French stocks lead declines in Europe after Moody's downgrade, PMI data
Moody's downgrades France's rating
French services sector shrinks further in December
Porsche falls after big impairment on Volkswagen stake
Updates with London morning prices
By Sruthi Shankar
Dec 16 (Reuters) -French stocks led losses across European markets on Monday after a surprise ratings downgrade by Moody's, while signs of easing strain on euro zone business activity failed to enthuse investors.
France's blue-chip CAC 40 .FCHI dropped 0.7% after credit ratings agency Moody's unexpectedly downgraded the country's rating on Friday, bringing it to "Aa3" from "Aa2" with a stable outlook for future moves.
The news came hours after President Emmanuel Macron named veteran centrist politician Francois Bayrou as his fourth prime minister this year.
French banks including Societe Generale SOGN.PA, BNP Paribas BNPP.PA and Credit Agricole CAGR.PA dipped.
Surveys showed Germany's economic downturn eased slightly in December but business activity still contracted for a sixth month running, while France's services sector shrank further in December.
Overall the decline in euro zone business activity eased this month as the bloc's dominant services industry bounced back to growth, as per HCOB's preliminary composite euro zone Purchasing Managers' Index.
"That's not much of a silver lining as it largely reflects the pessimism baked into economists' forecasts," noted Jack Allen-Reynolds, deputy chief euro-zone economist at Capital Economics. "The PMI is still lower than it was in October, and on past form remains consistent with the economy contracting."
The pan-European STOXX 600 index .STOXX fell 0.2%, trading near a two-week low. The German DAX .GDAXI and Britain's FTSE 100 .FTSE dropped about 0.3% each.
The European Central Bank has cut interest rates four times already this year and investors are betting on even more policy easing in 2025 as inflation worries have largely disappeared and anaemic economic growth is now a bigger concern.
The ECB will cut rates further if inflation continues to ease towards its 2% target as restricting economic growth is no longer necessary, ECB President Christine Lagarde said.
Focus will be on monetary policy decisions from the U.S. Federal Reserve, the Bank of England and the Bank of Japan later this week.
Porsche PSHG_p.DE fell 2.4% after it warned it may write down the value of its stake in Volkswagen VOWG_p.DE by up to 20 billion euros ($21 billion) and said it expects its group result after tax in 2024 to be "significantly negative".
Volkswagen dropped about 2%.
Entain ENT.L fell 6.7% after Australia's financial crime watchdog launched legal action against the Ladbrokes owner's local unit.
Reporting by Sruthi Shankar in Bengaluru; Editing by Mrigank Dhaniwala and Shounak Dasgupta
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