Oct. 22 (Bloomberg) -- European stocks fell the most in almost three weeks as Ericsson AB’s profit missed estimates and investors speculated that China may curb stimulus spending after the nation’s economy expanded at the fastest pace in a year.

Ericsson slumped 6.2 percent after the world’s largest maker of mobile-phone networks posted a 71 percent drop in third-quarter net income. Air Liquide SA, the world’s biggest producer of industrial gases, and Gemalto NV, the largest maker of smartcards, sank more than 2.7 percent as sales declined.

The Dow Jones Stoxx 600 Index slipped 1.2 percent to 246.23, the steepest decline since Oct. 2. The regional gauge has jumped 56 percent since March 9 as the French and German economies exited recessions, pushing its valuation to more than 52 times reported earnings, the most expensive level since 2003, Bloomberg data show.

Investors are “turning more cautious,” said Philipp Baertschi, Zurich-based global chief strategist at Bank Sarasin & Cie. “We’ve had a pretty good run and it’s likely that we see some consolidation. Going into next year we should become a bit more cautious as the global economic cycle loses some momentum,” he said in a Bloomberg Television interview.

National benchmark indexes declined in all 18 western European markets. The U.K.’s FTSE 100 slipped 1 percent, Germany’s DAX dropped 1.2 percent and France’s CAC 40 retreated 1.4 percent.

Chinese Inflation

China’s economy grew 8.9 percent in the third quarter, the fastest pace in a year, as stimulus spending and record lending growth helped the nation lead the world out of a recession. Separate reports showed industrial production and retail sales accelerated in September.

Inflationary expectations are increasing in China as prices rise month-on-month, statistics bureau spokesman Li Xiaochao said at a press briefing in Beijing today.

Earnings at U.S. companies from Dow Chemical Co. to AT&T Inc. and McDonald’s Corp. beat analysts’ estimates today. Profits at companies in the Standard & Poor’s 500 Index have surpassed analysts’ projections at 126 of the 151 companies that released results since Oct. 7, according to Bloomberg data.

A U.S. Labor Department report showed the number of Americans filing claims for unemployment benefits climbed more than predicted by economists. The Conference Board’s gauge of the U.S. economic outlook for the next three to six months climbed a greater-than-forecast 1 percent, contributing to the biggest six-month gain in 26 years, the New York-based private research group said.

Ericsson, Air Liquide

Ericsson retreated 6.2 percent to 69.40 kronor, dragging a gauge of technology shares to the largest drop on the Stoxx 600. The company’s third-quarter net income fell 71 percent to 810 million kronor ($118 million) as clients slashed spending, missing analysts’ estimates for a profit of 1.97 billion kronor.

Air Liquide lost 2.7 percent to 77.60 euros after saying third-quarter sales fell 8.2 percent to 2.98 billion euros ($4.5 billion), hurt by weaker demand from large industrial clients. That compared with the median estimate of 3.01 billion euros in a Bloomberg survey of eight analysts.

Gemalto slumped 11 percent to 29.68 euros, the steepest drop on the Stoxx 600. Brokerages including AlphaValue and Natixis downgraded the stock after third-quarter sales slid to 401 million euros.

Credit Suisse Group AG, Switzerland’s biggest bank by market value, slid 3.5 percent to 57.95 Swiss francs even after reporting a third straight quarterly profit on gains from trading. Net income was 2.35 billion francs ($2.3 billion), surpassing the 1.74 billion-franc median estimate of 14 analysts surveyed by Bloomberg.

‘Quality, Quantity’

“Quality did not fully match quantity,” Citigroup Inc. analyst Andrew Coombs wrote in a report. Investment banking earnings met estimates because of lower costs, while the private banking results were mixed, with “strong” new money inflows offset by narrowing margins.

Nexans SA tumbled 6.6 percent to 53.35 euros. The world’s biggest maker of cables and wires said third-quarter sales dropped 15 percent at constant non-ferrous metal prices to 988 million euros.

Steelmakers led a gauge of basic-resource stocks 1.8 percent lower.

Outokumpu Oyj sank 8 percent to 12.57 euros, the largest drop since June. The Finnish stainless-steel maker reported a fifth straight quarterly loss and said it doesn’t see any “major improvement” in demand.

‘Slow Motion’

Rautaruukki Oyj, Finland’s biggest producer of carbon steel, slid 7.4 percent to 15.62 euros after posting a third- quarter net loss of 45 million euros. The mean estimate of nine analysts surveyed by Bloomberg was for a 27.3 million-euro loss.

The European Union steel market is “stuck in slow motion” and may have to wait until 2011 for a “pronounced rebound” in output, steel industry group Eurofer said.

Punch Taverns Plc and Enterprise Inns Plc, the U.K.’s two biggest pub owners, surged after the Office of Fair Trading rejected a complaint that so-called supply ties protect the companies from competition. Punch rallied 15 percent to 97.25 pence and Enterprise Inns soared 23 percent to 147 pence.

Logitech International SA gained 2.8 percent to 19.09 francs. The world’s biggest maker of computer mice forecast earnings growth for the current period after reporting a 71 percent decline in second-quarter profit.

Nestle SA, the world’s largest food company, climbed 1.4 percent to 46.52 francs after raising this year’s buyback target and repeating its forecast that profitability will increase, mitigating a sales decline as consumers turned away from bottled water.

Pernod Ricard SA advanced 2.3 percent to 57.30 euros. The world’s second-largest liquor maker reported a smaller-than- expected revenue decline and said demand for spirits shows “signs of improvement.”

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

Last Updated: October 22, 2009 12:22 EDT