European stocks decline as US debt talks stall

European stocks slid this week as US lawmakers failed to agree on a deal to raise the federal government’s debt ceiling before the Aug.2 deadline when rating firms may decide the country has defaulted. Banking stocks led declines on the benchmark Stoxx Europe 600 Index as Banco Popolare, Dexia SA and Alpha Bank SA all retreated at least 13 per cent. Alcatel-Lucent SA, France’s largest telecommunications-equipment maker, plunged 23 per cent on concern that US mobile operators will cut spending. The Stoxx 600 retreated 2.5 per cent to 265.25 this week, extending its decline for June to 2.8 per cent. The gauge has fallen 8.9 per cent from this year’s high on Feb.17 as investors speculated that Europe’s sovereign-debt crisis would spread from Greece to the larger economies of Spain and Italy. “It’s the hangover from the US debt situation” that is weighing on markets, said Martin Dobson, head of trading at Westhouse Securities Ltd. in London. “I think markets will still be trading very carefully and very tentatively” if politicians vote to increase the debt ceiling”, Dobson said. European stocks extended their weekly retreat as concern mounted that Republicans and Democrats will fail to agree to increase the US debt ceiling by the Treasury Department’s Aug.2 deadline. House Speaker John Boehner fell short of the votes within his own party needed to increase the US debt limit after a night of one-on-one appeals to members. President Barack Obama had threatened to veto the Republicans’ plan. Senate Democrats plan to break the impasse by devising a strict enforcement mechanism to guarantee future deficit savings, according to Democratic officials. The talks center on setting up automatic spending cuts or tax increases, or some combination of the two, if the government fails to stay within the debt limit. The US Commerce Department announced that the world’s largest economy expanded at a 1.3 per cent annual pace in the second quarter. Economists had predicted growth of 1.8 per cent, according to the average estimate in a Bloomberg survey. The Commerce Department also revised growth in gross domestic product for the first quarter down to 0.4 per cent. From/ Gulf Today