Bloomberg News

European Stocks Post Longest Streak of Weekly Gains in 2011

October 22, 2011

Oct. 22 (Bloomberg) -- European stocks advanced for a fourth week, for the longest rising streak since December, as investors speculated European leaders meeting in Brussels next week will nudge forward a solution to the region’s debt crisis.

SGL Carbon SE soared the most since 2008 after a report that Bayerische Motoren Werke AG plans to buy a stake in it. Lundin Petroleum AB surged 14 percent after Statoil ASA doubled its estimate of an oil discovery in the North Sea. G4S Plc slumped 14 percent after agreeing to acquire ISS A/S, a move resisted by at least one large shareholder.

The Stoxx Europe 600 Index advanced 0.2 percent to 238.93 this week, with energy, personal goods and retail industries gaining the most. The gauge trimmed its decline from this year’s high on Feb. 17 to 18 percent. The Stoxx 600 is trading at about 10 times the estimated earnings of its constituent companies, near the lowest valuation since March 2009, according to data compiled by Bloomberg.

“We have gone through periods of hope and depression this week regarding a solution for the euro area,” said John Plassard, director at Louis Capital Markets in Geneva. “Investors expect a lot from this meeting. The crucial point of the meeting will be to see if there is a perfect agreement between Germany and France.”

Summit Expectations

Euro-area leaders will meet on Oct. 23 and Oct. 26 to discuss their response to the debt crisis, including a plan to deploy $1.3 trillion by combining the European Union’s temporary and planned permanent rescue funds as of mid-2012, two people familiar with the discussions said. A hurdle to the talks is a disagreement between Germany and France over the European Central Bank’s role.

French President Nicolas Sarkozy flew to Frankfurt on Oct. 19 to meet German Chancellor Angela Merkel, ECB President Jean- Claude Trichet and International Monetary Fund Managing Director Christine Lagarde. The meeting failed to end the deadlock.

Germany sought to lower expectations from the summit. Steffen Seibert, Merkel’s chief spokesman, said on Oct. 17 that the chancellor had made it clear that European leaders won’t fulfill “dreams” of a quick end to the debt crisis at the Brussels meeting.

“The fact that they organized a second meeting shows Merkel and Sarkozy haven’t agreed on the measures to be announced,” Plassard said. “That is not very reassuring for the markets. They at least want to see the first step toward a long-term solution this weekend.”

The Next Step

Bank of America Corp. said a majority of 136 investors it surveyed expected the summit to take the next step toward ending the crisis, but not provide a complete solution. Two out of five respondents expected a sensible plan to emerge.

National benchmark indexes rose in nine of the 18 western European markets. The U.K.’s FTSE 100 added 0.4 percent. Germany’s DAX Index gained less than 0.1 percent and France’s CAC 40 dropped 1.5 percent.

In the U.S., Federal Reserve Governor Daniel Tarullo became the first policy maker to publicly call for the resumption of purchases of mortgage securities to boost economic growth and job creation.

The Fed’s Beige Book survey showed companies reported more doubt about the recovery even as the economy maintained its expansion last month. Separately, a report on Oct. 17 showed that manufacturing in the New York area contracted in October more than economists had forecast. The Empire State Index covering New York, northern New Jersey and southern Connecticut gave a reading of minus 8.5, a larger drop than the average estimate of minus 4 in a Bloomberg News survey.

Chinese Growth

Data from China showed that the world’s fastest growing major economy expanded at an annual pace of 9.1 percent in the third quarter, the slowest since 2009.

SGL Carbon soared 19 percent, the biggest weekly gain since November 2008. BMW plans to buy a stake in the German maker of carbon and graphite materials, Spiegel said, citing an unidentified manager at the carmaker.

Lundin jumped 14 percent after Statoil doubled its estimate for a North Sea discovery. The Aldous Major South find may hold 900 million to 1.5 billion barrels of recoverable oil equivalent, twice as much as Statoil’s previous estimate. Combined with Lundin’s neighboring Avaldsnes, the field may hold as much as 3.3 billion barrels of recoverable resources.

G4S, Aixtron

G4S slumped 14 percent after announcing a plan to acquire Danish cleaning-services company ISS for $8.2 billion. Parvus Asset Management, among its largest investors, resists the deal saying it is too risky. Some of the other 20 top shareholders in the world’s largest security services company may also vote against the move at a Nov. 2 shareholders’ meeting, Parvus fund manager Edoardo Mercadante, said.

Aixtron SE, a supplier to the semiconductor industry, plunged 16 percent after CA Cheuvreux analyst Klaus Ringel wrote in a report that the company’s third-quarter earnings will probably be “disastrous.” The stock was cut to “hold” from “buy” at Kaufman Bros.

Software AG surged 7.5 percent after Germany’s second- largest maker of business software confirmed its full-year sales target after third-quarter earnings rose. Operating profit advanced to approximately 71 million euros to 73 million euros from 69.1 million euros a year ago.

Sonova, Alcatel-Lucent

Sonova Holding AG, the Swiss maker of hearing health-care products, rallied 13 percent after saying sales of hearing aids increased 7 percent in the first half excluding acquisitions.

Alcatel-Lucent SA sank 11 percent after Oddo Securities and Jefferies Group Inc. lowered their recommendations for the French phone-equipment maker to “neutral” and “underperform,” respectively.

Safran SA, which makes jet engines with General Electric Co. for Airbus SAS and Boeing Co., fell 13 percent. The company said demand for spare parts in the first nine months came in at 10.1 percent, the bottom end of its projected range of 10 percent to 15 percent for the year.

Home Retail Group Plc fell 18 percent. The owner of U.K. Homebase outlets said first-half profit dropped 70 percent after sales at stores open at least a year decreased 9 percent.

--Editors: Srinivasan Sivabalan, 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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