European stocks fell, dragging the Stoxx Europe 600 Index to the biggest three-day drop since March, amid growing concern that the region’s government-debt crisis is spreading.
Thomas Cook Group Plc (TCG) slumped 28 percent after Europe’s second-largest tour operator cut its forecast. Infineon Technologies AG (IFX) led semiconductor shares lower as U.S. rivals Microchip Technology Inc. and Novellus Systems Inc. reported results that missed estimates. Italy’s benchmark FTSE MIB Index erased an earlier 4.8 percent drop as UniCredit SpA (UCG) rebounded.
The benchmark Stoxx 600 lost 0.6 percent to 268.16 at the 4:30 p.m. close in London. The gauge has fallen 2.8 percent over the past three days as contagion from Greece’s debt crisis threatened to spread to the bigger economies of Italy and Spain. That brings the decline since this year’s high in February to 7.9 percent.
“We have two negative themes for the equity market, with on the one hand increasing tensions in Italy and Greece and on the other hand the earnings season giving signs of an economic slowdown,” said Christian Stocker, a Munich-based strategist at UniCredit. “We remain cautious for the second half of the year and defensive in terms of sector allocation.”
Alcoa Inc. (AA) became the first company in the Dow Jones Industrial Average to report second-quarter earnings after the close of New York trading yesterday. The largest U.S. aluminum producer posted per-share profit that trailed estimates.
European finance chiefs cast about for a strategy to halt Greece’s debt spiral, reviving previously discarded ideas and sharpening a dispute with central bankers as the rot spread to Italy. Nine hours of talks yesterday yielded a six-paragraph statement in which the 17 euro governments pledged to flesh out a new master plan “shortly.” The meetings resumed today with all 27 European Union finance ministers plotting a response to the release of bank stress tests later this week.
Three days of losses have left the Stoxx 600 trading at about 12.6 times its companies’ reported earnings, near the cheapest valuation since 2008, according to data compiled by Bloomberg.
“Stocks are fairly valued and it could be a support in the short term, but if tensions escalate in the euro zone it won’t be,” UniCredit’s Stocker said.
National benchmark indexes fell in all of the 18 western European markets, except Italy, Portugal and Luxembourg. Germany’s DAX Index declined 0.8 percent, France’s CAC 40 and the U.K.’s FTSE 100 each lost 1 percent.
The VStoxx Index, a measure of the cost of insuring against losses in the Euro Stoxx 50 Index, rose 7.6 percent to 28.25, the highest level since March.
The Stoxx 600 pared a drop of as much as 2.7 percent today as Italian and Spanish bonds rebounded amid speculation the European Central Bank bought the debt of the euro region’s most-indebted nations to stabilize markets.
Thomas Cook plummeted 28 percent to a record low of 87.85 pence. The company said its underlying operating profit for the year ending in September may fall to 320 million pounds ($506 million) from 362 million pounds in 2010. That’s below forecasts given in May and less than the 382 million-pound average estimate of nine analysts compiled by the company.
TUI Travel Plc (TT/) tumbled 7.5 percent to 204.7 pence, the biggest decline in almost nine months. International Consolidated Airlines Group, the parent of British Airways, dropped 2.3 percent to 231.7 pence.
Infineon, Europe’s second-biggest chipmaker, lost 3.6 percent to 7.48 euros. Microchip Technology, a U.S. maker of analog chips, said sales and profit didn’t meet its forecasts on weaker demand from automakers and computer producers.
ASML Holding NV (ASML), Europe’s biggest semiconductor-gear maker, declined 3 percent to 25.70 euros after Novellus, a maker of machinery used in semiconductor production, forecast third-quarter sales and profit that fell short of analysts’ estimates.
A gauge of technology shares posted the worst performance of 19 industries in the Stoxx 600. ARM Holdings Plc (ARM), the U.K. designer of chips that power Apple Inc.’s iPhone, sank 4.9 percent to 596.5 pence. Temenos Group AG (TEMN), a banking software provider, lost 1.4 percent to 24.05 Swiss francs.
British Sky Broadcasting Group Plc (BSY) fell 3.3 percent to 692 pence, the lowest in more than a year. Prime Minister David Cameron’s government will support an opposition Labour Party motion calling for News Corp. to withdraw its bid to take full control of BSkyB, Cameron’s spokesman Steve Field said.
Allegations last week that News Corp. staff hacked into the phones of murdered schoolgirls and terror victims and paid police for stories prompted Rupert Murdoch to close the News of the World tabloid.
Stora Enso, UniCredit
Stora Enso Oyj (STEAV) slid 2.1 percent to 6.79 euros after Europe’s biggest papermaker said its second-quarter operating profit will be reduced by about 32 million euros in non-recurring items including restructuring measures.
UniCredit, Italy’s largest bank, rose 5.9 percent to 1.22 euros after earlier plummeting 8 percent. Intesa Sanpaolo SpA (ISP) gained 3.3 percent to 1.58 euros, erasing a drop of 7.3 percent.
Italy sold 6.75 billion euros ($9.4 billion) of treasury bills in its first auction since borrowing costs began soaring amid contagion from the Greek debt crisis. Demand for the debt was 1.55 times the amount sold, compared with 1.71 times at an auction in June.
Italy will survive the European debt crisis given the country has many exporters and more than half of its debt is held by local investors, according to SLJ Macro Partners LLP.
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