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Europe Stocks Drop Most in 10 Months on Stimulus Concern

European stocks dropped the most in 10 months after the Federal Reserve signaled it will scale back its stimulus if the U.S. economy improves and as data showed Chinese manufacturing shrank.

PSA Peugeot Citroen and Anglo American Plc led carmakers and mining companies lower, respectively, on concern demand from China will weaken. St. James’s Place Plc tumbled the most in 4 1/2 years after Lloyds Banking Group Plc sold 77 million shares in the British wealth manager. SBM Offshore NV (SBMO) jumped to the highest price in 13 months after saying its first-quarter revenue increased 35 percent.

The Stoxx Europe 600 Index lost 2.1 percent to 303.99 at the close of trading, as all but 26 of the 600 shares in the gauge fell. The benchmark yesterday climbed to its highest level since June 2008 as Fed Chairman Ben S. Bernanke initially told a Joint Committee of Congress in Washington that reducing stimulus too soon would endanger economic recovery.

“This morning, we got the perfect storm for risky assets, with negative signals from both monetary policy and macro-fundamentals,” Witold Bahrke, who helps oversee $55 billion as senior strategist at PFA Pension A/S in Copenhagen, wrote in a message. “Quantitative-easing fears got boosted yesterday, which can have quite an effect in an extremely central-bank manipulated market.”

Later Comments

U.S. stocks fell for a second day. The Standard & Poor’s 500 Index yesterday tumbled 0.8 percent, erasing earlier gains, as Bernanke signaled the central bank will scale back stimulus if economic conditions improve. The flow of purchases could be reduced “in the next few meetings” if the Fed is confident gains in the economy can be sustained, he said in response to a question from Representative Kevin Brady.

In Asia, Japan’s Topix (TPX) tumbled 6.9 percent today, the most since the aftermath of the March 2011 tsunami and nuclear disasters. The rout triggered a halt in Nikkei 225 Stock Average futures trading in Osaka.

A release from China showed manufacturing in the world’s second-largest economy is contracting for the first time in seven months. The preliminary reading of a purchasing managers’ index declined to 49.6 in May from 50.4 in April, HSBC Holdings Plc and Markit Economics said. That missed the 50.4 median estimate in a Bloomberg News survey. Fifty is the dividing line between expansion and contraction.

Volume Surges

The number of shares changing hands in Stoxx 600 companies was 24 percent greater than the average of the past 30 days, according to data compiled by Bloomberg. The gauge’s relative strength index, a measure of how rapidly prices are increasing, fell to 55 from 77 yesterday. A reading above 70 signals stocks are rallying faster than average.

National benchmark indexes declined in all 18 western-European markets. The U.K.’s FTSE 100 lost 2.1 percent, its biggest drop in a year. France’s CAC 40 and Germany’s DAX also decreased 2.1 percent each.

All 19 industry groups in the Stoxx 600 fell, with gauges of automotive and mining companies posting the worst performances.

Peugeot, Europe’s second-largest carmaker, tumbled 5.3 percent to 6.99 euros. Renault SA lost 4 percent to 59.66 euros, while Daimler AG slid 3.3 percent to 48.05 euros.

Anglo American, the world’s biggest platinum producer, slid 5.1 percent to 1,570 pence. Rio Tinto Group, the world’s second-largest mining company, fell 4.3 percent to 2,913 pence.

Banks Drop

HSBC Holdings Plc, Europe’s biggest bank, slid 3.4 percent to 741.8 pence, while UBS AG, Switzerland’s largest lender, lost 3.8 percent to 17.32 Swiss francs. An index of banking shares slipped 3.2 percent, the most since September.

St. James’s Place plummeted 10 percent to 573 pence, the most since October 2008. Lloyds sold 77 million shares in the company at 580 pence a share for total proceeds of 450 million pounds ($678 million).

Man Group Plc, the world’s biggest publicly traded hedge fund manager, slumped 6.4 percent to 124.9 pence, its largest drop since October. Berenberg Bank started coverage of the stock with a sell recommendation. The brokerage said that Man’s sales will probably remain slow and its margins will come under pressure as its seeks funds from institutional investors.

ARM Holdings Plc (ARM), whose chip designs power Apple Inc.’s iPhone and iPad, plunged 5.2 percent to 995 pence. Exane BNP Paribas downgraded the shares to neutral from outperform, saying that Intel Corp.’s new platform may enable it to outperform ARM’s designs.

SABMiller Plc (SAB) lost 2.1 percent to 3,462 pence. The world’s second-largest brewer said earnings before interest, taxes and amortization in the year to March 31 rose to $6.42 billion. That missed the median estimate of 13 analysts in a Bloomberg News survey that called for $6.46 billion.

SBM Offshore NV rose 3.6 percent to 14.23 euros, for the biggest gain on the Stoxx 600. The world’s largest supplier of floating oil rigs reported a 35 percent increase in first-quarter revenue to $1 billion. The order portfolio increased 49 percent to a record $21 billion, the company said.

To contact the reporter on this story: Tom Stoukas in Athens at astoukas@bloomberg.net

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

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