Eurozone stocks retreat on mounting woes in Italy, China

The euro rose against the dollar, which was down also versus sterling.

Eurozone stocks retreat on mounting woes in Italy, China

Eurozone equities slid Friday after Brussels slammed Rome over its 2019 budget plans, with sentiment hurt also by weak Chinese growth data, poor French corporate news and rising global interest rates, dealers said.

Milan's stock market was down 0.8 percent in afternoon deals after the European Commission formally warned Italy late Thursday that its budget plans for 2019 are a serious concern, demanding "clarifications" over Rome's unprecedented deviation from EU rules.

Paris shed 0.7 percent on weak outlooks from telecoms group Bouygues and tyre maker Michelin, and Frankfurt fell 0.2 percent. London however gained 0.3 percent on upbeat state borrowing data.

"Italy is headed for a showdown with Brussels and I am not sure they have have much to lose," Manulife equities head David Hussey told AFP.

"Given how damaging Brexit is to the EU project, a loss of Italy would be devastating and to be avoided at all costs -- hence I think (that) Italy's hand is quite strong."

However, Italy is facing higher borrower costs as investors sell off its bonds. In the secondary market, the yield on 10-year government reached 3.726 percent, its highest rate since 2014.

Italy's populist government has submitted its draft 2019 budget to the European Commission in which it laid out plans to increase spending and end the austerity policies of recent years, despite deficit warnings. 

Italy's deficit is now projected at 2.4 percent of GDP, far higher that the 0.8 percent estimate given by the earlier centre right government. 

Brussels says Rome needs to cut the deficit in order to begin reducing its massive debt, which exceeds 130 percent of annual economic output -- way above the EU's 60 percent ceiling.