Metro dropped 2.9%.
In Brussels, Delhaize Group sank 11% after the food retailer announced plans to shed 5,000 jobs on the heels of disappointing fourth-quarter sales.
Also among the biggest losers was Danish wind-turbine manufacturer Vestas Wind Systems, trading down 7.1% on news that the company will need to cut nearly 10% of its work force.
Adding to the negative markets sentiment Thursday were data from the U.S. Labor Department, showing that new claims for unemployment benefits rose 24,000 to 399,000 last week, the highest level since late November. Economists surveyed by MarketWatch had estimated that claims would rise more modestly, to a seasonally adjusted 380,000.
"One thing that encouraged investors in recent months has been the surprisingly strong macroeconomic data from the U.S., especially for employment. And now when the claims are up, it takes the edge off the strong U.S. macro story," said Esbjörn Lundevall, Stockholm-based equity analyst at SEB Private Banking.
U.S. retail sales for December also disappointed; they increased 0.1%, whereas analysts had expected 0.3% growth.
Keeping the markets from falling further, successful debt sales in Italy and Spain boosted banking shares. The countries sold around €20 billion of government debt and saw their borrowing costs decline.
The auctions came in for close scrutiny, as analysts feared that low demand could signal lack of confidence in the debt-stricken economies and increase borrowing costs.
The Italian FTSE MIB index outperformed other European indexes, adding 2.1% to 15192.79, after the government succeeded in selling €12 billion at low borrowing costs. The yield on the 12-month bills sold at the auction fell to 2.74% from 5.95% in a December sale.
Shares of Italian banks rallied on the news, with UniCredit rising 13.5%. Banca Monte dei Paschi di Siena jumped 8.8% and Mediobanca gained 8.1%.
In the secondary market, yields on benchmark 10-year Italian government bonds dropped 0.26 percentage point to 6.62%.
The 7% mark is considered an unsustainable borrowing level over the long term.
Auctions in Spain also satisfied investors, as the government sold nearly €10 billion in government debt, topping its target range of €4 billion to €5 billion. Yields on bonds with various maturities declined across the board compared to recent auctions. In Madrid, the IBEX 35 index closed nearly flat. Among banks, Bankinter rose 1.8% and Banco Bilbao Vizcaya Argentaria gained 0.8%.
In the secondary market, yields on 10-year Spanish government bonds shed 0.21 percentage point to 5.11%.
Markets reacted little to monetary-policy decisions from the European Central Bank and Bank of England, both keeping interest rates on hold. ECB President Mario Draghi said in a news conference that the euro-zone economic outlook remains subject to substantial downside risks, but pointed out that there are signs that the money the central bank has lent to banks is flowing through the economy.
The relief rally in southern European bank stocks spread to the bigger indexes. Royal Bank of Scotland Group gained 5.6% after the bank announced a broad-based restructuring in which 3,500 jobs will be cut.
Shares of Lloyds Banking Group jumped 3.5% and Barclays added 1.7%.
In France, BNP Paribas rose 3.4% and Societe Generale added 2.5%.
In Germany, Commerzbank and Deutsche Bank gained 5.8% and 2%, respectively.
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