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European Stocks Post Biggest Weekly Retreat Since November 2008

European stocks posted their biggest weekly loss since November 2008, becoming the first major region to enter a market correction, as concern escalated that the U.S.’s economic recovery is stalling.

Royal Bank of Scotland Group Plc and Intesa Sanpaolo SpA led banks lower. Veolia Environnement SA dropped 29 percent on concern that the world’s largest water company will cut payouts to shareholders following a first-half loss. Royal Dutch Shell Plc, Europe’s largest oil company, paced losses in energy shares as oil prices retreated.

The Stoxx 600 Europe Index tumbled 9.9 percent to 238.88 this past week, the gauge’s lowest level in 13 months. The measure has declined 18 percent from this year’s high on Feb. 17 amid mounting speculation that Europe will fail to contain its sovereign-debt crisis and that the economic recovery is faltering in the U.S. The index this week extended losses from this year’s peak to more than 10 percent, a retreat known as a correction.

Moody’s Investors Service said the outlook for the U.S. debt grade is negative after President Barack Obama on Aug. 2 signed into law a plan to lift the nation’s borrowing limit and cut spending following months of wrangling between Republican and Democrat 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 implement debt-reduction measures and the economy weakens.

Spain, Italy Debt

“Fears of an extension of the debt crisis to Spain and Italy have coupled with the U.S.’s own debt problem and, in the last few days, the additional element of worsening of the economic statistics,” said Karim Bertoni, who helps oversee $29 billion at Banque SYZ & Co. in Geneva. “If data continues to slow down, then markets will be weak.”

The VStoxx Index, which measures the cost of protecting against a decline in shares on the Euro Stoxx 50 Index, surged 42 percent this week to its highest level since June 2010.

National benchmark indexes retreated in all 18 western European markets. France’s CAC 40 Index slid 11 percent, the U.K.’s FTSE 100 Index dropped 9.8 percent, while Germany’s DAX Index declined 13 percent.

A U.S. jobs report on Aug. 5 failed to allay concern that the global economy is struggling. The report showed that the U.S. economy added 117,000 jobs in July, more than the 85,000 average estimate of 88 economists surveyed by Bloomberg News. The unemployment rate dropped to 9.1 percent as more Americans left the labor force. Economists had forecast a rate of 9.2 percent.

U.S. Manufacturing

Manufacturing in the world’s largest economy expanded in July at the slowest pace since 2009, according to a report on Aug. 1. The Institute for Supply Management’s U.S. factory index fell to 50.9 from 55.3 in June. Economists had projected a drop to 54.5, according to the median forecast in a Bloomberg survey. Figures greater than 50 signal expansion.

On Aug. 3, 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. Economists had predicted a reading of 53.5, according to the median forecast in a Bloomberg News survey.

The European Central Bank left interest rates unchanged on Aug. 4 as economic growth slows and the region’s debt crisis spreads to Italy and Spain. ECB officials kept the benchmark rate at 1.5 percent. ECB President Jean-Claude Trichet signaled at a press conference in Frankfurt that the central bank has resumed bond purchases.

‘Shocking’ Equity Selloff

The selloff in equities has been “really shocking” and it shows disappointment among investors that central banks have decided to intervene in markets rather than ease monetary policy, said Trevor Greetham, director of asset allocation at Fidelity International in London.

“There is a slowdown in global growth going on in the background,” Greetham said on Bloomberg TV on Aug. 5. “The markets wanted the central banks to ease and what they are getting is intervention.”

RBS, Britain’s biggest government-controlled bank, lost 21 percent. Intesa, Italy’s second-biggest lender, slid 19 percent.

Societe Generale SA declined 21 percent. France’s second-largest bank said it may miss its 2012 earnings target after second-quarter profit fell 31 percent because of a writedown on Greek government debt.

Veolia, Pandora Tumble

Veolia sank 29 percent. The company said on Aug. 4 that it swung to a net loss in the first half after writedowns on operations in Italy, Morocco and the U.S. Veolia announced it will pull out of at least 37 countries as it accelerates a restructuring plan to restore profit.

Shell slid 14 percent. BP Plc, the region’s second-largest oil company, slipped 11 percent. Crude oil for September delivery tumbled 9.4 percent in New York this week. Oil and gas shares lost 13 percent, for the third-largest decline of the 19 industry groups in the Stoxx 600.

Pandora A/S plunged 67 percent as the Danish maker of charm bracelets reduced its forecast and replaced its chief executive officer. The company said on Aug. 2 that CEO Mikkel Vendelin Olesen had left. The company, which sells silver bracelets for $65 and charms to add to them for $30 each, plans to abandon the price increases Olesen implemented to combat rising commodity costs.

Inmarsat Shares Slump

Inmarsat Plc, the biggest provider of satellite services to the maritime industry, tumbled 25 percent. Inmarsat cut its projection for its core mobile satellite services business, or MSS, as “near-term factors will constrain growth for longer than previously anticipated,” the company said on Aug. 4. MSS revenue fell 0.3 percent to $361.9 million in the first six months. The company now expects “broadly flat” MSS revenue in 2011 compared with a previous forecast for growth of 2 percent to 4 percent.

Basic-resource shares had the second-largest decline in the Stoxx 600, dropping 15 percent, as the S&P GSCI index of 24 commodities retreated for eight days. BHP Billiton Ltd., the world’s biggest mining company, slid 14 percent. Eramet SA, a producer of nickel and manganese, slumped 21 percent.

Rio Tinto Group retreated 16 percent. The world’s second-largest mining company reported first-half profit on Aug. 4 that missed analysts’ estimates as costs and currency gains in Australia and Canada hurt earnings.

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