Saturday, December 15, 2007

European Stocks Decline on Economic Concerns; BHP, UBS Retreat

By Andreas Hippin

Dec. 15 (Bloomberg) -- European stocks had the biggest weekly loss in a month, led by mining companies and banks, on concern a plan by central banks to add cash to the financial system won't prevent an economic slowdown.

``That's not the same as a broad rate cut,'' said Gerard Piasko, who oversees the equivalent of $107 billion as chief investment officer of Julius Baer Holding AG's private banking division in Zurich. ``The market prefers a proactive monetary policy. Risks to growth are increasing.''

BHP Billiton Ltd. and Anglo American Plc, the world's largest mining companies, led an industry measure to its steepest drop in four weeks. HBOS Plc, the U.K.'s biggest mortgage lender, tumbled the most in a month. UBS AG fell after Europe's largest bank by assets said a bond sale to replenish capital may raise the number of shares by as much as 12 percent.

The Dow Jones Stoxx 600 Index dropped 1.5 percent to 367.24, the steepest decline since the week ended Nov. 9. The gauge has retreated 8.3 percent from a 6 1/2-year high reached June 1 on concern credit-market turmoil will damp economic and profit growth.

The U.S. Federal Reserve, along with central banks in the euro region, the U.K., Canada and Switzerland agreed Dec. 12 to offer as much as $64 billion to financial institutions in the biggest coordinated move since the 2001 terrorist attacks. A day earlier, the Fed cut its benchmark interest rate by a quarter- point. Some investors had expected a bigger reduction to preserve the economy's six-year expansion.

`More Volatility'

``A central bank should calm down concerns,'' said Herbert Perus, who helps oversee the equivalent of $57 billion as head of global equities at Raiffeisen Capital Management in Vienna. ``The Fed achieved the opposite, creating more volatility.''

The Chicago Board Options Exchange Volatility Index jumped 7.7 percent this week. Investors' expectations for price swings in German stocks, as measured by the VDAX Index, soared 11 percent.

National benchmarks fell in all 18 western European markets except Iceland. Germany's DAX Index slipped 0.6 percent and France's CAC 40 decreased 2 percent. The U.K.'s FTSE 100 lost 2.4 percent. The Stoxx 50 dropped 1.7 percent, and the Euro Stoxx 50, a measure for the euro region, sank 1.4 percent.

The euro interbank offered rate banks charge each other for three-month loans stayed near a seven-year high, falling 1 basis point to 4.94 percent, the European Banking Federation said Dec. 14. That's 94 basis points more than the European Central Bank's benchmark interest rate. The two-week rate jumped a record 80 basis points to 4.95 percent.

`Lack of Trust'

``Credit market problems have worsened since summer,'' said Roger Kunz, head of investment strategy at Clariden Leu in Zurich. ``Lack of trust between banks is the problem.''

The Dow Jones Stoxx Basic Resource Index dropped 6 percent as copper, nickel, lead, tin and zinc declined and Goldman, Sachs & Co. reduced its recommendation on the industry to ``neutral'' from ``attractive.''

``Recent downgrades from our economists in China, Europe and the U.S. imply that we expect a period of weaker than consensus global growth in 2008,'' London-based analysts including Peter Mallin Jones wrote in a report dated Dec. 14.

BHP Billiton, the world's biggest mining company, lost 7.8 percent. Anglo American, the second-largest, sank 9.7 percent. Rio Tinto Group, the third-biggest, retreated 9.9 percent.

Vedanta Resources Plc sank 9.9 percent. Goldman downgraded shares of India's largest copper and zinc producer to ``sell'' from ``neutral,'' adding them to its ``conviction sell'' list.

Banks Retreat

The Dow Jones Europe Stoxx Banks Index dropped 2.7 percent, the third-worst performance among 18 industry groups.

``There's no need to rush into bank stocks,'' said Christoph Berger, who helps manage the equivalent of $95 billion at Cominvest Asset Management in Frankfurt. ``The question is what measures to replenish capital are still ahead.''

UBS dropped 3.4 percent. The Zurich-based bank will write down U.S. subprime mortgage investments by $10 billion, the biggest such loss by a European bank, and replenish capital by selling stakes to investors in Singapore and the Middle East.

Merrill Lynch & Co. cut its price estimate 9.9 percent to 64 francs, lowering its estimates for adjusted earnings per share in 2008 and 2009 by 19 percent and 17 percent, respectively.

HBOS sank 7.4 percent. The Edinburgh-based bank said Dec. 13 writedowns and higher funding costs will weigh on earnings this year, while an investment gain of about 1 billion pounds ($2 billion) probably won't recur in 2008.

Northern Rock Plc tumbled 17 percent. The U.K. bank bailed out by the Bank of England on Dec. 13 named Andy Kuipers as chief executive officer to replace Adam Applegarth and said it may have to write down as much as 281 million pounds.

Rentokil, Lafarge

Rentokil Initial Plc plummeted 21 percent, the steepest loss in the Stoxx 600. The second-largest British parcel delivery company said Dec. 13 that fourth-quarter pretax profit may fall short of targets by as much as 10 million pounds, weighed down by overnight express courier City Link.

Lafarge SA, the world's biggest cement maker, surged 16 percent, the best performer in the Stoxx 600. The company agreed to buy the cement unit of Orascom Construction Industries for 8.8 billion euros ($12.9 billion).

Thomas Cook Group Plc rallied 15 percent. Europe's second- largest tour operator said Dec. 11 it expects to report annual profit ``significantly'' higher than analysts' estimates and will seek approval to buy back shares.

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