European stocks were slightly lower on Friday as markets were preoccupied with the crisis in Cyprus ahead of a critical Monday deadline that could lead to the European Central Bank withdrawing support from the country’s banking system.

The euro was a touch higher against the dollar and Spanish and Italian government bond yields were steady.

“The market has remained rather complacent on the issue until now as the ‘peripheral’ auctions have gone well [this week] and in fact Spanish and Italian sovereign bonds have rallied in the past few days, highlighting little systemic risk,” said Lloyds Banking Group

. “With little on the macro data front today, markets will remain preoccupied on headlines from Cyprus and going into the weekend we are likely to see further paring in risk.”

Talks between Russia and Cyprus ended without agreement on Thursday, and Standard & Poor’s Ratings Services downgraded Cyprus to triple-C from triple-C-plus.

Cyprus’s parliament is set to vote on Friday on an alternative deal that involves restructuring the country’s No. 2 lender and placing restrictions on financial transactions.

Cyprus has been promised €10 billion ($12.90 billion) in aid from the euro zone if it can come up with €5.8 billion itself. But the clock is ticking and many market participants are talking about Cyprus being forced to leave the European Monetary Union.

Asian stock markets finished largely lower, with European woes contributing to the poor performance. U.S. stocks also closed in the red on jitters over Cyprus, despite decent economic data on Thursday.

In individual stock news, BP

PLC climbed following the energy giant’s plans to buy back $8 billion of its shares after it sold its 50% interest in TNK-BP to Rosneft.

Luxury goods shares were in the red after Mulberry Group

PLC’s profit warning, with peers such as Burberry Group

PLC also falling.

Aside from Cyprus, the focus will be on the German Ifo survey. On Tuesday, the ZEW current conditions index was sharply higher but Thursday’s German purchasing managers’ index was downbeat, coming in well below expectations.

Write to Andrea Tryphonides at [email protected]

European Markets Await Cyprus Vote – Wall Street Journal
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