European Stocks Post Biggest Weekly Decline Since June

European stocks posted their biggest weekly decline since June as concern that the latest round of bond buying in the U.S. will fail to encourage growth offset speculation China may announce further stimulus measures.

Volkswagen AG (VOW) led automakers lower after forecasting tougher business conditions for the second half. Fomento de Construccion & Contratas plunged 15 percent, pacing a drop in Spanish construction companies. Infineon Technologies AG (IFX) slid after predicting sales and profitability will decline. Telekom Austria AG (TKA) sank after cutting its dividend.

The benchmark Stoxx Europe 600 Index (SXXP) fell 2.7 percent to 268.48 this week. The benchmark measure has still advanced 6.9 percent this quarter as European Central Bank policy makers approved a plan to buy the bonds of the most-indebted members of the euro area. The index added 0.9 percent in September, for a fourth straight monthly gain.

“There are elements of political risk,” said Guillaume Duchesne, an equity strategist at BGL BNP Paribas SA in Luxembourg. “Fundamentals remain weak and there is still pressure on economic growth. We have a rather negative outlook.”

Federal Reserve Bank of Philadelphia President Charles Plosser said on Sept. 25 that the Fed’s latest round of quantitative easing may jeopardize the central bank’s credibility. The Federal Open Market Committee said on Sept. 13 that it will buy mortgage-backed securities at a pace of $40 billion per month until the labor market improves.

China Stimulus

A report on Sept. 27 showed China’s industrial profits fell for a fifth month in August, increasing speculation the government will do more to support economic growth. China may further cut banks’ reserve requirements or interest rates if external demand worsens, Chen Yulu, an academic adviser to the People’s Bank of China, told reporters in Beijing.

Spain’s cabinet on Sept. 27 approved the budget for 2013. Prime Minister Mariano Rajoy has vowed to cut the deficit by at least 18 billion euros ($23.1 billion) next year, defying tens of thousands of demonstrators who fought with police in Madrid this week to demand the premier reverse course and resign.

Rajoy is struggling to persuade European peers, voters and investors that he can tackle the crisis. Spanish bond yields surpassed 6 percent this week amid rising investor uncertainty over whether he will ask for external aid.

FCC led Spanish construction companies lower. The builder plunged 15 percent this week, while Sacyr Vallehermoso SA (SYV) sank 14 percent. Acciona SA (ANA), a renewable energy and water provider, tumbled 13 percent.

U.S. Data

Business activity in the U.S. unexpectedly contracted in September for the first time in three years, adding to signs manufacturing will contribute less to the economic recovery.

The Institute for Supply Management-Chicago Inc. said on Friday that its business barometer fell to 49.7 this month from 53 in August. A reading of 50 is the dividing line between expansion and contraction.

A separate report from the Commerce Department this week showed that total orders for durable goods, those meant to last at least three years, plunged 13 percent in August, the most since January 2009. Another report showed the world’s largest economy grew less in the second quarter than previously forecast. The economy expanded at a 1.3 percent pace after growing at a 2 percent rate from January through March.

National benchmark indexes declined in all of Europe’s 18 western markets. France’s CAC 40 Index dropped 5 percent, the U.K.’s FTSE 100 Index fell 1.9 percent, and Germany’s DAX Index retreated 3.2 percent.

Carmakers Decline

Stoxx 600 automakers fell 6.3 percent this week, for the biggest decline among the 19 industry groups on the index.

Volkswagen’s preferred shares slid 4.8 percent. Market conditions have become “noticeably harder and tougher,” Chief Executive Officer Martin Winterkorn said on Sept. 25.

PSA Peugeot Citroen, the region’s second-largest carmaker, decreased 5.4 percent. Fiat SpA, the Italian automaker that controls Chrysler Group LLC, fell 7.6 percent.

Continental AG (CON), Europe’s second-largest auto-parts maker, sank 8.9 percent in its first week back in the benchmark DAX Index after being reinstated following a 45-month absence.

Infineon, Europe’s second-biggest semiconductor maker, lost 12 percent. The company on Sept. 25 said revenue in the three months through December will drop as much as 10 percent from the previous quarter while operating profit will decline to between 5 percent and 7 percent of sales from almost 12 percent as clients cut spending amid the economic slowdown.

Telekom Austria

Telekom Austria, the phone operator partly controlled by Carlos Slim’s America Movil SAB, sank 14 percent. The company on Sept. 24 cut its dividend forecast for this year to 0.05 euros per share from 0.38 euros because cash flow will be lower than expected. The former Austrian phone monopoly had initially planned to pay 0.76 euros a share for 2012, before halving its guidance on Dec. 16.

London Stock Exchange Group Plc (LSE) tumbled 12 percent. Europe’s oldest independent bourse said new European Union regulations will cut income at its Italian central counterparty and may require LCH.Clearnet Group Ltd. to boost capital.

Recommendations published on Sept. 27 by the European Securities and Markets Authority proposed that 95 percent of a clearinghouse’s cash deposits placed with financial institutions must be collateralized with debt instruments meeting certain conditions regarding liquidity as well as credit and market risk, LSE said.

Qinetiq Group Plc (QQ/) jumped 10 percent. The technology and research company said on Sept. 24 that a stronger-than-forecast first-half performance should help it meet analysts’ expectations for the full year.

Air France-KLM (AF) Group, Europe’s biggest airline, rallied 5.1 percent. UBS AG on Sept. 28 raised the stock to buy from neutral. The chief executive officer is focused on the change program, the government seems supportive and it has already implemented some key restructuring measures, UBS said in a note.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

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

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