European stocks retreat as investors focus on US government shutdown

European stocks fell for a second day in a row as investors closely followed the start of the U.S. earnings-reporting season and efforts to end a government shutdown in the world’s largest economy. U.S. index futures were little changed, while Asian shares advanced.

The Stoxx Europe 600 Index slipped 0.4% to 308 at 11:57 a.m. in London. The benchmark index dropped 0.2% yesterday, to its lowest level since Sept. 9. S&P 500 Index futures added less than 0.1% today, while the MSCI Asia Pacific Index gained 0.4%. German index Dax remained mostly unchanged while UKs FTSE 100 declined almost 0.8%.

“Investors are nervous because of the political wrangling in the U.S., though we do believe that there will be a last-minute compromise and nobody wants to be caught short,” said Carsten Hilck, who oversees about $6.8 billion as senior fund manager at Union Investment Privatfonds GmbH in Frankfurt.

U.S. economic data was delayed due to the government shutdown because of the shutdown, investors turn their attention to corporate earnings. Results from Alcoa Inc. after the close of markets mark the unofficial start of the U.S. quarterly reporting season. JP Morgan Chase & Co. and Wells Fargo & Co. will also report this week.

The deadlock has coincided with the need to raise the government’s borrowing authority. Republicans demand changing the 2010 Affordable Care Act before doing so, while President Barack Obama has ruled out any negotiations on that subject.

In corporate news, Telecom Italia declined 3% to 60.9 euro cents. A reduction of the BBB- long-term rating to BB+ is the “more likely outcome” after S&P concludes its review by the end of next month, the ratings company said yesterday, citing Telecom Italia’s uncertain strategic direction.

Novatris, the Swiss pharmaceutical company, retreated 1%, after JP Morgan Chase cut its recommendation on the drug-maker to “neutral” from “overweight”, a rating similar to “buy”.

Alcatel-Lucent gained 1.5% to 2.93 euros. The job cuts will eliminate about 14% of its workforce worldwide, given that the company had 72,000 employees as of December. CEO Michel Combes will discuss the cuts with union representatives today, according to a statement.