Bloomberg News

European Stocks Advance on Economic Data; Old Mutual Shares Gain

December 16, 2011

Dec. 15 (Bloomberg) -- European stocks advanced amid speculation that this year’s slump in equities isn’t commensurate with the outlook for corporate earnings and as economic data from the U.S. and the euro area topped estimates.

Insurance companies led the gains. Old Mutual Plc rallied 11 percent after saying it will sell its Nordic business for 2.1 billion pounds ($3.3 billion). TUI AG, the owner of Europe’s largest travel company, rose after analysts upgraded the stock.

The Stoxx Europe 600 Index gained 1 percent to 234.73 at the close in London, after U.S. initial jobless claims unexpectedly fell last week. The benchmark gauge has still lost 15 percent this year as the euro area’s sovereign-debt crisis spread to Italy and Spain and U.S. economic growth slowed.

“I’m looking at attractive valuations on equities,” said Tom Elliott, a global strategist at JPMorgan Asset Management, which has about $1.3 trillion in client funds. “The mix of an improvement in leading economic indicators plus attractive valuations should help propel markets,” He spoke in a Bloomberg Television interview with Mark Barton.

The Stoxx 600 fell to its lowest level since Nov. 29 yesterday as the U.S. Federal Reserve refrained from taking new action to bolster the world’s largest economy. The gauge trades at 10.2 times estimated profits, a discount of 15 percent to its average price-earnings ratio of 12 over the past five years, according to data compiled by Bloomberg.

U.S., European Data

Shares extended gains after U.S. Labor Department figures showed the number of applications for unemployment benefits dropped by 19,000 to 366,000 in the week ended Dec. 10, the fewest since May 2008. The median forecast of 47 economists surveyed by Bloomberg News had projected 390,000.

Spanish government bonds advanced after the nation sold 6 billion euros ($7.8 billion) of debt at an auction today, more than the maximum target of 3.5 billion euros.

A report showed Germany’s manufacturing industry contracted less than estimated. An index based on a survey of purchasing managers in the manufacturing industry rose to 48.1 this month from 47.9 in November, London-based Markit Economics said today. Economists surveyed by Bloomberg had expected a drop to 47.5. Readings below 50 indicate a contraction. Germany’s services output unexpectedly rose, the report showed.

In France, the Purchasing & Services Managers’ Index rose to 48.7 in December from 47.3 in November. This topped the average economist estimate for a reading of 47, according to Bloomberg data.

New Capital Rules

The ECB is pushing to change new capital rules for banks to prevent “aggressive deleveraging” and a credit crunch possibly leading to recession, Market News International reported, citing unidentified sources.

The agency reported the ECB supports a new proposal that would discourage banks from dumping riskier assets to boost capital levels.

“The balance of risk has shifted to the downside again,” said Valentijn Van Nieuwenhuijzen, the head of strategy at ING Investment Management in The Hague, which manages $163 billion. “Overall, our stance is quite defensive. It’s still uncertain what the end game is going to look like” for the euro area, he told Linzie Janis in a Bloomberg Television interview.

National benchmark indexes rose in all of the 18 western- European markets. France’s CAC 40 gained 0.8 percent, Germany’s DAX rose 1 percent and the U.K. FTSE 100 advanced 0.6 percent.

Old Mutual Rallies

Old Mutual jumped 11 percent to 123.7 pence. The third- biggest insurer in the U.K. said it will sell its Nordic business, excluding Finland, for 2.1 billion pounds to Skandia Liv.

Commerzbank AG rose 6.7 percent to 1.31 euros. Raiffeisen Bank International AG rallied 5.3 percent to 18.40 euros. A gauge of banking shares on the Stoxx 600 gained 1.3 percent.

TUI jumped 12 percent to 4.55 euros after Cheuvreux upgraded the shares to “outperform” from “underperform.” Exane BNP Paribas SA and Natixis SA also raised their recommendations on the stock.

Bouygues SA climbed 2.3 percent to 23.60 euros after Les Echos reported that the company is “very confident” about 2012 as international construction orders are strong and there is no sign of a slowdown in France, citing an interview with Chief Executive Officer Martin Bouygues.

Telefonica SA fell 1 percent to 13.05 euros. Spain’s former telephone monopoly reduced its 2012 dividend forecast by 14 percent, citing market conditions that have changed “significantly.”

“Management credibility has been tarnished and Telefonica remains on an unjustified growth premium,” James Britton, a telecoms analyst at Nomura Holdings Inc., wrote in a report.

International Personal Finance, a U.K. lender that makes unsecured loans to low-income households in eastern Europe, dropped 9.2 percent to 165 pence after saying currency movements will reduce its full-year earnings by as much as 14 percent and said “the global economy continues to make the outlook for 2012 unusually uncertain.”

--With assistance from Corinne Gretler in Zurich. Editors: Srinivasan Sivabalan, 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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