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European Stocks Climb for Third Day; Home Retail Rallies

European stocks gained for a third day as Greece moved closer to forming a government and a Spanish debt sale met targets, outweighing a bigger-than-forecast decline in German investor confidence.

Home Retail Group Plc (HOME) surged 24 percent as sales at the Argos chain beat estimates. Whitbread Plc (WTB) jumped 6.4 percent as first-quarter revenue increased. SAP AG (SAP) rose 2.1 percent after U.S. peer Oracle Corp. reported fourth-quarter profit that beat estimates. Danone (BN) tumbled 6 percent after the world’s biggest yogurt maker cut its profitability forecast.

The Stoxx Europe 600 Index (SXXP) added 1.6 percent to 248.27 at the close in London, the highest since May 11. The benchmark gauge has still dropped 8.9 percent from its peak on March 16 amid concern that the euro area’s debt crisis has triggered a slowdown in global economic growth.

“The markets have stabilized now, and are waiting for more discussion about the future of the euro zone, especially the question of Spanish debt,” said Yves Maillot, director of investments at Robeco Gestions SA in Paris. “The Greek election result has been played last week, and now the markets expect a new government, hoping for something better.”

Greek politicians are close to forming a governing coalition and will seek relief from austerity measures imposed as a condition for bailout loans, probable coalition partners said.

Greek Government

“Agreement on a policy road map is the definitive point to form a government,” Democratic Left leader Fotis Kouvelis said after meeting with Pasok leader Evangelos Venizelos in Athens today. “The process is speeding up. It is possible that in the next few hours, or within the day, a government can be decided.”

Leaders at the Group of 20 summit in Mexico focused on steps to stabilize euro-area banks, raising pressure on German Chancellor Angela Merkel to expand rescue measures as Spain’s borrowing costs soared to a euro-era record yesterday.

Euro members “will take all necessary policy measures to safeguard the integrity and stability of the area, improve financial markets and break the feedback loop between sovereigns and banks,” according to the draft provided by an official from a G-20 government who asked not to be identified because the statement is not yet public.

Spain sold 3.04 billion euros ($3.8 billion) of debt today, just more than the 3 billion-euro maximum set for the auction. Demand for the 12-month bills was 2.16 times the amount offered, compared with 1.84 times last month. The bid-to-cover ratio on the 18-month securities rose to 4.42 from 3.23.

FTSE, DAX

National benchmark indexes rose all the 18 western European markets, except Iceland. The U.K.’s FTSE 100 Index (UKX) added 1.7 percent, while Germany’s DAX increased 1.8 percent and France’s CAC 40 advanced 1.7 percent.

The volume of shares trading on the Stoxx 600 today was 3.8 percent lower than the average of the last 30 days, data compiled by Bloomberg show.

German investor confidence fell more than economists forecast in June as Europe’s sovereign debt crisis weighed on the economic outlook. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, slid to minus 16.9 from 10.8 in May. Economists forecast a reading of 2.3, according to the median of 38 estimates in a Bloomberg survey.

U.S. Economy

In the U.S., builders broke ground on fewer homes than forecast in May. Starts dropped 4.8 percent to a 708,000 annual pace from a revised 744,000 rate in the prior month that was the highest since October 2008, the Commerce Department reported. The median forecast of 77 economists surveyed by Bloomberg called for a 722,000 pace.

The Federal Reserve begins a two-day policy meeting today. The U.S. central bank bought $2.3 trillion of bonds in two rounds of so-called quantitative easing from December 2008 to June 2011, seeking to cap borrowing costs and stimulate the economy.

Home Retail rallied 24 percent to 91.85 pence, the biggest gain since the company split off from GUS Plc in 2006. Revenue at Argos stores open at least a year fell 0.2 percent in the 13 weeks ended June 2, the Milton Keynes, England-based retailer said today. That compared with the median 4 percent drop of five analyst estimates compiled by Bloomberg.

Whitbread jumped 6.4 percent to 1,967 pence after saying first-quarter revenue rose 13.9 percent, spurred by sales growth of 25 percent at its Costa outlets. The company will expand its Premier Inn chain and add more Costa stores this year, creating 3,500 jobs.

SAP, Roche

SAP, the world’s largest business-management software maker, gained 2.1 percent to 47.68 euros. Oracle said after the market close yesterday that fourth-quarter earnings excluding certain costs were $4.1 billion, or 82 cents a share, exceeding than the 79 cent average analyst estimate, according to data compiled by Bloomberg.

Roche Holding AG (ROG) added 3.4 percent to 161.50 Swiss francs after announcing an alliance with Seaside Therapeutics to develop treatments for fragile X syndrome and autism spectrum disorders.

Telecom Italia SpA (TIT) rallied 7.9 percent to 72.6 euro cents after Il Sole 24 Ore said the phone operator may start a fixed- line network venture with a unit of Cassa Depositi & Prestiti SpA. Both companies denied the report, with Telecom Italia calling it “groundless.”

ARM Holdings Plc (ARM) gained 3.6 percent to 508 pence after Microsoft Corp. said it will use the company’s chips in a version of its new Surface tablet computer.

Danone dropped 6 percent to 48.70 euros, the largest slide since October 2008. The company said it expects operating margin to decline by 50 basis points in 2012 on a like-for-like basis, after previously forecasting a “stable” margin.

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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