Saturday, January 19, 2008

European Stocks Decline for Sixth Week Amid Slowdown (Update1)

By Adria Cimino

Jan. 19 (Bloomberg) -- European stocks declined for a sixth week after economic reports and earnings from the U.S. deepened concern the world's largest economy is sliding into a recession.

Dexia SA, the biggest lender to local governments, and Commerzbank AG led financial shares lower. Hypo Real Estate Holding AG had its biggest slump ever after the German commercial property lender said pretax profit fell in 2007. Burberry Group Plc, the maker of $3,100 metal-studded Knight handbags, dropped after saying it may miss profit estimates.

The Dow Jones Stoxx 600 Index sank 4.7 percent to 327.53, the biggest decline since the week ended July 27. The last time the measure fell for six or more consecutive weeks was the period ended Oct. 9, 1998.

``We see the specter of the slowdown, with data from the U.S. confirming that it's a strong one,'' said Alexandre Iatrides, who helps oversee about $7.3 billion at Richelieu Finance in Paris. ``Now companies are lowering guidance. We're worried about earnings. That's weighing on stocks.''

The Stoxx 600 is down 18 percent from a 6 1/2-year high reached June 1 on concern a U.S. housing slump and credit-market losses will curb economic expansion and slow profit growth. Belgium, Denmark, Finland, Norway, Poland and Sweden have extended their losses from highs reached last year to more than 20 percent, the common definition of a bear market.

The Philadelphia Federal Reserve Bank's manufacturing index slumped to a six-year low, according to a data released Jan. 17. Citigroup Inc., the largest U.S. bank, this week reported its biggest loss ever and Intel Corp., the world's biggest chipmaker, forecast sales that fell short of analysts' estimates.

National Benchmarks

National benchmarks dropped in all of the 18 western European markets. Germany's DAX Index lost 5.2 percent, as did France's CAC 40. The U.K.'s FTSE 100 sank 4.8 percent. The Stoxx 50 decreased 5.3 percent, and the Euro Stoxx 50, a measure for the euro region, tumbled 5.5 percent.

Dexia plummeted 18 percent. Fortis, Belgium's biggest financial-services company, retreated 12 percent.

``We are still avoiding the banks,'' said Stuart Fraser, who helps manage about $42 billion at Brewin Dolphin Securities Ltd. in London. ``You generally want to avoid the very cyclical names, those exposed to the economy.''

Hypo Real Estate plunged 34 percent, the worst performance in the Stoxx 600. The company said Jan. 15 that full-year pretax profit fell 27 percent to 890 million euros ($1.32 billion) and plans to slash its 2007 dividend to 50 cents a share from 1.50 euros for 2006.

`Further Bad News'

Commerzbank retreated 16 percent on speculation it may report further writedowns. Germany's second-biggest bank has asset-backed securities totaling 19.9 billion euros, including U.S. subprime investments and collateralized debt obligations, according to a presentation from September.

A measure for banks in the Stoxx 600 fell 7.4 percent this week, the biggest drop among the 18 industry groups. That was the steepest decline since the week ended July 12, 2002.

``We expect further bad news'' from financial companies, said Christian Gattiker, head of equity markets at Bank Julius Baer & Company Ltd. in Zurich. An improvement may start ``later in this quarter, early next quarter.''

U.S. President George W. Bush said Jan. 18 that a government plan to stimulate the economy should be about 1 percent of gross domestic product, or as much as $150 billion.

Burberry tumbled 15 percent. Meeting analysts' estimates for full-year earnings before interest and taxes of 210 million pounds ($411 million) ``looks a bit of a stretch,'' Chief Financial Officer Stacey Cartwright said Jan. 15.

Basic Resources

A measure for basic resources stocks dropped 6.7 percent, the third-worst performance among the Stoxx 600 industry groups, as metals prices retreated. Copper, nickel and zinc fell this week.

Vedanta Resources Plc, India's largest copper and zinc producer, slid 15 percent. BHP Billiton Ltd., the world's biggest mining company, declined 8.9 percent. Anglo American Plc, the second-largest, dropped 10 percent.

An index for Stoxx 600 oil and gas stocks fell 6.6 percent as crude oil declined 2.3 percent for the week in New York. Total SA, Europe's biggest oil refiner, lost 6.6 percent. SBM Offshore NV, the world's largest supplier of deep-water oil platforms, tumbled 17 percent.

Thirty of 41 analysts surveyed, or 73 percent, said oil prices will decline through Jan. 25, the most bearish response since Oct. 5.

Renewable Energy Corp. plunged 27 percent. The Norwegian maker of solar-power components said on Jan. 18 that it will incur ``significant expansion costs'' to build a new factory in Singapore.

Solar Shares

Germany's Solarworld AG and Q-Cells AG slid after Societe Generale SA on Jan. 16 advised investors to sell the stocks. Solarworld, the country's second-biggest solar company, retreated 18 percent, as did Q-Cells, a maker of solar cells.

Alternative energy companies surged last year as oil prices reached records and demand for alternatives increased. Societe Generale analysts said solar shares may be ``overvalued'' because prices will fall on increasing supply.

IG Group Plc, which takes wagers on financial markets under the IG Index name, dropped 18 percent. The company on Jan. 14 reported first-half expenses that exceeded some analysts' estimates. IG also said annual expenses will increase by 2.5 million pounds a year after it opened Paris and Madrid offices.

Segro Plc, the U.K.'s largest owner of office and industrial parks, rallied 17 percent, the best performance in the Stoxx 600. British Land Co., the biggest developer in London's main financial district, added 4.8 percent. The stocks were named as top real-estate picks at JPMorgan Chase & Co. on Jan. 16.

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