European equities plummeted the most in more than two years as U.S. economic data missed forecasts, two Federal Reserve officials said the central bank shouldn’t act to protect stock investors and Swedish regulators warned that lenders are unprepared for a freeze in money markets.
Dexia SA and Societe Generale SA slid more than 12 percent as the Wall Street Journal also said that U.S. regulators are stepping up scrutiny of Europe’s largest lenders. Fiat SpA lost 12 percent as a gauge of carmakers fell 7.4 percent. Holcim Ltd. sank 8 percent as the world’s second-biggest cement maker reported profit that missed estimates.
The Stoxx Europe 600 Index plunged 4.8 percent to 226.7 at the 4:30 p.m. close in London, the biggest drop since March 2009, as only four stocks gained. The gauge has tumbled 22 percent from this year’s peak in February amid concern that Europe will fail to contain its sovereign-debt crisis and that the economic recovery in the U.S. will falter.
“If investors were looking for proof that we could be heading for recession, you have it here,” Henrik Drusebjerg, a senior strategist at Nordea Bank AB in Copenhagen, said in a telephone interview. “We’ve been decreasing risk since the beginning of the year.”
Benchmark indexes fell in all of the 18 markets in western Europe as the U.K.’s FTSE 100 dropped 4.5 percent and the German DAX lost 5.8 percent, the most since 2008. Sweden’s OMX 30 declined the most of any European market, sinking 6.7 percent.
The VStoxx Index, which measures the cost of protecting against a decline in shares on the Euro Stoxx 50 Index, jumped 35 percent, the most since May 2010.
Federal Reserve Chairman Ben S. Bernanke’s pledge last week to keep interest rates near zero until mid-2013 was “inappropriate policy at an inappropriate time,” Charles Plosser, president of the Fed Bank of Philadelphia, said yesterday in a Bloomberg Radio interview.
Dallas Fed President Richard Fisher said the central bank shouldn’t enact policy to protect stock investors. Both officials dissented from the Fed’s Aug. 9 statement.
The Standard & Poor’s 500 Index rose as much as 28 percent after Bernanke foreshadowed a second round of so-called quantitative easing on Aug. 27 of last year. The central bank finished the program of asset purchases at the end of June. Bernanke may announce policy intentions at a conference in Jackson Hole, Wyoming, on Aug. 26.
“The comments from Plosser and Fisher put focus back on how committed the Fed is to the zero-interest rate policy ahead of Bernanke’s comments next week,” said Anders Eklof, a currency strategist at Swedbank in Stockholm. “The Fed has obviously been wrong about the economy, once last summer and then now.”
A report today showed U.S. initial jobless-benefit claims climbed by 9,000 to 408,000 in the week ended Aug. 13, the highest in a month. Economists surveyed by Bloomberg had projected 400,000 claims, according to the median forecast.
The Federal Reserve Bank of Philadelphia’s general economic index fell more than forecast to minus 30.7 in August, the lowest since March 2009, from 3.2 the prior month. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.
Morgan Stanley cut its forecast for global growth this year, citing an “insufficient” policy response to Europe’s debt crisis, weakened confidence and the prospect of fiscal tightening. The bank now estimates expansion of 3.9 percent, down from a previous forecast of 4.2 percent.
U.S. stocks may slip to new lows in the next few weeks, setting the stage for a rally of more than 20 percent, Tom DeMark, the creator of indicators meant to identify turning points in the price of securities, said in an interview on Aug. 16. The S&P 500, which closed at 1,193.89 yesterday, will probably drop below the 11-month low of 1,119.46 set on Aug. 8 before surging above 1,363.61, its peak on April 29, he said.
Dexia, Belgium’s biggest lender, tumbled 14 percent to 1.57 euros today, leading a gauge of banks in the Stoxx 600 to a two-year low. Societe Generale, France’s second-largest lender, dropped 12 percent to 21.60 euros, the lowest since March 2009. HSBC Holdings Plc, Europe’s biggest bank by market value, declined 6 percent to 509.6 pence.
The WSJ reported that U.S. regulators are stepping up scrutiny of local operations for Europe’s largest banks on concern that the sovereign debt crisis may lead to funding problems. The Federal Reserve Bank of New York has been holding talks with the lenders and sought information about their access to funds to maintain operations in the U.S., the newspaper said, citing people it didn’t identify.
Swedbank AB retreated 9 percent to 83.55 kronor in Stockholm, the largest decline in two years. Nordea Bank AB, Sweden’s biggest bank, fell 7.4 percent to 54.70 kronor.
Swedish banks must do more to prepare for a deterioration in Europe’s debt crisis that could freeze interbank markets and cut off funding, said Lars Frisell, chief economist at the country’s financial regulator.
“It won’t take much for the interbank market to collapse,” Frisell said yesterday in an interview in Stockholm. “It’s not that serious at the moment but it feels like it could very easily become that way and that everything will freeze.”
Fiat fell 12 percent to 4.33 euros to pace European automakers lower as the gauge fell the most of the 19 industry groups in the Stoxx 600. Continental AG, Europe’s second-largest auto-parts supplier, retreated 8.6 percent to 49.37 euros.
Holcim sank 8 percent to 44.03 Swiss francs after reporting second-quarter net income of 347 million francs ($437 million), missing the 373.3 million-franc average estimate of analysts in a Bloomberg survey. Sales dropped 11 percent to 5.49 billion francs, compared with an estimate of 5.56 billion francs.
FLSmidth A/S, the world’s biggest maker of cement kilns, fell 14 percent to 277.60 kroner as its earnings also missed analysts’ forecasts. HeidelbergCement AG, the third-largest maker of cement, sank 9.5 percent to 29.13 euros in Frankfurt.
Royal Boskalis Westminster NV plunged 13 percent to 22.96 euros, the largest drop since 2002. The world’s biggest dredging company said first-half net income fell to 114 million euros ($164 million) from 124 million euros a year earlier. The average estimate in a Bloomberg survey of five analysts was for profit of 116 million euros.
SABMiller Plc retreated 6 percent to 2,010 pence after the board of Australian brewer Foster’s Group Ltd. rejected its hostile A$9.5 billion ($10 billion) takeover bid. The London-based brewer may have to raise its offer by 6 percent to A$5.20 a share to win over investors, according to the median estimate of 13 analysts surveyed by Bloomberg News.
Coloplast A/S had the biggest gain in the Stoxx 600. The world’s largest maker of ostomy and urology products rose 5.5 percent to 767 kroner in Copenhagen after reporting third-quarter net income of 485 million kroner ($94 million), beating the average analyst estimate of 433 million kroner.