Europe stocks drop after Franco-German talks

MADRID (MarketWatch) 

European stock markets ended lower on Monday, with UniCredit SpA leading the banking sector south, as investors digested comments from the French and German leaders.

An weaker tone on Wall Street put added pressure on the Stoxx Europe 600 index which finished 0.5% lower at 246.42 following a gain of 1.2% last week
Shares of drug maker GlaxoSmithKline PLC sank 4.1% after the release of results on trials for lung drug Relovair.
Markets spent most of the day near the flat line as German Chancellor Angela Merkel and French President Nicolas Sarkozy met in Berlin.
After the meeting, they presented a united front on the euro, and said progress had been made on plans to forge a pact to tighten up budget rules across the region.
But Merkel said Greece must complete its debt haircut soon or it won’t receive its second aid package.
Over the weekend, a report in a German newspaper said Greece’s second bailout will need to be bigger than the planned 130 billion euros ($166 billion) owing to worsening budget figures.
The Greece ASE Composite index  fell 1.7% to 636.52, led by a 3.4% fall for National Bank of Greece SA
“I think what the markets are waiting for is a bit of a lead,” said Mike Lenhoff, chief strategist with Brewin Dolphin. “To be honest, I didn’t really think the meeting that was held today with the two leaders was going to provide very much for the markets.”
“If by March they actually can agree to a very specific framework which will set the stage for fiscal integration, then I think that will be very good,” said Lenhoff. “
On [the] back of improving prospects out of America it may not take a big outcome or change to positively affect sentiment.”
Italian, Spanish banks in focus
Shares of UniCredit SpA were a top decliner for the Stoxx 600, dropping 11% as Monday marked the kickoff of a €7.5 billion rights issue, which offers two new shares for every one held.
UniCredit fell 36% last week after announcing on Jan. 4 it would issue shares at a 43% discount to raise capital.
Other Italian banks continued to fall, similar to last week, with Banca Monte dei Paschi di Siena SpA  down 14.4% and Mediobanca Banca di Credito Finanziario SpA  falling 6.9%.
Italian debt came under pressure, sending the yield on the 10-year Italian government bond  up 15 basis points to 7.12%.
Meanwhile, shares of Banco Santander SA gave up early gains to end down 0.1%, while the Spain IBEX 35 index  slipped into the red to lose 0.1% to 8,278.90.
Santander said it reached a core capital ratio of 9% ahead of the European Banking Authority’s deadline of June 30, and said it still aims to reach a core capital ratio of 10% by the end of June 2012.
The French CAC 40 index  fell 0.3% to 3,127.69with shares of Societe Generale SA down 3.6%.
Peugeot SA fell 4.4% to €12.23 after Citigroup analysts cut their price target to €14 from €17.
The German DAX 30 index  fell 0.7% to 6,017.23, with shares of Commerzbank AG  declining 3.8%.
But car maker BMW AG  rose 2.3% after reporting its best sales result ever in 2011 on Monday, with sales up 14% from the previous year. Ian Robertson, a member of the board of management of BMW, said that the group expects to remain the world’s top-selling premium car maker in 2012.
Shares of rival Daimler AG  rose 0.7%.
The U.K.’s FTSE 100 index fell 0.7% to 5,612.26, pressured by losses for GlaxoSmithKline.
Banks were also weak, with shares of Barclays PLC  dropping 4.5% and Lloyds Banking Group PLC  declining 3.4%.
Resource stocks also weighed, with Anglo American PLC  down 1.2% and BP PLC down 0.7%.
The telecommunications sector was under pressure in Europe.
Shares of Ericsson fell 0.7% and Nokia Corp. dropped 2.8%.
RF Micro Devices Inc. whose biggest customer is Nokia, last week reduced its third-quarter outlook.
Shares of Swiss-based banking software firm Temenos Group AG fell 7% after announcing Mark Austin had resigned as a member of the board of directors.
The board had previously said it would not seek his re-election at an upcoming annual general meeting