European Stocks Drop as Fresenius Medical Care Retreats

European stocks fell, following yesterday’s rally for the Stoxx Europe 600 Index, as a report showed that U.K. construction expanded less than forecast.

Fresenius Medical Care AG plunged the most in more than a decade as the U.S. Medicare program proposed cutting spending on dialysis. Telefonica Deutschland Holding AG lost 1.7 percent as Commerzbank AG lowered its recommendation for the mobile-phone operator. Dialog Semiconductor Plc rose 7.6 percent after the German maker of chips used in Apple Inc.’s iPhone agreed to buy IWatt Inc. for as much as $345 million.

The Stoxx 600 slipped 0.4 percent to 287.13 at the close of trading. The equity benchmark advanced yesterday as euro-area factory output contracted in June less than estimated and Japanese manufacturers turned optimistic for the first time since the third quarter of 2011.

“Markets need a major catalyst to revive the uptrend,” said Benedict Goette, chief executive officer of Compass Capital AG in Zurich, which helps oversee about 700 million Swiss francs ($737 million). “We expect that the correction will continue.”

The Stoxx 600 advanced 1.7 percent last week as China sought to ease a cash crunch. The gauge still lost 5.3 percent in June after Federal Reserve Chairman Ben S. Bernanke said the central bank could reduce stimulus measures if the U.S. economy improves in line with its forecasts.

U.K. Manufacturing

In the U.K., a report showed that construction rose less than forecast in June. An index of activity in the industry climbed to 51, from 50.8 in May. That missed the median economist estimate in a Bloomberg survey for a reading of 51.2.

In the U.S., a Commerce Department release showed that orders placed with U.S. factories climbed 2.1 percent in May, following a revised 1.3 percent advance in April. The median forecast of 61 economists surveyed by Bloomberg News had called for a 2 percent gain.

New York Fed President William C. Dudley speaks on regional and national economic conditions at 12:30 p.m. in Connecticut. Fed Governor Jerome Powell will address a Deutsche Bundesbank reception about reforming international financial regulations at 5:45 p.m. in New York.

Fresenius Medical Care slumped 8.7 percent to 49.71 euros as the U.S. government’s Health and Human Services Department proposed cutting payments to kidney-dialysis centers from next year. Payments to the German company, which runs clinics offering the procedure in the U.S., may drop 9.4 percent in 2014 under the plans to reduce spending on Medicare.

Telefonica Deutschland

Telefonica Deutschland declined 1.7 percent to 5.44 euros after Commerzbank cut the German business of Telefonica SA to hold from buy. The brokerage said that new uncertainties, including a probable spectrum auction in Europe’s largest economy in the next two years, limit the shares’ upside.

RWE AG and EON SE led a gauge of European utilities lower, declining 4.1 percent to 22.30 euros and 2 percent to 12.18 euros, respectively. Morgan Stanley removed RWE from the list of its best ideas. The brokerage reduced its earnings-per-share estimates for 2014-15 by as much as 13 percent, saying that Germany’s second-largest power producer faces a difficult market in the near term.

Erste Group Bank AG lost 2 percent to 20.01 euros as Austria’s biggest lender sold 661 million euros ($860 million) of new shares to help repay state aid in a deal that reduces the stakes of its key shareholders.

European Lenders

A gauge of European banks declined, contributing the most to the Stoxx 600’s retreat. Commerzbank and Deutsche Bank, Germany’s largest lenders, slid 4.6 percent to 6.16 euros and 1.5 percent to 31.92 euros, respectively.

Dialog Semiconductor surged 7.6 percent to 10.53 euros. The German company said it will pay about $310 million in cash for IWatt, which makes power-management technology for tablets and smartphones. It may make an additional revenue-based payment of as much as $35 million. Dialog also said it expects the acquisition to add to earnings per share in the quarter after it closes the deal.

Banco Sabadell SA rallied 14 percent to 1.53 euros, posting the best performance on the Stoxx 600 and its largest rally since September 2008.

Michelin & Cie. (ML) increased 2 percent to 70.55 euros after UBS raised Europe’s largest tiremaker to buy from neutral, citing improved cost positions that enable more competitive pricing and higher profits.

National benchmark indexes retreated in 13 of the 18 western-European markets today. France’s CAC 40 dropped 0.7 percent and Germany’s DAX slipped 0.9 percent. The U.K.’s FTSE 100 lost 0.1 percent. Greece’s ASE Index tumbled 3.2 percent.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

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

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