March 7 (Bloomberg) -- European drug stocks fell, paced by GlaxoSmithKline Plc and Novartis AG amid renewed concern that scrutiny from regulators may slow product introductions and lead to recalls.

Morgan Stanley repeated its advice to sell Glaxo shares, citing ``potentially serious'' U.S. manufacturing problems that last week led the company to stop distributing two products.

Glaxo's withdrawal ``exacerbates the risk on the whole industry,'' said Luis Benguerel, who helps manage $75 million at Interbrokers SA in Barcelona, Spain, and sold his Glaxo shares. ``Not only will they lose revenue, but it may trigger lawsuits.''

Utility stocks rose, paced by Suez SA. Air Liquide SA led chemical makers higher amid expectations for rising profit.

The Dow Jones Stoxx 600 Index fell 0.2 percent to 267.51 at 4:30 p.m. in London. The Stoxx 50 slipped 0.3 percent, with rising and falling stocks even, while the Euro Stoxx 50 benchmark for the 12 countries using the euro added 0.2 percent.

BAE Systems Plc fell as it agreed to buy United Defense Industries Inc. for about $4 billion. London Stock Exchange Plc slid after Deutsche Boerse AG scrapped its 1.3 billion-pound ($2.5 billion) offer for the British exchange.

Benchmark indexes rose in 11 of 18 Western European markets. France's CAC 40 Index increased 0.2 percent, while Germany's DAX Index fell 0.1 percent and the U.K.'s FTSE 100 Index slipped 0.4 percent. Austria's ATX Index had the biggest gain, climbing 1.3 percent. March futures on the Euro Stoxx 50 lost 0.4 percent.

Glaxo, Elan

Glaxo fell 1.2 percent to 1,273 pence after the shares were reiterated ``underweight'' by analysts at Morgan Stanley.

The shares pared gains late on March 4, when the company said it stopped distributing a form of its Paxil antidepressant, once Glaxo's top seller, and Avandamet diabetes tablets. U.S. regulators seized the drugs, saying manufacturing practices failed to meet U.S. standards.

``The worst that can happen to a drug company is that regulators seize its money-making treatments,'' Benguerel said.

Novartis, Europe's fourth-largest drugmaker, slipped 0.6 percent to 57.65 francs, a third day of declines.

Elan Corp., Ireland's biggest drugmaker, reversed a drop in late trading. Its shares had plunged on concerns about the future of its multiple-sclerosis treatment Tysabri, which was withdrawn from the market last week. The shares declined as much as 10 percent to an 18-month low of 4.30 euros before closing 4 percent higher at 5 euros in Dublin.

The Stoxx 600 Healthcare Index dropped 0.9 percent. Shares of drugmakers, the worst performers last quarter, climbed 0.6 percent last week on optimism they are inexpensive given the outlook for profit growth.

The sub-index traded at an average 17.5 times estimated earnings for this year, according to Bobby Rakhit, senior vice president at FactSet JCF, a London-based market research firm. The multiple is less than the drug group's average of 21.1 in the past five years.

LSE, Deutsche Boerse

London Stock Exchange sank 7.8 percent to 497 pence. Deutsche Boerse slipped 2.6 percent to 56.89 euros, erasing an early gain. The German bourse withdrew its offer for the British exchange yesterday and also announced plans to buy back shares.

Euronext, which is now the only potential bidder for LSE, rose 4.2 percent to 29.69 euros. A Euronext spokeswoman wouldn't comment yesterday.

``The thinking is that Euronext can get LSE for cheaper now,'' said Johannes Thormann, an analyst covering stock exchanges at Dusseldorf, Germany-based WestLB AG, who rates Euronext `neutral.'' ``Any deal is now more likely to be on Euronext's terms.''

Thormann today cut his rating on LSE to ``underperform'' from ``neutral.''

BAE, Air Liquide

BAE fell 1.7 percent to 245.75 pence. Europe's biggest defense contractor agreed to buy United Defense to add more land- based weapons, including the Bradley Fighting Vehicle used by the U.S. in Iraq. United Defense didn't trade in Europe.

``They've paid a fairly high price,'' said Robert Talbut, chief investment officer of Royal London Asset Management Plc, which oversees $46 billion including BAE shares. ``It's a bit of a stretch.''

Air Liquide, the world's largest producer of industrial gases, advanced 2.8 percent to 141.9 euros. Analysts at Dresdner raised the shares to ``add'' from ``hold,'' citing prospects for profit growth.

Chemical makers were also boosted as crude-oil prices slipped. Many chemical companies use oil-derived raw materials.

Suez, the biggest importer of liquefied natural gas into the U.S., led gains by utility stocks. The shares climbed 1.5 percent to 20.73 euros.

Suez controls Belgium's Electrabel SA, which said March 4 that it plans to boost electricity sales 23 percent by 2009 as it expands outside its home market.

Electrabel rose 1 percent to 333.3 euros today, adding to a 2.1 percent gain March 4.

Oil Stocks, Infineon

Oil stocks pared last week's gains as the price of oil declined for the first day in four. Crude oil slipped 0.6 percent to $53.45 a barrel in electronic trading on the New York Mercantile Exchange. The contract gained 4.5 percent last week and traded as high as $55.20, 47 cents shy of the record, on March 3.

BP Plc, Europe's biggest oil company, fell 1 percent to 570 pence. Saipem SpA, Europe's second-largest oilfield-services company, lost 1.5 percent to 10.29 euros. Total SA, Europe's largest oil refiner, slipped 0.3 percent to 182.2 euros.

Infineon Technologies AG, Europe's No. 2 chipmaker, fell 1 percent to 7.62 euros. Analysts at Credit Suisse First Boston cut the shares to ``underperform'' from ``neutral'' because supply of semiconductors will probably outstrip demand next quarter. JPMorgan Chase & Co. also reduced its rating on the stock.

BHP, TUI

BHP Billiton slipped 1.3 percent to 7447 pence. The world's biggest mining company said it's considering buying a stake in Australia's WMC Resources Ltd.

Xstrata Plc, the world's biggest exporter of coal burned in power plants, lost 2.9 percent to 1,042 pence. The company will return $1 billion to shareholders through a buyback or special dividend if its bid to buy WMC fails, the Sunday Times reported, without saying how it got the information.

TUI AG, Europe's largest travel company, rose 2.8 percent to 20.71 euros. Analysts at UBS AG raised TUI's recommendation to ``buy'' from ``neutral'' and their share-price forecast to 25 euros from 17.10 euros.

Woolworths, Travis Perkins

Woolworths Group Plc, the operator of 806 U.K. stores, fell 2.1 percent to 46.75 pence. The retailer slid amid concern that proposed changes to private equity taxation laws may affect Apax Partners Worldwide LLP's acquisition plans. Clare Sillars, a spokeswoman for Apax in London, declined to comment on the company's plans for Woolworths.

Travis Perkins Plc, a building-supply company that's expanding into home improvement, declined 4.4 percent to 1,836 pence. Second-half pretax profit before goodwill amortization rose 17 percent to 207.8 million pounds, less than the 210 million pounds predicted by the median estimate of five analysts in a Bloomberg survey.

Taylor Nelson Sofres Plc, the world's second-largest market- research company, dropped 2.1 percent to 235.75 pence. Chief Executive Officer David Lowden said on Bloomberg TV that the company is facing ``pricing pressure'' in Europe with spending in Germany and France particularly slow.

Alfa Laval AB, a Swedish maker of devices that heat, cool and transport liquids, retreated 2.5 percent to 117 kronor. Industri Kapital, a buyout firm, said it plans to sell shares in the company.

Close Brothers Group Plc, the U.K.'s largest publicly traded independent investment bank, slid 4.1 percent to 815.5 pence. First-half profit from its banking unit, which accounts for more than half of overall earnings, grew just 2.3 percent, hurt by a slowdown in its insurance financing business.

Air Liquide SA (AI FP)
Alfa Laval AB (ALFA SS)
BAE Systems Plc (BA/ LN)
BHP Billiton (BLT LN)
Close Brothers Group Plc (CBG LN)
Deutsche Boerse AG (DB1 GY)
Elan Corp. (ELN ID)
Electrabel SA (ELEB BB)
Euronext Nv (NXT FP)
GlaxoSmithKline Plc (GSK LN)
Infineon Technologies AG (IFX GY)
London Stock Exchange Plc (LSE LN)
Suez SA (SZE FP)
Taylor Nelson Sofres Plc (TNN LN)
Travis Perkins Plc (TPK LN)
TUI AG (TUI GY)
Woolworths Group Plc (WLW LN)
Xstrata Plc (XTA LN)

To contact the reporter on this story: Kotaro Miyata in London at kmiyata2@bloomberg.net.

Last Updated: March 7, 2005 11:46 EST