April 1 (Bloomberg) -- European stocks declined for the first week in four amid concern that the earnings outlook is deteriorating as interest rates rise.

Vodafone Group Plc led a slump by telephone companies after European Union regulators proposed lowering mobile-phone roaming fees. Retailers tumbled as Royal Ahold NV cut its sales and profitability forecasts and Hennes & Mauritz AB reported earnings that missed analysts' estimates.

``The earnings evolution is definitely slowing in Europe,'' said Patrick Casselman, who helps manage about $600 million at KBC Asset Management in Brussels. ``Combined with rising interest rates and an excellent performance over the last few months, we can expect the market to take a pause.''

The Dow Jones Stoxx 600 Index fell 1 percent, after closing last week at its highest since June 2001. The Stoxx 50 slid 1.2 percent. The Euro Stoxx 50, a measure for the 12 countries using the euro, declined 0.4 percent.

The Stoxx 600 still rose 7.9 percent in the first three months of the year, its best start since the first quarter of 1998, amid a surge in mergers and acquisitions.

London Stock Exchange Plc and ITV Plc dropped this week after bidders abandoned their takeover attempts for the companies. Mining companies including BHP Billiton and Rio Tinto Group advanced as metal prices reached record highs.

National benchmarks fell in 11 of the 18 western European markets. The U.K.'s FTSE 100 Index lost 1.2 percent. Germany's DAX Index slipped 0.1 percent, while France's CAC 40 Index gained less than 0.1 percent. Denmark's OMXC20 Index led declines with a 2.3 percent drop as A.P. Moeller-Maersk A/S slid.

Higher Interest Rates

Profits at Stoxx 600 companies may rise this year by an average of 7.4 percent, less than a third of the 25 percent growth last year, according to analyst estimates compiled by FactSet Research Systems Inc. in London.

``We'll be very vigilant in terms of earnings,'' said Emmanuel Soupre, a fund manager at Banque de Neuflize Gestion in Paris, which oversees $14 billion.

Financial shares paced declines this week as evidence of economic growth fueled speculation that the European Central Bank will step up the pace of interest-rate increases. Policy makers on March 2 raised rates to 2.5 percent, the second increase in three months, and signaled more may be coming.

A report yesterday showed confidence among European executives and consumers rose to the highest in almost five years in March and inflation topped the ECB's ceiling for a 14th month. Traders raised bets the ECB will lift rates to 3.25 percent by the end of the year, futures prices show.

Bonds Decline

European two-year bonds had their longest losing streak in six years, falling for a seventh straight month and pushing yields to the highest in more than three years. U.S. Treasuries are poised for their biggest quarterly drop since 2004 after the Federal Reserve on March 28 lifted the benchmark lending rate to 4.75 percent, the 15th consecutive increase, and said ``further policy firming may be needed.''

The Stoxx Banks Index, the biggest among 18 industry groups, slid 0.9 percent. The gauge for insurers dropped 0.8 percent. The two measures account for more than a quarter of the Stoxx 600.

ABN Amro Holding NV, the biggest Dutch bank, sank 3.8 percent to 24.74 euros. Aviva Plc, the U.K.'s largest insurer, ended 3.9 percent lower at 799.5 pence.

Telecommunications stocks declined 3.2 percent as a group, the second-biggest drop, after Viviane Reding, the EU's top telephone regulator, announced plans to reduce tariffs for calls made outside a user's home market, threatening 10 billion euros ($12 billion) in annual revenue for phone companies.

Earnings Miss Estimates

Vodafone, the world's largest mobile-phone company, dropped 4 percent to 120.5 pence. France Telecom SA, Europe's second- biggest phone company, declined 3.9 percent to 18.56 euros.

The industry group for retailers fell the most, with a 3.3 percent slide.

Ahold, the world's fourth-largest food retailer, dropped 9.6 percent to 6.49 euros. The company, based in Amsterdam, said intensifying competition in the U.S. will hurt sales at its Stop & Shop and Giant supermarkets.

H&M slid 5.3 percent to 284 Swedish kronor as the Stockholm- based company surrendered its position as Europe's largest clothing retailer to Spain's Inditex SA. H&M reported first- quarter profit of 1.81 billion kronor ($230 million), less than the 1.86 billion kronor predicted by analysts in a Bloomberg News survey, and said sales growth slowed in February.

Enthusiasm for takeovers, which bolstered stock gains this quarter, waned this week.

`Refuge Stocks'

LSE, Europe's largest stock exchange by value of companies listed, fell 7.4 percent to 1,056 pence after Nasdaq Stock Market Inc. withdrew a 2.4 billion-pound ($4.2 billion) bid, abandoning an attempt to create the first transatlantic stock market.

ITV declined 6.7 percent to 119.25 pence after Britain's second-largest broadcaster rejected a sweetened 130 pence-a-share offer from Apax Partners Worldwide LLP and Blackstone Group LP. The private equity firms, together with Goldman Sachs Group Inc.'s buyout unit, ``decided not to proceed further,'' the group said yesterday.

Mining stocks advanced as prices for metals including copper, zinc and silver soared.

BHP Billiton, the world's biggest mining company, gained 2.9 percent to 1,051.5 pence. Rio Tinto, the world's No. 3, added 2.6 percent to 2,922 pence.

``Metal and mining shares are seen as refuge stocks in the face of concern about inflation,'' said Pablo Garcia, who helps manage about 400 million euros at Nordkapp Inversiones SV in Madrid. ``Its clear the ECB is going to raise rates and that's not good for equity markets. Investors are anticipating this by taking shelter in metals and mining companies.''

A.P. Moeller, the world's largest shipowner, dropped 9.9 percent to 52,900 Danish kroner. The company said 2006 profit will fall as much as 15 percent as a five-year surge in freight rates ends.

Vestas Wind Systems A/S, the world's biggest windmill maker by sales, jumped 18 percent to 153.5 Danish kroner after predicting a return to a net profit this year, reversing last year's loss, as it raises prices on its wind turbines and gains market share.

To contact the reporter on this story: Martin Boer in Amsterdam at mboer1@bloomberg.net

Last Updated: April 1, 2006 02:23 EST