European Stocks Gain as U.S. Consumer Sentiment Climbs

European stocks gained for a second day, rallying from earlier losses, as U.S. consumer confidence rose to a four-year high in May and talks continued on forming a Greek government.

Michelin & Cie., the world’s second-largest tiremaker, climbed 3.4 percent after predicting a “high increase” in 2012 operating profit. Distribuidora Internacional de Alimentacion SA, the world’s third-largest discount retailer, gained after beating earnings estimates. Vallourec SA, the French producer of steel pipes, plunged the most since at least 1989 after profit in the first quarter tumbled.

The Stoxx Europe 600 Index rose 0.4 percent to 251.97 at the close of trading after earlier losing as much as 1.2 percent. The gauge dropped 0.4 percent in the week, its second week of losses. The benchmark measure has still increased 3 percent so far this year.

“The economic number from the States came to alleviate slightly what has been otherwise a very poor week for macro sentiment in Europe,” said Luis Benguerel, a trader at Interbrokers Espanola in Barcelona. “Greece seems to be hanging on a cliff, so the mere fact that they are talking to form a government there is encouraging”

The Stoxx 600 climbed 0.6 percent yesterday, as companies from Deutsche Telekom AG to Repsol YPF SA posted better-than-estimated quarterly profit.

U.S. Confidence

In the U.S., consumer confidence rose in May to the highest level in four years, indicating falling fuel costs are helping households look past weaker employment growth.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 77.8, the highest since January 2008, from 76.4 the prior month. The gauge was projected to drop to 76, according to the median forecast of 68 economists surveyed by Bloomberg News.

In Greece, Evangelos Venizelos, the socialist Pasok leader, will press counterparts on a proposal for a unity government that would avert a new election.

Greece’s political impasse has raised the possibility another election will have to be held as early as next month, threatening the implementation of austerity pledges. The standoff has reignited European concern over Greece’s ability to hold to the terms of its two bailouts negotiated since May 2010 and sparked concerns about the country leaving the euro.

Stocks earlier fell after Spain said it will force the country’s banks to increase provisions against losses on real estate loans by 30 billion euros ($38 billion) and will hire two auditors to gauge all the assets of lenders in the government’s fourth attempt to clean up the financial system.

Spanish Banks

Banks will have to raise their provisions on real estate loans that are still performing to 30 percent from 7 percent on average, Economy Minister Luis de Guindos said today in Madrid. The government will also force all banks to move real estate assets off their balance sheets so they can be sold, he said.

Europe’s economy will fail to grow this year with risks to the outlook “tilted to the downside” after nations from Spain to Italy slipped into recession, the European Commission said.

Gross domestic product in the 17-nation euro area will drop 0.3 percent, the European Commission said today, reiterating a February forecast. Greece will have the deepest contraction, with GDP declining 4.7 percent this year, while the economies of Spain and Italy are seen shrinking 1.8 percent and 1.4 percent. Portugal’s GDP will drop 3.3 percent, it said.

‘Austerity, Growth’

“These are very sensitive numbers because of the fierceness of the debate between austerity and growth,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, wrote in an e-mail. “The overriding message from these grim forecasts is that the credibility of fiscal policy in the euro zone is in tatters and needs to be better calibrated to economic realities.”

Michelin added 3.7 percent to 54.73 euros. The French company also said the global tire market may gain 25 percent in the next five years.

DIA gained 4.9 percent to 3.76 euros after announcing that first-quarter gross sales were 2.8 billion euros, topping the average 2.43 billion-euro analyst estimate.

A gauge of European banks was the second-worst performer of the 19 industry groups in the Stoxx 600, with Barclays Plc dropping 2.9 percent to 202.8 pence.

Credit Agricole SA, France’s third-largest bank by market value, lost 1 percent to 3.46 euros after it said first-quarter profit fell to 252 million euros from 1 billion euros a year earlier, hurt by Greek losses. That trailed the 482 million-euro average estimate of five analysts surveyed by Bloomberg.

JPMorgan Loss

JPMorgan Chase & Co. late yesterday reported a $2 billion surprise loss on synthetic credit securities. Chief Executive Officer Jamie Dimon said the loss occurred after an “egregious” failure in a unit managing risks.

“The JPMorgan loss couldn’t have come at a worse time because the market was already showing fragile sentiment,” said Lorne Baring, managing director at B Capital SA in Geneva, which oversees almost $500 million. “When we get into this kind of headline-driven market, it’s an insult at the end of an injurious week. The market really didn’t need more bad news.”

Vallourec plummeted 20 percent to 34.30 euros, the most since at least October 1989, after first-quarter profit tumbled 65 percent to 29 million euros as demand from power generation, industrial and automotive customers proved weaker than forecast. Analysts had projected profit of 50.2 million euros.

Telefonica Drops

Telefonica SA, Spain’s largest phone company, declined 1.3 percent to 11.17 euros. First-quarter operating income before depreciation and amortization was 5.08 billion euros, falling short of the 5.23 billion-euro analyst estimate. Revenue in the first quarter was 15.51 billion euros, more than the average analyst estimate of 15.43 billion euros. The company reiterated its full-year targets.

Eutelsat Communications SA, the satellite provider that broadcasts about 4,000 channels, plunged 11 percent to 23.52 euros, the biggest drop since at least December 2005. The company cut its forecast for revenue in the fiscal year through June to about 1.22 billion euros after previously projecting sales of more than 1.24 billion euros.

Schibsted ASA, Norway’s largest media group, declined 5.2 percent to 190 kroner after it reported earnings before interest, taxes, depreciation and amortization of 421 million kroner in the first quarter. That missed the average analyst estimate of 452 million kroner.

EDP-Energias de Portugal SA, the nation’s biggest utility, retreated 1.6 percent to 2.10 euros. The company said first-quarter net income declined to 337 million euros from 342 million euros a year earlier.

A gauge of European carmakers was the best performing group in the Stoxx 600. Renault SA and Pirelli & C SpA jumped 5 percent to 33.19 euros, and 4.3 percent to 8.90 euros, respectively. Nissan Motor Co., Japan’s second-biggest automaker, forecast profit will rise to the highest in five years, helped by rising demand for its vehicles in the U.S. and China.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE