Europe stocks stay up after Italian debt sale

LONDON (MarketWatch) � European stock markets dropped on Friday after media reports said that ratings agency Standard & Poor�s may downgrade several euro-zone nations, including France, as early as today.

The pan-European Stoxx 600 index XX:SXXP �fell 0.1% to end at 249.18 on Friday, but posted a weekly gain of 0.7%.

Stocks headed south after The Wall Street Journal reported that S&P could downgrade some states in the euro area as soon as Friday, though there was no official confirmation of this from the ratings company.

Click to Play Europe's week ahead: Greece, retailers in focus

Negotiations between the Greek government and private-sector creditors on a debt deal will be in the spotlight next week. In the corporate sector, Burberry Group, Carrefour and Metro are among the retailers due to release trading updates.

Separately, French news agency Agence France-Presse, citing an unnamed government source, reported that S&P had already informed the French government of its intention to downgrade France. Neither S&P, nor the French finance ministry would comment, AFP reported.

Speculation about a potential downgrade of France has haunted the markets for several weeks. Losses for the French market Friday were limited, with the CAC 40 FR:PX1 �falling 0.1% to 3,196.49.

Oilfield-services company Technip SA FR:TEC �dropped 2.4% and was the biggest loser in the CAC-40, while shares of banking group BNP Paribas SA FR:BNP �rose 2.5% and those of rival Societe Generale SA FR:GLE �gained 0.3%.

Some German bank shares also advanced; Commerzbank AG DE:CBK �rallied 3.4% and Deutsche Bank AG DE:DBK �DB �gained 1.5%. Still, Germany�s DAX 30 index DX:DAX �slipped 0.6% to 6,143.08 and the U.K.�s FTSE 100 index UK:UKX �fell 0.5% to 5,636.64.

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Peter Garnry, equity analyst at Saxo Bank, said investors should remember that rumors of downgrades for some European countries have been ongoing.

�It would only impact the market if France�s triple-A rating was downgraded. That�s key, especially because France�s triple-A rating is used as a kind of collateral in the EFSF structure, the vehicle they�re using to prop up the sovereign debt market,� said Garnry.

�S&P may be signaling a France downgrade is in play. If it�s France, then we have a new variable in the European debt crisis,� he said. He noted that since French stocks were not down very much, however, indicated that hedge funds may be betting that Italy will actually be the downgrade target.

The Italian FTSE MIB index XX:FTSEMIB �fell 1.2% to 15,011.09. Earlier in the session, Italy successfully sold �4.75 billion in government bonds, meeting the top end of its target range. Yields on both maturities on sale came down compared to previous auctions, lowering borrowing costs for the currency bloc�s third-largest economy.

In the secondary market, yields on benchmark 10-year Italian government bonds IT:10YR_ITA �went up 16 basis points to 6.68%, after shedding 26 basis points Thursday. Yields move inversely to prices and a basis point is 1/100 percentage point.

Auctions in southern Europe�s debt-stricken nations have been closely watched by analysts. On Thursday, well-received auctions in Spain and Italy prompted a rally in European bank shares, but markets reacted little to Friday�s auctions.

�We seem to have had a lot of good news the last days and we can�t expect it to follow through two days in a row,� said Edmund Shing, equity strategist at Barclays Capital in London.

In other trading, Danish hearing aid and headsets manufacturer GN Store Nord A/S DK:GN �rallied 10.2% on news that it will receive 3.1 billion kroner ($0.5 billion) from a settlement of a long-running legal dispute.

British software firm Invensys PLC UK:ISYS �sank more than 19%, posting the biggest loss in the Stoxx 600 index. The company warned Friday that its annual operating profit will be significantly lower than last year, and cited contract delays in China and extra costs related to its rail business as reasons.