European Stocks Drop as Chinese Manufacturing Contracts

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Photographer: Ralph Orlowski/Bloomberg

A trader walks on the trading floor as the DAX Index curve is seen beyond at the Frankfurt Stock Exchange in Frankfurt.

European stocks dropped from a six-year high as a report showed manufacturing in China probably contracted this month, and media and technology companies slid.

Pearson Plc plunged the most in more than 11 years after saying it probably spent more on reorganization last year than it had forecast. Nokia (NOK1V) Oyj slid the most in 16 months after predicting that profit margins at its network-equipment division will drop in the current quarter. Logitech International SA rallied 18 percent after reporting quarterly profit and sales that exceeded analysts’ estimates.

The Stoxx Europe 600 Index fell 1 percent to 332.69 at the close of trading, its biggest decline in more than seven weeks. The equity gauge has still gained 1.4 percent so far this year, led by a rally in banks. The index trades at 14 times its members’ projected earnings after ending 2013 at its highest valuation in four years.

“We are scared about a slowdown in China,” Paolo Vicentini, who is responsible for total return strategies at Edmond de Rothschild Sgr in Milan, said in a phone interview. “This morning’s data adds to the concern from a few months ago. If the economy does not keep growing at the same pace, companies in key European countries like Germany which depend on Chinese demand will suffer.”

Preliminary data from HSBC Holdings Plc and Markit Economics showed Chinese manufacturing probably contracted in January, for the first time in six months. The initial reading of 49.6 fell below all 19 economist estimates in a Bloomberg News survey. A number smaller than 50 means activity contracted.

European Manufacturing

A separate Markit report showed manufacturing in the euro zone expanded this month at the fastest pace since May 2011, while output from services industries expanded for a sixth consecutive month. Both readings exceeded economists’ projections compiled by Bloomberg. A separate release from the European Commission showed that a measure of consumer confidence in the currency bloc rose to its highest level since July 2011.

National benchmark indexes fell in every western-European market except for Greece and Iceland. The U.K.’s FTSE 100 declined 0.8 percent, while France’s CAC 40 dropped 1 percent. Germany’s DAX lost 0.9 percent.

Pearson slumped 8.2 percent to 1,191 pence. The education company said it probably spent about 170 million pounds ($282 million) in 2013 to help focus its business on more profitable units. It had forecast expenditure of 150 million pounds. Pearson lowered its estimated savings to 40 million pounds from its previous prediction of 50 million pounds.

Nokia, EasyJet

Nokia dropped 11 percent to 5.11 euros after forecasting operating profit at its network business of 1 percent to 9 percent of revenue for the first three months of this year. That compares with an 11.2 percent margin for the previous quarter.

EasyJet Plc slipped 4.1 percent to 1,672 pence. The low-cost airline said its loss in the first six months of its financial year may increase to as much as 90 million pounds, from 61 million pounds in the same period last year.

Inditex SA (ITX) and Asos Plc (ASC) fell 1.9 percent to 116.65 euros and 7.8 percent to 6,296 pence, respectively, as Goldman Sachs Group Inc. lowered its rating on the stocks to neutral from buy based on their valuations. Inditex, which owns the Zara clothing chain, traded at 29.7 times estimated earnings yesterday, more than the 16.2 multiple for a gauge of retailers on the Stoxx 600. Asos rallied 11 percent from the beginning of the year through yesterday to 107 times profit.

Logitech, Delhaize

Logitech jumped 18 percent to 14.40 Swiss francs after the maker of computer mice said sales rose to $628 million in the three months ending Dec. 31, exceeding the average analyst estimate for a drop to $594.7 million. Net income climbed to $48.5 million, more than the $31 million projected by analysts. Logitech also increased its operating-income forecast to as much as $125 million for its full financial year, compared with $100 million previously.

Delhaize Group SA (DELB) rose 7.2 percent to 48.98 euros, its largest rally in more than five months. The owner of the Food Lion supermarkets said fourth-quarter sales in the U.S. and in Belgium, its two main markets, increased 2.8 percent and 2.4 percent, respectively.

Celesio AG climbed 4.5 percent to 24.01 euros. Boersen-Zeitung reported that Franz Haniel & Cie. and Elliott Management Corp., the company’s two largest shareholders, may reach an agreement that would allow Franz Haniel to sell a stake of about 75 percent in the German drug distributor to McKesson Corp. The newspaper cited unnamed people familiar with the matter. Celesio slid 4.4 percent on Jan. 14 after McKesson said that its increased offer of 23.50 euros a share failed to pass the threshold needed for the deal to go through.

To contact the reporter on this story: Sofia Horta e Costa in London at shortaecosta@bloomberg.net

To contact the editor responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net

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