Bloomberg News

European Stocks Tumble to Three-Month Low as Fed Cuts Forecast

June 23, 2011

June 23 (Bloomberg) -- European stocks sank, falling to their lowest level since March, as banks led a selloff after Federal Reserve Chairman Ben S. Bernanke cut his growth forecast for the world’s largest economy.

Banco Bilbao Vizcaya Argentaria SA led a gauge of banks to its biggest drop in four months. Bayer AG slumped the most in more than two years after a rival to its Xarelto blood thinner outperformed the traditional treatment in a study. Mediaset SpA, the broadcaster controlled by Italian Prime Minister Silvio Berlusconi, sank 6.7 percent after forecasting that advertising will decline.

The Stoxx Europe 600 Index dropped 1.4 percent to 264.31 at the 4:30 p.m. close in London, the gauge’s lowest level since March 16. The gauge has tumbled 9.2 percent from this year’s peak on Feb. 17 as U.S. economic data trailed forecasts and concern mounted that Greece will fail to repay all its debt. The measure is on course for an eighth consecutive week of losses, the longest stretch of declines since 1998.

Bernanke’s “providing a strong message; we are seeing a very slow second half of the year recovery,” Patrick Legland, the global head of research at Societe Generale SA in Paris said in a Bloomberg Television interview with Francine Lacqua. “Markets are extremely worried because we lack the political will at this stage” to solve the debt crisis in Europe.

Fed Forecasts

The Fed yesterday reiterated a pledge to keep interest rates near zero and said it will complete a $600 billion bond- purchase program as scheduled this month, even as Bernanke said the recovery is progressing “more slowly” than expected. Officials at the central bank lowered their predictions for U.S. growth and employment this year and next.

U.S. reports today showed that sales of new homes declined in May for the first time in three months and more Americans than forecast filed first-time claims for unemployment insurance last week.

European services and manufacturing growth slowed in June more than economists had forecast, adding to signs that the economy is losing momentum. A composite index based on a survey of euro-area purchasing managers in both industries fell to 53.6 from 55.8 in May, London-based Markit Economics said.

European Union leaders began a two-day summit in Brussels today to discuss Greece’s financing needs as the nation attempts to avert a default. European Central Bank President Jean-Claude Trichet yesterday said danger signals for financial stability in the euro area are flashing red as the debt crisis threatens to infect banks.

Benchmark Indexes

National benchmark indexes retreated in every western European market open today. The U.K.’s FTSE 100 Index slumped 1.7 percent, Germany’s DAX declined 1.8 percent and France’s CAC 40 Index fell 2.2 percent. Austria and Luxembourg were closed for a public holiday.

Stocks in the U.S. and Europe may drop as much as 11 percent over the next 12 months as growth slows and earnings weaken, according to equity strategists at Exane BNP Paribas.

“Earnings and interest rates, two key drivers for equities, are as good as they are likely to get,” Bert Jansen, a stocks strategist at Exane BNP Paribas in Paris, wrote in the report. “With bond yields, interest rates and inflation near record lows and profit margins close to record highs, it is difficult to see what will drive equity markets higher beyond 2011, amid slowing growth.”

Banks Tumble

Banks were the worst performing of the 19 industry groups in the Stoxx 600, sliding 2.6 percent. BBVA, Spain’s second- largest lender, declined 5.5 percent to 7.57 euros. Italy’s Banca Monte dei Paschi di Siena SpA dropped 5.1 percent to 54.7 euro cents and Dexia SA lost 5.4 percent to 2.06 euros.

Bayer slumped 6.3 percent to 54.40 euros, its largest drop since March 2009. The results position Pfizer Inc.’s and Bristol-Myers Squibb Co.’s apixaban ahead of Bayer’s Xarelto in a race to win approval to provide new stroke-preventing drugs to patients with the condition known as atrial fibrillation, Mark Schoenebaum, an analyst with ISI Group Inc., wrote.

Mediaset tumbled 6.7 percent to 3.10 euros, the lowest close since its initial public offering in 1996. The company said advertising sales in Italy will decline as much as 5 percent in the first six months.

Energy shares slumped, with every company in the Stoxx 600 Oil & Gas Index falling. Total SA sank 1.6 percent to 37.97 euros and BP Plc dropped 2.2 percent to 435.5 pence.

Crude plunged to a four-month low of $90.65 a barrel in New York. The International Energy Agency said it will release 60 million barrels of oil from emergency stockpiles, the third time the agency has coordinated the use of emergency reserves since its founding in 1974.

STMicroelectronics NV tumbled 5.6 percent to 6.44 euros as its chipmaking joint venture with Ericsson AB, ST-Ericsson, pushed back the date at which it expects to become profitable.

Temenos Group AG slid 4.3 percent to 24.35 Swiss francs after CA Cheuvreux cut its recommendation on the shares to “underperform” from “outperform.”

--With assistance from Corinne Gretler in Zurich. Editors: Will Hadfield, 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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