Bloomberg News

European Stocks Fall for Fifth Week as Economic Data Disappoints

June 03, 2011

June 4 (Bloomberg) -- European stocks declined for a fifth straight week, the longest losing streak since July 2008, as U.S. jobs and manufacturing data that missed forecasts fueled concern the recovery in the world’s largest economy may falter.

Rio Tinto Group and BHP Billiton Ltd. led raw-material shares to the largest drop among 19 industry groups in the Stoxx Europe 600 Index as the U.S. jobless rate unexpectedly rose and a gauge of Chinese manufacturing expanded at the slowest pace in nine months. Nokia Oyj slumped the most in 10 years after the Finnish maker of mobile phones cut its forecasts for the devices and services unit.

The Stoxx 600 lost 1.9 percent to 273.67 this past week, the biggest drop since March 18. The benchmark gauge for European equities has retreated 3.6 percent over the past five weeks amid speculation Greece may default on its debt payments and increasing concern that global growth may slow.

“The U.S. jobs reading is a bit of a shock to the system,” said Joshua Raymond, a market strategist at City Index Ltd. in London. “The recent data coming out of the U.S. paints the picture of a sharp slowdown in activity this quarter.”

The U.K.’s FTSE 100 declined 1.4 percent, Germany’s DAX slipped 0.8 percent and France’s CAC 40 fell 1.5 percent, the biggest drop in seven weeks. Greece’s ASE Index rallied 5.4 percent amid speculated that European officials will sanction additional financial assistance for the indebted nation.

U.S. Economy

U.S. nonfarm payrolls grew by the smallest number of workers in eight months in May. Employers added 54,000 workers to payrolls, missing the median forecast in a Bloomberg survey for an increase of 165,000. The jobless rate rose to 9.1 percent, the highest level this year.

The Labor Department report followed worse-than-estimated data on factory orders, manufacturing and consumer confidence this week, causing investors to debate whether the Federal Reserve needs to consider a third round of quantitative easing to bolster growth.

“It’s back to our old new normal,” Bill Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., said in a radio interview on “Bloomberg Surveillance” with Tom Keene. “We don’t see a QE3. There’s been too much discussion and dissent within the Fed to permit that type of program again.”

Mohamed El-Erian, who serves as co-chief investment officer with Gross at Pimco, coined the term “new normal” to describe what he forecasts is an era of prolonged below-average global economic growth and investment returns.

Stimulus Measures

The Stoxx 600 has still rallied 73 percent since March 2009 amid record-low interest rates and emergency stimulus measures from governments and central banks around the world. The gauge has slipped 0.8 percent this year.

The European Central Bank is likely to raise interest rates in July even as Greece’s worsening debt crisis clouds the economic outlook in the run-up to next week’s policy meeting, a Bloomberg survey showed.

All 51 economists forecast the ECB will keep the benchmark rate at 1.25 percent at the June 9 meeting. The Frankfurt-based central bank led by Jean-Claude Trichet may increase borrowing costs by 25 basis points in July, a separate survey showed.

A measure of basic-resource stocks in the Stoxx 600 tumbled 4.9 percent this week, the most in almost three months, as China’s manufacturing growth eased. The Purchasing Managers’ Index dropped to 52 in May from 52.9 in April, the China Federation of Logistics and Purchasing said. A gauge of manufacturing in the 17-nation euro area slipped to 54.6 last month from 58 in April, London-based Markit Economics said. A reading of more than 50 indicates growth.

BHP, Rio Tinto

BHP Billiton, the world’s largest mining company, lost 3.5 percent and Rio Tinto retreated 3.7 percent. Antofagasta lost 2.8 percent and Anglo American Plc declined 1.7 percent.

Nokia tumbled 22 percent to the lowest since January 1998 after cutting its devices and services forecasts on lower prices and competition from Google Inc. and Apple Inc. Nokia’s stock has lost about three-quarters of its value since Apple introduced the iPhone in 2007. The phone maker has declined 42 percent this year, cutting the company’s market value to 16.8 billion euros ($24.6 billion).

Unione di Banche Italiane ScpA tumbled 4.8 percent as Italy’s fourth-biggest bank said it will raise as much as 1 billion euros selling shares to bolster capital.

EON, RWE Decline

EON AG and RWE AG, Germany’s biggest utilities, fell 5.9 percent and 6.9 percent, respectively, as the German government said it will keep a tax on atomic plants as it phases out nuclear power by 2022.

Greek banks were among the biggest gainers this week as the European Union, European Central Bank and International Monetary Fund concluded talks with the Mediterranean country’s government. National Bank of Greece SA soared 16 percent, the most since 2008, and EFG Eurobank Ergasias rallied 12 percent.

European Union and International Monetary Fund officials agreed to pay the next installment to Greece under last year’s 110 billion-euro bailout, paving the way for an upgraded aid package that includes a “voluntary” role for investors, Luxembourg Prime Minister Jean-Claude Juncker said after the close of Athens trading yesterday.

--Editor: Andrew Rummer

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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