Europe: Stocks decline second day before Greek austerity vote

[FRANKFURT] European stocks declined, posting their worst week this year, as investors awaited Sunday's Greek referendum on austerity.

The Stoxx Europe 600 Index slipped 0.5 per cent to 383.42 at the close of trading. Shares earlier fell as much as 0.9 per cent after Greek Prime Minister Alexis Tsipras said the country needs a 30 per cent haircut and 20-year grace period to make its debt manageable. With polls showing the Greek vote is too close to call, stocks lost 3.4 per cent this week. The volume of Stoxx 600 shares changing hands was 36 per cent below the 30-day average.

"Investors clearly want to sell what they can before the weekend," said Ramiro Loureiro, a Lisbon-based market analyst at Banco Comercial Portugues SA's Millennium unit. "The small difference between the 'yes' and the 'no' vote has generated so much uncertainty that, when you throw in thin trading volumes, you're bound to get more marked losses near the close of trading. Mr Tsipras has been very aggressive with his campaign." The Greek leader is calling for citizens to vote "no," on Sunday, while the rest of the 19-nation currency bloc says a clear "yes" could get Greece back on the path to reform. A poll commissioned by Bloomberg News showed 43 per cent of Greeks intend to reject the austerity demanded by creditors in exchange for financial aid, while 42.5 per cent will accept the conditions.

"Sunday's vote is pretty important for everyone right now," said Dirk Thiels, head of investments at KBC Asset Management in Brussels. "Until then, we'll be in a cautious mode, and we won't change that until we have some idea of where this Greek story is going. We've gone underweight equity and reduced our periphery exposure in bonds."

Regardless of the result, Germany and the rest of the euro region are bracing for more political upheaval followed by tortuous negotiations. There's no quick fix to the crisis because European Union rules make talks on financial aid difficult to restart, according to an official in Chancellor Angela Merkel's government.

Benchmark indexes in Spain and France posted their biggest weekly slumps since at least January. Germany's DAX Index had its worst week since April.

Among stocks moving on corporate news, Royal Bank of Scotland Group Plc fell 1.9 per cent after US regulators told the lender it could pay as much as US$13 billion if it loses a lawsuit over its handling of mortgage securities.

Rio Tinto Group dropped 1 per cent and BHP Billiton Ltd. slipped 1.9 per cent as iron ore headed for the biggest weekly loss since April amid a surge in shipments and data showing the slowdown in China's steel industry deepened.

Seadrill Ltd and Tullow Oil led decliners on a measure of energy stocks, falling at least 3.4 per cent, as oil headed for its biggest weekly decline since March.

K+S AG added 4.4 per cent after Canadian fertilizer producer Potash Corp of Saskatchewan Inc said it can address the German company's concerns about its takeover proposal.

BLOOMBERG