European stocks and U.S. index futures dropped as tensions between North and South Korea escalated and concern continued about Europe’s debt crisis and monetary policy tightening in China. Asian shares fell. Banco Santander SA slumped 3.7 percent, pacing a selloff in Spanish lenders. Rio Tinto Group fell 2.9 percent, leading basic-resource stocks lower. Actelion Ltd. lost 2.4 percent as UBS AG downgraded the Swiss drugmaker’s shares. Givaudan SA, Luxottica Group SpA and Puma AG each slid more than 1 percent as Morgan Stanley recommended that investors reduce their holdings of the three stocks. The benchmark Stoxx Europe 600 Index fell 0.9 percent to 265.25 at 9:59 a.m. in London. The gauge is heading for a third week of declines as investors speculated that the region will fail to contain its sovereign-debt crisis. Standard & Poor’s 500 Index futures lost 0.8 percent today. U.S. markets were closed yesterday for the Thanksgiving holiday. “There are a few things that are disturbing today, such as Korea and speculation that Portugal will be the next victim of the debt crisis,” Matthias Jasper, head of equities at WGZ Bank AG in Dusseldorf, said. “The attention on the bailout package was short-lived and is already shifting to Spain and Portugal, though we have a lot of liquidity in the market and we’ve been getting upbeat economic data from the U.S. lately.” The MSCI Asia Pacific Index retreated 1.2 percent as North Korea warned that South Korean military exercises with the U.S. will take the peninsula to the “brink of war,” according to state news agency KCNA. North Korea threatened a “shower of terrifying fire” should the U.S. or South Korea infringe its sovereignty. Joint Drills Explosive shots, coming from the direction of North Korea, were heard on South Korea’s Yeonpyeong Island at about 3:10 p.m. today, said a spokesman at South Korea’s Joint Chiefs of Staff who declined to be named, citing military policy. The military is investigating, he said. South Korea may appoint a new defense minister today after Kim Tae Young resigned in the wake of North Korea firing artillery onto the South’s territory for the first time in half a century this week. Chinese stocks fell for the first time in three days, led by banks and developers after Shanghai Securities News said the government may cut the target for new lending next year. Chinese policy makers have stepped up measures in recent weeks to curb inflation that reached 4.4 percent last month, the fastest pace in two years. Analysts at nine banks surveyed by Bloomberg News last week predicted the central bank will boost borrowing costs for a second time by the end of the year. Worsening Burdens The euro fell toward a two-month low against the dollar amid concerns Europe’s sovereign-debt burdens are worsening as its economic recovery slows, diminishing the appeal of the region’s assets. By putting pressure on the Portuguese government, the European Central Bank and countries in the currency union aim to avoid a bailout of Spain, Financial Times Deutschland said, citing unidentified people within Germany’s finance ministry. Portugal faces a final vote in parliament today on its 2011 spending plan, which includes measures to pare its deficit. Nouriel Roubini, the New York University professor who predicted the global financial crisis, sees a 35 percent probability that Greece will leave the euro, with the likelihood increasing over the next five years, Austria’s Format magazine reported, citing an interview. Banks Decline Bank stocks declined 2.1 percent, among the worst performances in the Stoxx 600. Santander, Spain’s largest lender, fell 3.7 percent to 7.53 euros. Banco Bilbao Vizcaya Argentaria SA lost 3.9 percent to 7.44 euros. BNP Paribas SA, France’s biggest bank, slid 3.1 percent to 48.28 euros, extending the longest falling streak in almost two months. Bank of Ireland, Ireland’s largest bank, slid 3.5 percent, extending its weekly decline to 49 percent, the biggest since January 2009. Rio Tinto Group lost 2.9 percent to 4,145 pence even after the world’s third-largest mining company said its iron ore unit will boost production by 50 percent over five years. A gauge of basic-resource companies was among the worst performers in the Stoxx 600, falling 2 percent. BHP Billiton Ltd., the world’s largest mining company, retreated 3.2 percent to 2,278 pence. Actelion, Daily Mail Actelion, the drugmaker that may attract a takeover offer from Amgen Inc., lost 2.4 percent to 53.65 Swiss francs as UBS cut its recommendation on the shares to “neutral” from “buy.” The stock has surged 36 percent since Sept. 30. Daily Mail & General Trust Plc fell 1.7 percent to 535 pence. The stock, which slumped 3.5 percent yesterday after reporting sales that missed estimates, was cut to “neutral” from “buy” at UBS. Puma, the sporting-goods maker controlled by PPR SA, fell 2.7 percent to 230.70 euros. Givaudan, the world’s biggest maker of flavors and fragrances, tumbled 1.6 percent to 1,017 francs. Luxottica, the owner of Ray-Ban and Oakley sunglasses, also slid 1.6 percent to 20.59 euros. The three stocks were downgraded to “underweight” at Morgan Stanley. Inditex, the owner of the Zara and Massimo Dutti chains, slumped 2.8 percent to 58.20 euros as BofA Merrill Lynch Global Research downgraded the shares to “neutral” from “buy.” Kingfisher, Europe’s largest home-improvement retailer, fell 2.1 percent to 244.3 pence after being cut to “underperform” from “neutral” by the brokerage. Technip SA, Europe’s second-largest oilfield-services provider, slid 2.2 percent to 61.45 euros. The stock was cut to “equal weight” from “overweight” at Morgan Stanley. Sky Deutschland AG rallied 3.7 percent to 1.57 euros as Morgan Stanley raised its recommendation on the stock to “overweight.” Fortum Oyj gained 1.2 percent to 21.39 euros as the second- largest Nordic utility agreed to cooperate on nuclear power with the Russian State Atomic Energy Corporation Rosatom, without providing details of joint projects. To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net. To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net.

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