Bloomberg News

European Stocks Slide Amid Debt-Crisis Concern; Rio Tinto Drops

October 03, 2011

Oct. 3 (Bloomberg) -- European stocks fell for a second day, extending losses from the Stoxx Europe 600 Index’s biggest quarterly drop since 2008, as concern deepened the region’s debt crisis will curb growth.

BHP Billiton Ltd. and Rio Tinto Group, the world’s biggest mining companies, declined more than 1.5 percent as copper tumbled to a 14-month low in London. Commerzbank AG and Societe Generale SA led losses in banking shares. Bayerische Motoren Werke AG sank to a one-year low.

The Stoxx 600 lost 1.1 percent to 223.62 in London. The measure slumped 17 percent in the third quarter, its largest drop since the final three months of 2008, which followed Lehman Brothers Holdings Inc.’s collapse. The gauge fell for five straight months through September amid concern Greece’s debt crisis will spread to other countries in the region and as reports showed economic growth is slowing.

“We need to see some action in the next one or two months, or it will be too late to avoid a recession,” said Philipp Baertschi, chief strategist at Bank Sarasin & Cie. AG in Zurich, where he helps oversee the equivalent of about $110 billion. “It’s too early to jump into the market and catch the falling knife.” He has an “underweight” stance on equities.

National benchmark indexes retreated in all 18 western European markets, except for Ireland. Germany’s DAX slumped 2.3 percent, France’s CAC 40 declined 1.9 percent and the U.K.’s FTSE 100 lost 1 percent.

EFSF Enhancement

Bank of France Governor Christian Noyer said he’s “open” to the idea of using borrowed money to enhance the capabilities of the European Financial Stability Facility, the euro area’s rescue fund.

“It would be unrealistic to expect an increase in the EFSF itself,” Noyer said in a speech today in Tokyo. “But, I am personally open to any scheme that would allow existing commitments to be leveraged to provide greater intervention capacity.”

Euro-area finance chiefs meet today in Luxembourg to weigh the threat of a Greek default, grapple with how to shield banks from the fallout and consider a further boost to the rescue fund. A much-needed “liquidity backstop” for the region must come from governments because the European Central Bank’s mandate requires it to keep purchases of sovereign debt “extremely limited,” said Noyer, who is a member of the ECB.

Some equity strategists say this year’s 19 percent slump in European equities isn’t commensurate with the outlook for companies’ profits. The decline has left the measure trading at 9.3 times estimated earnings, close to the cheapest level since March 2009, data compiled by Bloomberg show.

‘Market has Overreacted’

“The market has overreacted to concerns of slowing growth and sentiment has moved to depressed levels,” Ian Scott, the London-based global strategist at Nomura Holdings Inc., wrote in a report. “Equity valuations appear attractive to us. We expect the earnings recovery to continue, though at a slower pace.”

The ECB may start to reverse this year’s interest-rate increases on Oct. 6 by cutting its benchmark rate from 1.5 percent, according to UBS AG’s Larry Hatheway. Eleven of 52 economists surveyed by Bloomberg predicted that the central bank will reduce borrowing costs this week, while the remaining 41 forecast no change.

Stocks pared losses as a gauge of U.S. manufacturing unexpectedly rose, easing concern the world’s largest economy is stalling. The Institute for Supply Management’s factory index climbed to 51.6 last month from 50.6 in August, the Tempe, Arizona-based group said. A level of 50 is the dividing line between growth and contraction.

European Economy

Europe’s manufacturing industry contracted for a second month in September, London-based Markit Economics said today. In the U.K., a manufacturing index unexpectedly increased last month from a 26-month low.

BHP Billiton dropped 1.6 percent to 1,710 pence and Rio Tinto declined 2.4 percent to 2,819.5 pence. Copper fell as much as 5.5 percent to $6,635 a metric ton in London, its lowest price since July 2010.

Commerzbank, Germany’s second-biggest lender, sank 7.3 percent to 1.76 euros and France’s Societe Generale lost 5.2 percent to 18.97 euros. Barclays Plc, Britain’s second-largest bank by assets, retreated 3.2 percent to 156.25 pence.

Dexia SA plunged 10 percent to 1.30 euros as Moody’s Investors Service placed the credit ratings of the lender’s three main operating entities on review for possible downgrade. Les Echos reported on Sept. 30 that the finance ministers of Belgium and France planned to meet today to discuss financing options for Dexia.

‘Big Worry’

“The big worry for Dexia shareholders is a massive dilution of shares,” said Jawaid Afsar, a trader at Securequity Ltd. in Sheffield, England. “There’s speculation that Dexia may be on the receiving end of a bailout. Dexia is the most exposed and the news of a possible downgrade by Moody’s does not help.”

BMW, the world’s biggest maker of luxury cars, sank 5.7 percent to 47.12 euros, its lowest price since September 2010. The preferred shares of Volkswagen AG, Europe’s largest automaker, retreated 4.8 percent to 95.30 euros.

Alcatel-Lucent SA, France’s largest supplier of telecommunications equipment plunged 12 percent to 1.94 euros, the biggest drop since July. Nomura Holdings Inc. cut its price estimate on the shares to 2.50 euros from 3.20 euros, saying “our checks and some early public statements by operators suggest that spending in the second half is at risk of further disappointment.”

Holcim Ltd., the world’s second-biggest cement maker, climbed 5.7 percent to 51.45 Swiss francs after SonntagsZeitung reported that board member Thomas Schmidheiny said he’ll increase his stake in the company.

--With assistance from Adria Cimino in Paris. Editors: Andrew Rummer, Will Hadfield

To contact the reporter on this story: Adam Haigh in London at

To contact the editor responsible for this story: Andrew Rummer at

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