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European Stocks Drop for Third Day; Clariant, Merck Lead Decline

A Clariant Chemical Production Site
Clariant, a Swiss chemical maker, plunged 10 percent. Photographer: Adrian Moser/Bloomberg

European stocks fell for a third day as earnings from Clariant AG to Merck KGaA missed estimates and U.S. politicians wrangled over the nation’s debt limit.

Clariant, a Swiss chemical maker, plunged the most in eight years. Merck, Germany’s second-biggest drugmaker, dropped 4.8 percent as it reported an unexpected loss. PSA Peugeot Citroen tumbled 7.6 percent after saying its automotive division may post a second-half loss. Banco Santander SA led financial shares lower after Spain’s biggest bank said profit declined as Spanish loan provisions surged.

The Stoxx Europe 600 Index slid 1.1 percent to 267.05 at the 4:30 p.m. close in London. The gauge has retreated 8.3 percent from this year’s high in February amid concern that Europe’s fiscal crisis will derail the economic recovery and speculation that U.S. lawmakers will fail to agree on increasing the nation’s debt ceiling by next week’s deadline.

“The earnings season has revealed that weakness in the global economy remains,” Philippe Gijsels, the head of research at BNP Paribas Fortis Global Markets, said in a phone interview from Brussels. “There have been some misses in terms of guidance and this shows us we’re in a mid-cycle slowdown with companies being held hostage by economic conditions.”

U.S. Rating

Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have said they may cut the U.S.’s top-level sovereign rating if officials fail to resolve the stalemate on the $14.3 trillion borrowing ceiling. The government needs to boost the cap by Aug. 2 so it can keep paying its bills, according to the Treasury Department.

“The likelihood of a U.S. sovereign-rating downgrade is around 50 percent,” Andrew Garthwaite, the London-based head of global equity strategy at Credit Suisse Group AG, wrote in a report to clients today. “If there is no increase in the debt ceiling for a prolonged period -- say 3 months -- with no agreement in sight, we believe stock markets could easily fall 15 percent.” He predicted that an agreement will be made to raise the debt limit before next week’s deadline passes.

Profit has missed analyst estimates by an average of 3.3 percent for companies in the Stoxx 600 that have reported results since July 11, according to data compiled by Bloomberg. That compares with an average beat of 7.5 percent for members of the Standard & Poor’s 500 Index in the same period.

Durable Goods

Stocks extended losses after a report in the U.S. showed orders for durable goods unexpectedly dropped in June and inventories climbed at the slowest pace in a year, evidence that companies lost confidence in the strength of the recovery as the second quarter ended. Bookings for goods meant to last at least three years fell 2.1 percent after a 1.9 percent gain the prior month that was smaller than last reported, the Commerce Department said.

National benchmark indexes fell in all 18 western European markets. The U.K.’s FTSE 100 slid 1.2 percent, Germany’s DAX lost 1.3 percent and France’s CAC declined 1.4 percent.

Clariant plunged 14 percent to 13.19 Swiss francs, the largest drop since February 2003. Second-quarter earnings before interest, taxes, depreciation and amortization declined to 241 million francs ($301 million) from 264 million francs, the Muttenz, Switzerland-based company said. JPMorgan Chase & Co. analysts had predicted 293 million francs.

Merck unexpectedly reported a second-quarter loss and cut its forecast for full-year operating profit. The Darmstadt, Germany-based company had a loss of 84 million euros ($122 million) in the quarter, compared with net income of 187 million euros a year earlier, and said operating profit will be about 1 billion euros this year due to one-time adjustments. The stock sank 4.8 percent to 73.76 euros.

Peugeot Sinks

Peugeot lost 7.6 percent to 27.26 euros after Europe’s second-largest carmaker abandoned a goal of increasing second-half earnings at the automotive division.

Bank stocks posted the biggest decline among 19 industry groups on the Stoxx 600.

Santander retreated 3.2 percent to 7.34 euros as second-quarter profit dropped 38 percent after Spanish loan provisions surged and it set aside funds for customers mis-sold personal-loan insurance in the U.K.

UniCredit SpA, Italy’s largest bank, fell 4.3 percent to 1.22 euros and Intesa Sanpaolo SpA lost 5.1 percent to 1.57 euros. Lloyds Banking Group Plc slid 4.3 percent to 42.24 pence and Banco Comercial Portugues SA retreated 6.7 percent to 30.5 euro cents.

Italy, Spain Bonds

Italian and Spanish government bonds slumped amid speculation Europe’s aid package may not be sufficient to prevent contagion. German Finance Minister Wolfgang Schaeuble said the government is against a “blank check” for the European Financial Stability Facility to buy bonds of troubled euro members in the secondary market.

Jeronimo Martins SGPS SA slid 5.6 percent to 13.54 euros even after the Portuguese retailer reported increased profit. The company said the second half is “expected to be marked by the sharp drop in consumption and by the increased financial difficulties of the Portuguese.”

Distribuidora Internacional de Alimentacion SA, the Madrid-based discount retailer spun off from Carrefour SA this month, sank 6.3 percent to 3.07 euros.

Alcatel-Lucent SA, France’s largest telecommunications equipment supplier, dropped 6.9 percent to 3.38 euros as U.S. rival Juniper Networks Inc. reported sales and profit that missed estimates.

Meda AB rallied 6.7 percent to 75.80 kronor as two people with knowledge of the matter said Valeant Pharmaceuticals International Inc. approached the Swedish company about a takeover. The approach was informal and may not lead to a deal, said one of the people, who declined to be identified because the situation is private.

Provident Financial Plc climbed 8.4 percent to 1,115 pence after the U.K.’s biggest publicly traded subprime lender posted first-half profit that beat analyst estimates as bad loans declined.

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