European Stocks Fall as Investors Watch U.S. Deadlock

European stocks fell for a second day, extending a four-week low, as investors watched the start of the U.S. earnings-reporting season and efforts to end a government shutdown in the world's largest economy.

Telecom Italia SpA (TIT) lost 1.8 percent as Standard & Poor's said it may downgrade the phone company's debt to non-investment grade. TGS Nopec Geophysical Co. (TGS) tumbled the most in two years after reducing its revenue forecast. Celesio AG jumped to a three-year high on a report that McKesson Corp. may buy the German drug distributor.

The Stoxx Europe 600 Index slipped 0.8 percent to 306.84 at the close in London. The equity benchmark dropped 0.2 percent yesterday, to its lowest level since Sept. 9, after U.S. House Speaker John Boehner said he will attach conditions before backing a bill to increase the federal borrowing limit.

"Investors are nervous because of the political wrangling in the U.S., though we do believe that there will be a last-minute compromise and nobody wants to be caught short," said Carsten Hilck, who oversees about $6.8 billion as senior fund manager at Union Investment Privatfonds GmbH in Frankfurt.

The volume of shares changing hands in companies listed on the Stoxx 600 was 9 percent higher than the average of the past 30 days, according to data compiled by Bloomberg.

Amid a delay in the release of U.S. economic data because of the shutdown since Oct. 1, investors turn their attention to corporate earnings. Results from Alcoa Inc. after the close of markets mark the unofficial start of the U.S. quarterly reporting season. JPMorgan Chase & Co. and Wells Fargo & Co. will also report this week.

U.S. Shutdown

The U.S. government entered a partial shutdown Oct. 1 after Congress failed to pass a spending authorization bill for the financial year. It suspended some services and sent hundreds of thousands of workers on unpaid leave amid a disagreement between Republicans and Democrats.

The deadlock has coincided with the need to raise the government's borrowing authority. Republicans demand changing the 2010 Affordable Care Act before doing so, while President Barack Obama has ruled out any negotiations on that aspect.

Senate Democrats plan a test vote before the end of this week on a measure that would grant Obama the authority to raise the debt limit, probably for a year unless two-thirds of both chambers of Congress disapprove.

The Treasury Department has said it is likely to hit the $16.7 trillion debt ceiling Oct. 17. If that happens, the government will run out of cash to pay all of its bills at some point between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

German Economy

German factory orders unexpectedly fell in August, data showed. Orders, adjusted for seasonal swings and inflation, dropped 0.3 percent from July, when they fell a revised 1.9 percent, the Economy Ministry said. Economists had forecast a 1.1 percent increase in August, according to the median estimate in a Bloomberg News survey.

National benchmark indexes retreated in 16 of the 18 western-European markets. The U.K.'s FTSE 100 dropped 1.1 percent, while Germany's DAX lost 0.4 percent. France's CAC 40 slid 0.8 percent.

Telecom Italia fell 1.8 percent to 61.7 euro cents. A reduction of the BBB- long-term rating to BB+ is the "more likely outcome" after S&P concludes its review by the end of next month, the ratings company said yesterday, citing Telecom Italia's uncertain strategic direction after Chief Executive Officer France Bernabe quit.

TGS Sinks

TGS Nopec Geophysical plunged 15 percent to 147.50 kroner, its largest drop since August 2011. Sales for the full year will be between $810 million and $870 million, the company said. That's down from its previous forecast for revenue in the range between $920 million and $1 billion. The oilfield surveyor cited delays in getting permits for new surveys.

Petroleum Geo-Services ASA lost 7.5 percent to 67.95 kroner, its biggest decline in almost two years.

Getinge AB (GETIB) slumped 10 percent to 197.60 kronor, its largest drop since March 2009. The maker of sterilization systems said it will probably report a consolidated profit before tax of 560 million kronor ($87 million) to 570 million kronor for the third quarter. The average estimate in a Bloomberg survey of eight analysts is for pretax profit of 765 million kronor.

Novartis AG (NOVN) slipped 1.3 percent to 67.20 Swiss francs after JPMorgan Chase cut its recommendation on the drugmaker to neutral from overweight, a rating similar to buy. The stock has rallied 17 percent so far this year, compared with a 15 percent increase for the Swiss Market Index.

Celesio jumped 20 percent to 20.49 euros, its biggest gain since at least January 1996 and highest price since June 2010. McKesson is in talks with majority shareholder Franz Haniel & Cie GmbH to acquire the German company and may offer to buy Celesio at about 22 euros a share, Dow Jones reported, citing people it didn't identify.

Ocado Group Plc rose 5.1 percent to 450.5 pence, its highest price since it sold shares to the public in July 2010. Goldman Sachs Group Inc. recommended that investors buy the stock, saying the online grocer's tie-up with Wm Morrison Supermarkets Plc will accelerate growth.