Stocks: Thursday’s review

European stocks dropped for a second day as Moody’s Investors Service downgraded Spain and Cyprus, while Switzerland’s central bank said that Credit Suisse Group AG must increase its capital this year.

Moody’s cut Spain’s rating by three steps to Baa3 from A3 late yesterday, citing the nation’s increased debt burden, weakening economy and limited access to capital markets. Moody’s also lowered Cyprus’s bond rating to Ba3 from Ba1, attributing the downgrade to the increased likelihood of Greece leaving the euro area. The country’s government may have to give more support to Cypriot banks as a consequence.

The yield on Spain’s 10-year debt rallied as high as 6.998 percent today, the highest since before the Mediterranean nation started using the euro in 1999.

Italy sold 4.5 billion euros ($5.7 billion) of debt, matching its maximum target, at an auction. The country’s Treasury sold 3 billion euros of its three-year benchmark bond to yield 5.3 percent. That compared with a yield of 3.91 percent when it last sold the securities on May 14.

National benchmark indexes gained in 10 of the 18 western- European markets today. The U.K.’s FTSE 100 dropped 0.3 percent and Germany’s DAX slipped 0.2 percent. France’s benchmark CAC 40 added 0.1 percent. Greece’s ASE Index rallied 10 percent for its biggest climb since August.

Nokia slumped 18 percent to 1.83 euros, its lowest price since 1996 and its biggest tumble since 2001. The mobile-phone maker struggling to recover lost market share predicted that second-quarter operating margins at its devices unit will worsen. The company plans to cut as many as 10,000 jobs and close facilities.

Bayerische Motoren Werke AG (BMW), the world’s biggest maker of luxury vehicles, dropped 2.6 percent to 56.29 euros. Daimler AG, the third-largest maker of luxury autos, decreased 2 percent to 33.60 euros. Morgan Stanley reduced its earnings-per-share prediction for the carmakers by 5 percent to 10 percent for 2012 to 2014.

Glencore International Plc and Xstrata Plc slipped 3.8 percent to 341.7 pence and 2.2 percent to 899.6 pence, respectively, as a gauge of mining companies lost 1.1 percent.

U.S. stocks rose, erasing most of this week’s loss in the Standard & Poor’s 500 Index, as data on inflation and jobless claims fueled bets the Federal Reserve will act to spur growth and investors awaited Greek elections.

Speculation grew that the Fed will discuss stimulus efforts at its meeting next week after reports showed jobless claims unexpectedly climbed by 6,000 to 386,000 last week and the cost of living fell by the most in more than three years.

The Labor Department reported today that the consumer price index fell 0.3 percent, more than forecast and the biggest drop since December 2008, after no change the prior month. Economists projected a 0.2 percent decrease, according to the median estimate in a Bloomberg News survey.

Home Depot (HD), the largest U.S. home-improvement retailer, climbed 2 percent to $51.97 and McDonald’s (MCD), the world’s largest restaurant chain, advanced 1.6 percent to $89.40.

International Game Technology rallied 11 percent, the most in the S&P 500, to $14.63. The maker of casino machines authorized a share buyback plan of as much as $1 billion in an effort to reward investors after a 23 percent stock drop this year.

Kroger Co. climbed 4.3 percent to $22.21. The largest U.S. grocery-store chain said profit for the year ending Jan. 31 will be as much as $2.40 a share, up from a prior forecast of as much as $2.38. Kroger also said its board approved a new $1 billion share buyback program, replacing an authorization that was exhausted on June 12.