European Stocks Drop; BHP Billiton, Shell, Stora Enso Decline

By Sarah Thompson

Oct. 4 (Bloomberg) -- European stocks fell for the first time in four days as investors speculated central bankers in the region will leave interest rates unchanged.

BHP Billiton Ltd. and Rio Tinto Group retreated after metals prices dropped, and Royal Dutch Shell Plc followed oil prices lower. Stora Enso Oyj and UPM-Kymmene Oyj fell after Deutsche Bank AG downgraded papermaker stocks as it cut earnings estimates.

The Dow Jones Stoxx 600 Index lost 0.5 percent to 381.88 as of 8:05 a.m. in London. The index has climbed 8.4 percent after reaching a five-month low on Aug. 16 on speculation contagion from the U.S. housing recession is ebbing.

``Investors are nervous ahead of the interest-rate decisions today,'' said Oliver Stevens, head of dealing at IG Markets Ltd. in Melbourne. ``We've had a good run and any hawkish comments will alarm. Mining stocks are likely to take their cue from losses in Australia.''

National benchmarks retreated in all 14 western European markets that were open. The U.K.'s FTSE 100 dropped 0.2 percent. Germany's DAX lost 0.3 percent, and France's CAC 40 sank 0.4 percent. The Stoxx 50 slipped 0.3 percent, while the Euro Stoxx 50, a measure for the euro region, lost 0.4 percent.

U.S. stocks fell yesterday the most in a week after Morgan Stanley recommended selling shares of Intel Corp. and Advanced Micro Devices Inc. Asian stocks slid today, snapping a five-day rally.

Interest Rates

The European Central Bank will probably keep interest rates at a six-year high as it gauges the impact of the U.S. subprime- mortgage collapse and the rising euro, a survey of economists shows.

Policy makers meeting in Vienna today will leave the benchmark refinancing rate at 4 percent, according to all but one of the 55 economists surveyed by Bloomberg News. The bank will wait until April before raising its benchmark rate to 4.25 percent, a separate survey shows.

The Bank of England may also keep its key interest rate unchanged today as bankers assess the effect on the economy of higher corporate borrowing costs and a run on lender Northern Rock Plc, a survey of economists shows.

BHP Billiton, the world's largest mining company fell 2.4 percent to 1,705 pence, and Rio Tinto Group, the third-largest, shed 2.3 percent to 4,107 pence.

Copper fell in Asia as Southern Copper Corp. sought to end a strike for higher wages by workers in Peru, and as the dollar's strength damped demand from non-U.S. buyers of the metal.

Shell, Europe's largest oil company, dropped 0.6 percent to 28.03 euros. Total SA, the third-largest, lost 0.5 percent to 54.67 pence. Crude oil traded below $80 a barrel in New York after an unexpected rise in U.S. stockpiles eased concern that supplies will be inadequate for the peak-demand winter season.

Stora Enso, BP

Stora Enso, the world's largest papermaker, fell 5.3 percent to 12.80 euros. UPM-Kymmene, Europe's second-biggest papermaker, slid 2.8 percent to 16.31 euros. The stocks were lowered to ``sell'' from ``buy'' at Deutsche Bank. M-real Oyj, Finland's third-biggest papermaker, was cut to ``hold'' from ``buy,'' while Holmen AB, the Swedish company that supplies newsprint to the Financial Times, was dropped to ``sell'' from ``hold.''

``The European paper companies' competitiveness in overseas markets has been hit hard and export volumes are at stake,'' Deutsche Bank analyst Mathias Carlson wrote in a research note dated today. ``We expect European paper prices to be flat in 2008, at best.''

Earnings per share estimates were cut by 40 percent on average across the industry, Carlson wrote.

Abbot, Northern Rock

Abbot Group Plc jumped 20 percent to 350 pence after Financial Times reported 3i Group Plc, a U.K. buyout and venture- capital company, made a tentative offer of 375 pence a share for the Scotland-based oil-services company. The Financial Times didn't say where it got the information.

The offer values Abbot at 870 million pounds ($1.8 billion), the newspaper said. Neither Abbot nor 3i would comment, the newspaper added.

Northern Rock Plc rose 5.4 percent to 160 pence. Citigroup Inc. is prepared to provide significantly more than 5 billion pounds ($10.2 billion) of financing to smooth any takeover of the U.K. mortgage lender, the London-based Times reported, without citing anyone.

Last Updated: October 4, 2007 03:18 EDT