European stocks sank the most in fourth months, extending an 11-month low, amid concern the U.S. recovery is faltering and the world’s largest economy may lose its top credit rating.
Societe Generale SA, France’s second-largest bank, tumbled 9 percent after the company reported second-quarter results that missed analysts’ estimates. Cairn Energy Plc fell 5.1 after abandoning an oil well off Greenland. UPM-Kymmene Oyj slumped 9.3 percent, its biggest decline in eight years.
The benchmark Stoxx Europe 600 Index retreated 2 percent to 251.95 at the 4:30 p.m. close in London, the biggest drop since March 15. The gauge has declined 13 percent from this year’s high on Feb. 17 as the yield on Italian and Spanish bonds surged to records amid speculation the debt crisis won’t be contained.
“The market sentiment at the moment is on apocalypse level,” said Peter Buergler, a trader at Luzerner Kantonalbank AG in Lucerne, Switzerland. “With the budget cuts in the U.S., opinions are resurfacing that the U.S. could possibly slide into a recession. The loss of its AAA rating would send the markets even more into a descent.”
Moody’s Investors Service said the outlook for the U.S. debt grade is negative after President Barack Obama yesterday signed into law a plan to lift the nation’s borrowing limit and cut spending following months of wrangling between Democratic and Republican lawmakers. Moody’s and Fitch Ratings affirmed their AAA credit ratings for the U.S. while warning that downgrades were possible if politicians fail to enact debt-reduction measures and the economy weakens.
The U.S. economy is “balanced on the edge,” said Harvard University professor Martin Feldstein, who joined four members of a nine-person panel that dates recessions in seeing rising odds of another downturn.
The economy now faces a 50 percent chance of sliding into a new recession, Feldstein, a member of the Business Cycle Dating Committee of the National Bureau of Economic Research, said yesterday in an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “Nothing has given us much growth,” he said.
Companies in the U.S. added 114,000 workers to payrolls in July, slowing from 157,000 in June, according to figures from ADP Employer Services. The median forecast of economists surveyed by Bloomberg News called for an advance of 100,000.
Separately, the Institute for Supply Management’s index of non-manufacturing businesses, which covers about 90 percent of the U.S. economy, dropped to 52.7 in July from 53.3 in June. Readings above 50 signal expansion, and economists had projected a reading of 53.5, according to the median forecast in a Bloomberg News survey.
National benchmark indexes fell in all 18 western European markets today. The U.K.’s FTSE 100 lost 2.3 percent, France’s CAC 40 slid 2.1 percent and Germany’s DAX plunged 2.3 percent.
The Stoxx 600 became “oversold” for the first time in almost five months today as the 14-day Relative Strength Index, which tracks momentum by comparing closing prices with daily trading ranges, fell to 26.25. When the RSI slips below 30, technical analysts say the underlying security has fallen too sharply and is likely to gain. The measure last closed below 30 on March 16 after which it rallied 8.3 percent through May 2.
Societe Generale declined 9 percent to 29.59 euros, its biggest drop in two years, after second-quarter profit fell 31 percent because of a writedown on Greek government debt. Net income dropped to 747 million euros ($1.06 billion) from 1.08 billion euros a year earlier, missing analysts’ estimates of 1.01 billion euros. The bank also said it may miss its 2012 earnings target.
Jean-Pierre Lambert, an analyst at Keefe, Bruyette & Woods Inc., downgraded the stock to “underperform” from “market perform.”
Cairn Energy dropped 5.1 percent to 334.8 pence after saying a well off Greenland will be plugged and abandoned as drilling failed to find oil or gas.
UPM-Kymmene Oyj slumped 9.3 percent to 9 euros, the biggest decline since January 2003, as Europe’s second-largest papermaker forecast second-half profit will be similar to that in the first half.
Lagardere SCA lost 8.1 percent to 23.54 euros, its lowest price in two years, as Goldman Sachs Group Inc. downgraded the French publisher to “conviction sell” from “neutral.”
Results Could Disappoint
“This is based on negative recent book sales data and softer French magazine and radio ad indications,” Goldman Sachs analysts wrote in a note to clients today. “We believe the results could continue to disappoint the market.”
Meda AB, Sweden’s second-largest health-care company, slid 7.6 percent to 69.95 kronor, its biggest drop since November, after second-quarter net income fell to 381 million kronor ($59 million) from 683 million kronor a year earlier. Analysts had estimated profit of 387 million kronor, according to a survey compiled by Bloomberg.
Axel Springer, Europe’s largest newspaper publisher, surged 9.7 percent to 31.77 euros after saying that first-half operating profit rose 11 percent. Earnings before interest, taxes, depreciation and amortization increased to 288.7 million euros from 261.2 million euros a year earlier.
Rexam Plc, the world’s biggest maker of drinks cans, jumped 4 percent to 368 pence after first-half profit climbed 29 percent on demand from Europe. Net income advanced to 132 million pounds ($216 million) from 102 million pounds a year earlier.