European Stocks Drop After U.S. Business Activity Report

European stocks dropped, paring their biggest weekly gain in almost two months, as technology companies retreated and a measure of business activity in the U.S. fell more than economists had projected.

Air France-KLM Group (AF), Europe’s second-biggest airline by sales, retreated 2.8 percent. Mediaset SpA climbed 2.8 percent after Credit Suisse Group AG raised its price target on the Italian broadcaster. Serco Group Plc added 2.7 percent after predicting that its revenue growth in the first half will exceed its previous estimates.

The Stoxx 600 declined 0.5 percent to 285.02 at the close of trading, after earlier advancing as much as 0.4 percent. The equity benchmark has increased 1.7 percent this week, halting a five-week decline. The gauge has still dropped 5.3 percent in June, paring its gain this year to 1.9 percent.

“Each and every U.S. economic report is an indication of money policy and investors are still cautious,” Robert Halver, head of capital markets research at Baader Bank AG in Frankfurt, said in a telephone interview. “I have spoken to many asset managers who have had a remarkable performance in the first five months and now they are holding off.”

National benchmark indexes retreated in 14 of the 18 western-European markets today. France’s CAC 40 Index dropped 0.6 percent and Germany’s DAX Index slipped 0.4 percent. The U.K.’s FTSE 100 declined 0.5 percent, while Greece’s ASE Index jumped 2.5 percent.

U.S. Economy

A release from the MNI Chicago Report showed that business activity in the U.S. declined this month. The business barometer fell to 51.6 in June from 58.7 in May, missing the median estimate in a poll of economists. The gauge stayed above the 50 level that separates expansion from contraction.

A separate report showed that consumer confidence in the world’s largest economy rose faster than expected. The Thomson Reuters/University of Michigan gauge of consumer sentiment climbed to 84.1 from 82.7 in May, beating the median estimate in a Bloomberg survey for a reading of 83.

Federal Reserve Bank of Atlanta President Dennis Lockhart, who has supported stimulus, said investors may have overreacted to Chairman Ben S. Bernanke’s announcement that the central bank could start scaling back its bond purchases this year.

“In my view, the comments by the chairman do not constitute an enormous shift in policy,” Lockhart said in Marietta, Georgia. “I still anticipate that the very low interest-rate policy will remain in place for a considerable time after the end of asset purchases, and thus policy will remain highly accommodative.”

Industrial Production

A report today showed that Japanese industrial output rose 2 percent in May, the most since December 2011. Economists had projected that industrial production would climb 0.2 percent from the previous month, according to the median estimate in a Bloomberg News survey.

In Europe, German retail sales (GRFRIAMM) rose in May more than economists had forecast. Sales adjusted for inflation and seasonal swings climbed 0.8 percent from April, when they fell a revised 0.1 percent, the Federal Statistics Office in Wiesbaden said. Economists had predicted an increase of 0.4 percent, according to the median of 23 estimates in a Bloomberg survey.

Air France-KLM retreated 2.8 percent to 6.89 euros. La Tribune reported that short- and medium-haul flights will weigh heavily on the airline’s second-quarter results, according to La Tribune. The French newspaper did not identify its source.

Hannover Re

Hannover Re lost 1.3 percent to 55.32 euros after Exane BNP Paribas SA downgraded the world’s fourth-largest reinsurer to neutral from outperform, meaning that investors should not buy more of the shares. The brokerage cited deteriorating short-term trading conditions.

SAP AG, the largest maker of business-management software, declined 3 percent to 56.26 euros. European technology companies posted the biggest decline of the 19 industry groups on the Stoxx 600 after Accenture forecast fourth-quarter revenue that missed the average analyst estimate of $7.36 billion. The world’s second-biggest technology-consulting company projected sales of $6.7 billion to $7 billion.

Mediaset (MS) climbed 2.8 percent to 2.90 euros after Credit Suisse raised its price target on the broadcaster to 4.40 euros from 2.65 euros. The brokerage cited growing evidence that the television-advertising markets in Italy and Spain have bottomed.

Serco jumped 2.7 percent to 616.5 pence after the U.K. services company said its investment in bidding for contracts and new market development activity has increased.

Schroders Plc (SDR) gained 1.3 percent to 2,183 pence after Exane raised its recommendation on Europe’s biggest independent money manager to outperform, which is similar to a buy rating, from neutral. The brokerage said that the fund manager will benefit from its brand and its distribution network among retail and institutional clients.

To contact the reporter on this story: Jonathan Morgan in Frankfurt at jmorgan157@bloomberg.net

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

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