Bloomberg News

European Stocks Decline as Best Annual Start Since 1998 Seen as Overdone

March 09, 2012

European stocks fell this week as investors speculated the Stoxx Europe 600 Index’s best start to a year since 1998 has overshot the outlook for the economy.

Enel SpA sank to a record low as Italy’s largest utility cut its dividend target to reduce debt. PSA Peugeot Citroen sank 7.8 percent after Europe’s second-biggest carmaker announced a 1 billion-euro ($1.3 billion) rights offer. Salzgitter AG lost 7 percent after the steelmaker said it was“impossible” to provide an earnings forecast.

The benchmark Stoxx 600 (SXXP) slid 0.7 percent to 265.44 this past week, the biggest drop since Feb. 10. The gauge rose for the past three days as Greece persuaded most bondholders to accept a debt exchange, rebounding from the biggest two-day drop since November earlier in the week. The index had climbed 9.3 percent from the start of the year through March 2 as the European Central Bank lent the region’s lenders more than 1 trillion euros and U.S. data topped forecasts.

“The force of the move into the new year really took the market into extended overbought conditions; technically it looked like there was a need for some consolidation,” said Mike Lenhoff, chief strategist at Brewin Dolphin Securities Ltd. in London. “We could see more of a consolidation phase going forward, but the fundamental picture is still looking more supportive than before.”

Lowest Since January

The Stoxx 600 (SXXP) dropped 3.3 percent in the first two days of the week, sliding to the lowest level since January, as China cut its forecast for economic growth this year to 7.5 percent from 8 percent. Data in the euro area showed manufacturing and services shrank more than estimated and fourth-quarter gross domestic product contracted 0.3 percent.

In contrast, U.S. employers boosted payrolls more than forecast in February, indicating companies are growing more optimistic about the expansion in the world’s largest economy. The jobless rate held at 8.3 percent.

“The sharp decline in equity markets earlier this week begs the question whether a liquidity-fueled rally has ended and the gravitational pull of weaker economic prospects will take hold,” said Rupert Caldecott, chief investment officer for global asset allocation at Dalton Strategic Partnership LLP in London. “After a sharp and relatively smooth advance in equities over the past three months, and a consequent decline in investor risk measures, a pause and adjustment is not so surprising.”

Banks Sink

Banks posted the largest losses among the 19 industry groups in the Stoxx 600 (SXXP) as lenders from Lisbon-based Banco Espirito Santo SA to Barclays Plc in London fell more than 6 percent. Food and drink companies posted the biggest advance.

National benchmark indexes fell in 15 of the 18 western European markets. The U.K.’s FTSE 100 (UKX) and France’s CAC 40 both lost 0.4 percent, while Germany’s DAX declined 0.6 percent.

Greece’s ASE Index (ASE) rose 0.4 percent as the country pushed through the biggest sovereign restructuring in history after cajoling private creditors to forgive more than 100 billion ($132 billion) of debt.

Enel dropped 9.6 percent in Milan after cutting dividend goal by a third to reduce debt as recessions in its biggest markets weighed on revenue. The 2012 payout will be at least 40 percent of ordinary net income, down from a previous target of 60 percent.

Peugeot sank 7.8 percent after it announced a rights offer and said it won’t pay a dividend for 2011.

Salzgitter Slides

Salzgitter (SZG) dropped 7 percent after the steelmaker said it was “impossible” to provide an earnings forecast because the euro area’s debt crisis remains a major risk.

Red Electrica Corp. SA, operator of Spain’s electricity network, slumped 8.6 percent, the most since August, after the national energy regulator said the country should cut the cost of the regulated power market.

Bourbon SA, owner of the biggest fleet of supply and crew ships for the oil industry, fell 11 percent, the largest decline since September, amid concern about financing new vessels. Net debt rose to 1.96 billion euros at the end of last year with 620 million euros due in less than a year.

Lagardere SCA (MMB) slipped 3 percent after the company’s outlook prompted analysts to cut profit targets. France’s largest publisher posted a 29 percent drop in adjusted net income and said earnings will be little changed this year.

Q-Cells SE sank 22 percent after the solar-cell maker reported a loss that exceeded sales in the fourth quarter and forecast further negative results in 2012.

Admiral Advances

Admiral Group Plc (ADM) paced advancing shares as the U.K.’s second-biggest motor insurer said bodily injury claims declined in the fourth quarter. The stock jumped 9.4 percent for a fourth week of gains.

European Aeronautic, Defence & Space Co. surged 8.7 percent, the most since October, after doubling its dividend and forecasting earnings will climb.

London Stock Exchange Group Plc (LSE) rallied 4.5 percent after the owner of Europe’s oldest independent bourse agreed to buy a majority stake in LCH.Clearnet Group Ltd. for 463 million euros as it looks to expand its post-trade services.

Misys Plc surged 7.9 percent after CVC Capital Partners Ltd. and ValueAct Capital, Misys’s largest shareholder, said they are working on a joint cash offer. The Financial Times reported speculation the companies may offer 325 pence a share.

Temenos Group AG won more time to respond to the competing private equity bids from the U.K. Takeover Panel, extending a deadline for a merger with Misys. The Swiss company lost 9 percent this week.

Cable & Wireless Worldwide Plc (CW/) advanced 9.7 percent after Vodafone Group Plc, the world’s largest mobile-phone operator, won more time to bid for the company. Tata Communications Ltd. is in talks with three lenders to help finance a possible rival offer, a person familiar with the matter said.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

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


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