Nov. 21 (Bloomberg) -- European stocks posted their first weekly decline since October on concern the eight-month rally in equities has outpaced the outlook for earnings growth and central banks will withdraw stimulus measures.

Wolseley Plc, the world’s largest supplier of heating and plumbing gear, retreated 11 percent after an unexpected drop in U.S. housing starts. Groupe Danone SA sank 3 percent as the biggest yogurt maker reduced its sales growth forecast. Irish Life & Permanent Plc plunged 25 percent after raising its outlook for loan losses.

Europe’s Dow Jones Stoxx 600 Index slid 1.7 percent to 243.62 in the past week. Some investors are concerned that a withdrawal of government stimulus measures will stem the rebound in global equities since March. Record-low interest rates and about $12 trillion in spending by governments worldwide have spurred a 54 percent rally in the Stoxx 600 since March 9.

“Clearly central banks are getting more worried about the excess liquidity they’ve been pumping into the system but they’re also afraid to do anything about it,” said John Vail, chief global strategist at Tokyo-based Nikko Asset Management Co., which oversees $108 billion. “We aren’t negative on equities, we’re just not overweight like we had been previously,” he said in a Bloomberg Television interview. The firm cut its stance on global equities to “neutral” in October.

European Central Bank President Jean-Claude Trichet said on Nov. 20 that the bank will gradually withdraw the emergency cash it has pumped into the economy in order to ensure it doesn’t fuel inflation.

‘Systemic Risk’

Treasury three-month bill rates turned negative Nov. 19 for the first time since last year’s credit freeze, on concern prices of everything from stocks to commodities are too high given the outlook for economic growth.

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the “systemic risk” of new asset bubbles is rising as the Federal Reserve keeps interest rates at record lows. U.S. Federal Reserve Chairman Ben S. Bernanke said after a Nov. 16 speech in New York that it’s “not obvious” asset prices in the U.S. are out of line with underlying values after the surge in the Standard & Poor’s 500 Index from its 12-year low in March.

Corporate earnings in Europe are poised to rise 28 percent in 2010, according to Bloomberg data. The Organization for Economic Cooperation and Development doubled its growth forecast for the leading developed economies next year to 1.9 percent in a report earlier this week, while saying that mounting debt burdens will keep the expansion in check.

Earnings Analysis

Per-share profits dropped 12 percent on average for the 315 companies in the Stoxx 600 that have reported quarterly earnings so far, according to Bloomberg data. Fifty-six percent of earnings topped analysts’ estimates, the data show. That compares with more than 80 percent in the U.S. S&P 500.

National benchmark indexes slipped in 16 of the 18 western European markets this past week. Germany’s DAX lost 0.4 percent, the U.K.’s FTSE 100 retreated 0.8 percent and France’s CAC 40 declined 2 percent. Out of the 19 industry groups in the Stoxx 600, 16 fell in the period.

Wolseley sank 11 percent and Taylor Wimpey Plc, the U.K.’s largest homebuilder by market value, slid 11 percent.

The outlook for the U.S. housing market dimmed in the past week as residential construction and mortgage applications fell and loan delinquencies rose. Mortgage applications for home purchases dropped to a 12-year low in the past week and foreclosures climbed to record highs in the third quarter, according to reports from the Mortgage Bankers Association.

House Prices

In the U.K., house prices may decline next year as more Britons lose their jobs and the number of properties available for sale rises, according to Nationwide Building Society, the U.K.’s biggest customer-owned lender.

Royal BAM Groep NV slumped 9.8 percent after the largest Dutch builder cut its 2009 profit forecast on lower value of goodwill of its acquired property operations.

Danone fell 3 percent as it reduced its target for medium- term annual sales growth excluding acquisitions and currency fluctuations, citing “profound” change in consumer behavior.

Enterprise Inns Plc, the U.K.’s second-biggest pub owner, slid 13 percent after saying full-year profit dropped 97 percent as food and drink sales tumbled in the recession.

Irish Life & Permanent tumbled 25 percent. The Dublin-based company said it will set aside between 800 million euros ($1.19 billion) and 900 million euros to cover loan losses in the three years to 2011, up from its previous estimate of 700 million euros. Allied Irish Banks Plc lost 12 percent and Bank of Ireland Plc retreated 9.9 percent.

Infineon, FLSmidth

Ireland’s Prime Minister Brian Cowen said there will be “further recapitalizations” of the country’s lenders once the government’s so-called bad bank starts operating. He made the comment in a video clip posted on the Web site of his party, Fianna Fail.

Infineon Technologies AG, Europe’s second-largest maker of semiconductors, sank 8.3 percent as its Chief Executive Officer Peter Bauer said the company must “continue to be prepared for a low level of revenues.” Infineon returned to profit in the fiscal fourth quarter on increased demand from automotive and industrial customers.

FLSmidth & Co. A/S jumped 12 percent, the best performance in the Stoxx 600 in the past week, as the world’s biggest maker of cement kilns reported a gain in third-quarter net income and boosted its full-year sales outlook. Goldman Sachs Group Inc. raised its recommendation on the stock to “buy” from “neutral.”

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

Last Updated: November 21, 2009 03:18 EST