Friday, February 22, 2008

Stocks in Europe, Asia Retreat; RWE, KDDI, Freddie Mac Decline

By Sarah Jones

Feb. 22 (Bloomberg) -- Stocks fell in Europe and Asia after RWE AG's earnings missed analysts' estimates and phone companies cut prices. U.S. index futures retreated.

RWE declined in Frankfurt after Germany's second-largest utility had an unexpected loss. KDDI Corp. and NTT DoCoMo Inc. tumbled in Japan on concern lower prices will hurt earnings. Freddie Mac dropped in Germany after Merrill Lynch & Co. recommended selling shares in the second-biggest provider of money for U.S. home loans.

Europe's Dow Jones Stoxx 600 Index slid 0.3 percent at 12:30 p.m., with about two stocks declining for every one that rose. The MSCI Asia Pacific Index fell 0.7 percent. Futures on the Standard & Poor's 500 Index lost 0.3 percent.

``The concern at the moment is that earnings expectations in the market have to come down quite a long way,'' said Jane Coffey, head of equities at Royal London Asset Management, where she helps oversee about $1 billion. ``It's about how the market reacts to that.'' Coffey commented in a Bloomberg TV interview.

The MSCI World Index has retreated 9.1 percent this year on concern losses related to subprime mortgages and an economic slowdown in the U.S. will curb profit growth. Profits at S&P 500 companies are expected to shrink this quarter and next, while analysts have cut their estimates for Stoxx 600 members' 2008 earnings growth to 9.2 percent from 11 percent at the end of last year, Bloomberg data show.

National benchmarks dropped in 16 of the 18 markets in western Europe. Germany's DAX lost 1.3 percent, while France's CAC 40 slipped 0.6 percent. The U.K.'s FTSE 100 lost 0.2 percent. In Asia, Japan's Nikkei 225 Stock Average and Hong Kong's Hang Seng Index both decreased 1.4 percent.


RWE tumbled 5.8 percent to 80.15 euros after the utility posted a fourth-quarter net loss of 168 million euros ($249 million) because of power plant halts and regulatory changes.

This compares with a profit of 1.76 billion euros a year earlier, according to Bloomberg calculations based on full-year earnings distributed today. The median estimate of nine analysts surveyed by Bloomberg News was for profit of 439 million euros.

KDDI, Japan's second-biggest mobile-phone operator, sank 10 percent to 650,000 yen, the most since September 2001. A plan to waive calling fees for family and corporate customers who sign up for a two-year contract will reduce annual sales by 25 billion yen ($233 million) in the fiscal year to March 2009, the company said yesterday.

NTT DoCoMo, the largest wireless carrier in Japan, fell 4.8 percent to 158,000 yen. Softbank Corp., the country's No. 3 mobile-phone operator, slid 2 percent to 2,210 yen.

``The profit outlook for the whole industry is taking a downturn,'' said Hiroshi Fujimoto, who helps manage the equivalent of $3.2 billion at Shinkin Asset Management Co. ``The fear that mobile-phone operators would get aggressive in competing with each other has become a reality.''

`Financial Headwinds'

Freddie Mac fell 10 cents to $27.65 in Germany after Merrill downgraded the shares to ``sell'' from ``neutral.'' The brokerage also lowered its recommendation for Fannie Mae, the largest provider of money for U.S. home loans. Fannie Mae shares didn't trade in Europe.

``We do not think the stocks fully reflect the severity or duration of the financial headwinds facing the companies,'' analysts including San Francisco-based Kenneth Bruce wrote in a research note to clients dated today. There is ``more pain than gain,'' he wrote.

Caltex Australia Ltd., the country's largest refiner, tumbled 11 percent to A$14.72, the biggest drop since September 2001. The company forecast weaker profits from processing crude oil this year and cut its final dividend.

New Star Asset Management Group Ltd. and Henderson Group Plc fell in London after Citigroup Inc. cut price estimates for the stocks and recommended lowering holdings in ``traditional'' U.K. asset managers.

`Further Downside'

New Star, the fund company set up by John Duffield in 2000, fell 3.6 percent to 95 pence after Citigroup lowered its share- price estimate 39 percent to 86 pence. Henderson dropped 2.1 percent to 95.5 pence. Citigroup cut its estimate 21 percent to 115 pence.

``There is further downside for the U.K. asset managers,'' analyst Carolyn Dorrett wrote in a note to clients today. ``We would use any market strength as an opportunity to reduce holdings in traditional asset managers.''

Renault SA led carmakers lower after Morgan Stanley cut its share price estimate for the company by 19 percent to 66 euros, saying Renault's Nissan Motor Co. unit is ``deteriorating'' and cash flows will disappoint. The stock dropped 4.8 percent to 69.9 euros.

Biffa Plc climbed 1.3 percent to 369.75 pence after the Daily Telegraph reported Terra Firma Capital Partners Ltd., the buyout firm run by financier Guy Hands, may make a 1.5 billion- pound counter-bid jointly with France's Suez SA for Biffa. The Telegraph didn't say where it got its information.

Biffa accepted a 1.2 billion pound bid this month from Montagu Private Equity LLP and Global Infrastructure Partners, the Telegraph said.

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