Nov. 5 (Bloomberg) -- European stocks retreated for the first time in seven days after disappointing earnings overshadowed speculation that Barack Obama will boost the U.S. economy with a stimulus package.

ArcelorMittal, the biggest steelmaker, slumped 15 percent after saying it will double production cuts. BNP Paribas SA dropped 1.5 percent as third-quarter profit at France's largest bank missed analysts' estimates. Carlsberg A/S, the Nordic region's biggest brewer, declined 5.3 percent after lowering its full-year earnings and sales forecasts.

Europe's Dow Jones Stoxx 600 Index lost 2.3 percent to 228.13 in London. Companies from ArcelorMittal and BNP Paribas to Nokia Oyj and BASF SE have reported earnings that fell short of expectations as economic growth slows.

``There is still deterioration in the profits outlook,'' said Bernd Meyer, head of pan-European equity strategy at Deutsche Bank AG in London. ``Earnings estimates from analysts are too high. The fourth quarter will be substantially weaker.'' He spoke in Bloomberg Television interview. The bank's asset management division has $716 billion.

Earnings for the 924 companies in western Europe that reported results since Oct. 7 declined 4.9 percent on average, trailing expectations by 3.6 percent, Bloomberg data show.

National benchmark indexes fell in all 18 western European markets except Spain and Iceland. The U.K.'s FTSE 100 sank 2.3 percent and France's CAC 40 lost 2 percent. Germany's DAX slid 2.1 percent. Q-Cells SE tumbled 19 percent in Frankfurt after Deutsche Bank recommended selling shares in the solar company.

Battered Economy

Obama faces a U.S. economy battered by falling corporate profits and rising unemployment. Concern that $680 billion in bank writedowns will halt growth pushed the S&P 500 down 17 percent last month, the most since 1987.

``The election in the U.S. removes one uncertainty, but we have some earnings disappointments today that reminds us the economic path ahead of us won't be an easy one,'' said Lawrence Peterman, investment director at Eden Financial Ltd. in London.

The Institute for Supply Management's non-manufacturing index, which covers almost 90 percent of the world's largest economy, dropped to 44.4 from 50.2 in September, the group said today. A reading of 50 is the dividing line between growth and contraction.

An ADP Employer Services report showed the U.S. lost 157,000 jobs in October, more than the 102,000 forecast in a survey. The Labor Department may say on Nov. 7 employers eliminated jobs in October for a 10th consecutive month and the unemployment rate jumped to the highest in level in more than five years.

More Declines

Stocks may extend declines after Obama's victory before picking up, if election history is any guide.

The Standard & Poor's 500 Index fell by 0.9 percent in the month after a Democrat wins the presidency, based on the median change of 10 victories by party since 1932, according to data compiled by Bloomberg. Still, when Democrats won for the first time, the S&P 500 recovered those losses and advanced 9.3 percent over the next 12 months.

A rally in the S&P 500 may be in the offing soon after Inauguration Day in January, based on the speed of its tumble from last year's peak and the time it took stocks to gain before recessions ended in 1975, 1982 and 1991. Should the current recession be as severe as the one in the 1970s, it will last until July 2009, according to economist estimates.

Given the stock market's history of anticipating economic recoveries, the S&P 500 may start its next bull market in February.

Worst Year

Europe's Stoxx 600 has rebounded 17 percent from a five-year low on Oct. 27 after central banks from the U.S. and Japan to Frankfurt and London cut borrowing costs to revive economic growth and money-market interest rates declined. Still, the regional gauge is down 37 percent in 2008, headed for its worst year on record.

The European Central Bank and the Bank of England are forecast to cut rates again when they meet tomorrow.

ArcelorMittal sank 15 percent to 20.71 euros after reporting third-quarter net income of $3.82 billion, missing analysts' estimates of $5.72 billion.

BNP Paribas fell 1.5 percent to 57.60 euros. France's largest bank said third-quarter profit slumped 56 percent as provisions for risky loans quadrupled following the collapse of Lehman Brothers Holdings Inc. Net income declined to 901 million euros ($1.17 billion), missing the 1.38 billion-euro median estimate of 13 analysts surveyed by Bloomberg.

Carlsberg, Q-Cells

Carlsberg dropped 5.3 percent to 243.50 kroner after cutting its full-year outlook. Third-quarter net income rose to 1.22 billion kroner ($210 million), short of the 1.46 billion-krone estimate of seven analysts surveyed by Bloomberg News.

Q-Cells tumbled 19 percent to 32.87 euros after Deutsche Bank cut its recommendation to ``sell'' from ``buy,'' citing slower growth.

Credit markets are still creaking even after the biggest decline on record in the rate banks say they charge each other to borrow dollars.

The London interbank offered rate, or Libor, for three-month loans declined to 2.51 percent today, from 4.82 percent on Oct. 10. The rate is still 151 basis points more than the Federal Reserve's target interest rate for overnight bank loans, compared with an average of 22 basis points in the five years before the global credit crisis began in August 2007.

Government Bailouts

Government bailouts totaling about $3 trillion, interest- rate cuts worldwide and cash injections by central banks drove the Libor lower in the past month without convincing financial institutions to lend. About 85 percent of U.S. banks tightened lending standards on loans to large and mid-size companies in the past three months, the Fed said on Nov. 3, the highest since the survey began in its current format in 1991.

``The mere fact that the rate is going down doesn't mean there is more activity going on,'' said Colin McLean, Edinburgh- based managing director at SVM Asset Management, which has about $1 billion under management.

The Stoxx 600 is valued at 9.2 times the reported earnings of the companies in the index, below the average over the past four years of 14 times profit. The gauge traded at 7.9 times earnings on Oct. 27, the lowest since at least January 2002.

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

Last Updated: November 5, 2008 13:00 EST