Bloomberg News

European Stocks Drop for Eighth Week in Longest Slide Since 1998

June 25, 2011

June 25 (Bloomberg) -- European stocks fell for an eighth week, the longest stretch of losses since 1998, as concern grew that Greece will default and the Federal Reserve cut its growth forecast for the world’s largest economy.

Italy’s Banca Popolare di Milano Scrl and Banca Monte dei Paschi di Siena SpA dropped more than 10 percent, leading a gauge of banks to the lowest level in almost two years. Royal Philips Electronics NV slid 6.7 percent after saying it needs to deepen cost cuts to combat deteriorating demand for lighting and consumer electronics. Charter International Plc fell the most since 2008 after reducing its forecasts.

The Stoxx Europe 600 Index declined 1.2 percent to 263.98 this past week, the lowest level since March 16, even after Greek Prime Minister George Papandreou won a confidence vote in his government. The gauge has fallen 9.3 percent since its high on Feb. 17 as U.S. economic data trailed forecasts and concern about Europe’s debt crisis depended.

“The Greek situation turned from fluid to erratic this week,” Christian Gattiker, Zurich-based head of research at Bank Julius Baer & Co., wrote in a note to clients. “The confidence vote in Greece triggered nothing but a short-term countermove.”

Papandreou won a vote of confidence from 155 out of 300 lawmakers late on June 21. Greek lawmakers must still vote on 78 billion euros ($111 billion) of austerity measures on June 30 and European finance chiefs will decide on July 3 whether the indebted nation has met the conditions for its next aid payment.

Fed Forecast

The Fed reiterated a pledge to keep interest rates near zero on June 22 and said it will complete a $600 billion bond- purchase program as scheduled this month, even as Chairman Ben S. 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.

National benchmark indexes fell in all 18 western European markets this week. The U.K.’s FTSE 100 declined 0.3 percent, Germany’s DAX slipped 0.6 percent and France’s CAC 40 fell 1 percent. Italy’s FTSE MIB plunged 4.7 percent, the most in more than a year.

The Stoxx 600’s decline has dragged its valuation to 12.5 times the reported earnings of its companies, the cheapest since 2008, Bloomberg data show.

Banks Slide

A gauge of banks was the worst performing industry in the Stoxx 600 this week, sliding 4.3 percent to the lowest level since July 2009.

Popolare Milano, the oldest Italian cooperative bank, plunged 15 percent to the lowest since at least 1989. Monte Paschi slid 11 percent, the biggest drop in more than a year.

Moody’s Investors Service said on June 23 that it may downgrade 13 Italian banks because they would be vulnerable were the government’s credit rating to be cut. The ratings company last week warned that Italy’s credit ratings may be trimmed because of slowing economic growth and the potential for the sovereign crisis to drive the country’s borrowing costs higher.

European Central Bank President Jean-Claude Trichet on June 22 said danger signals for financial stability in the euro area are flashing red as the debt crisis threatens to infect banks.

Lloyds Banking Group Plc, Britain’s biggest mortgage lender, fell 10 percent and Royal Bank of Scotland Group Plc decreased 12 percent.

The euro-area debt crisis poses the biggest risk to the stability of the U.K. financial system and banks should build up capital buffers when earnings are strong, Bank of England Governor Mervyn King said in London yesterday.

Philips, Charter

Philips, the world’s biggest maker of light bulbs, dropped 6.7 percent, the most in more than a year, after saying the lighting unit, which will report “low single-digit” sales growth in the second quarter.

Charter International retreated 20 percent for the biggest drop in the Stoxx 600. The industrial-equipment manufacturer forecast that 2011 profit will miss its estimates.

Porsche SE preferred shares surged 10 percent, leading a measure of automakers to the biggest gain since April. BofA Merrill Lynch Global Research reiterated its “buy” rating on the producer of the 911 sports car, saying “Porsche still looks particularly attractive as a way to play Volkswagen, one of our favorite auto names.” Volkswagen, Europe’s largest carmaker, advanced 3.5 percent.

Carnival Plc, the world’s biggest cruise-ship operator, climbed 7.9 percent and Deutsche Lufthansa AG, Europe’s second- largest airline, rose 4.4 percent as crude plunged to a four- month low in London trading.

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.

--Editor: Andrew Rummer

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

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


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