Europe stocks drop on U.S. data, Spain

LONDON (MarketWatch)�Spanish stocks sank below the key 7,000 mark, leading European markets lower on Thursday, while rumors�later denied�that Fitch Ratings may cut France�s sovereign rating combined with disappointing U.S. jobless-claims data also spurred selling.

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Weak numbers from the Philadelphia Federal Reserve further weighed on investors� moods in late trade.

The Stoxx Europe 600 index XX:SXXP closed 0.5% lower at 256.51, in a choppy session in which the benchmark swung between gains and losses.

Most markets opened in positive territory. An auction of Spanish debt saw solid demand while borrowing costs rose, as expected, given recent pressure on Spanish bonds. Read about the reaction to Spain�s debt sale.

Bond yields subsequently rose as investors refocused on Spain�s fiscal challenges, strategists said.

In the secondary market, yields on 10-year government bonds ES:10YR_ESP were up 7 basis points at 5.92%.

INDI 33,770.58, +185.64, +0.55%

Spain�s IBEX 35 index XX:INDI tumbled 2.4% to 6,908.10, closing below the 7,000 level for the first time since March 9, 2009. The index plunged 4% on Wednesday after a report showed a rise in the ratio of bad loans held by Spanish banks.

Among banks, shares of BBVA SA ES:BBVA BBVA shed 4.5% and Banco Santander SA ES:SAN gave up 3.6%.

�This is going to go on until someone in the EU comes out in Spain�s support. However, I fear that the political will is not there with the French presidential election looming. Afterwards, it may be too late though,� said Predrag Dukic, senior equity sales trader at CM Capital Markets in Madrid. He further pointed out that 6,700 is the next support level for the Spanish index, after slipping below the 7,000 mark.

Spanish stocks, along with most other European indexes, were sent sharply lower in midday trade on vague rumors that Fitch would downgrade France�s sovereign credit rating.

A Fitch spokesman pointed to the firm�s December report on France, which said the company �would not expect to resolve the Negative Outlook [on France�s AAA rating] until 2013.�

�The fact that the French rumor is now only a rumor and the subsequent jitters in Spain just show you how markets feel about us: Sell at any opportunity,� Dukic said in emailed comments.

The French CAC 40 index FR:PX1 gave up 2.1% to 3,174.02, with banks posting some of the biggest losses: Soci�t� G�n�rale SA FR:GLE dropped 5.2%, Credit Agricole SA FR:ACA lost 4.3% and BNP Paribas SA FR:BNP fell 4.8%.

The Italian FTSE MIB index XX:FTSEMIB declined 2% to 14,287.27, with UniCredit SpA IT:UCG off 3.1%.

Markets continued their downturn in afternoon trade after disappointing manufacturing activity in Philadelphia for April. The Philadelphia Federal Reserve�s business condition index fell to 8.5 from 12.5 in March, slipping below analysts� expectations of a drop to 10.8.

Separately, U.S. jobless claims totaled 386,000 last week, missing analysts� estimates of a drop to 374,000. U.S. jobless claims total 386,000 in latest week

�Job creation in the U.S. is a concern,� said Stephen Pope, managing partner at Spotlight Ideas. �If we come into summer with an unemployment rate around 8.3%, it will raise huge questions about the course of the U.S. economic policy.�

In Germany, banks were also lower, as Commerzbank AG DE:CBK slipped 2.4% and Deutsche Bank AG DE:DBK fell 2.1%. The DAX 30 index DX:DAX was off 0.9% at 6,671.22.

Beiersdorf AG DE:BEI gained 2.5%, on the rise after Exane BNP Paribas lifted its rating on the cosmetics company to outperform from neutral.

U.K.�s FTSE 100 index UK:UKX ended virtually unchanged at 5,744.55. Oil firms dragged the index into red territory and tracked oil prices lower. BP PLC UK:BP �BP shed 1.3%, BG Group PLC UK:BG lost 0.8% and Tullow Oil PLC UK:TLW slipped 1.1%.

Hargreaves Lansdown PLC UK:HL jumped the most in London and took on 5.6% after the investment firm reported assets under administration increased by 2.6 billion pounds ($4.2 billion) for the quarter ending March 31 to a record �26 billion.

U.S. biotech firm Human Genome Sciences Inc. HGSI said it had received and rejected an unsolicited acquisition offer from GlaxoSmithKline UK:GSK GSK valued at $13 a share in cash. Shares of GlaxoSmithKline added 0.9%. Read more about Human Genome rebuffing buyout bid.

Among other notable movers, Tele2 AB SE:TEL2B dropped 5.1%. The Swedish telecom operator reported a bigger-than-expected drop in first-quarter profit and cut its full-year outlook for profit margins for its Swedish operations.