European Stocks Decline as Draghi’s Comments Disappoint

ECB President Mario Draghi
European Central Bank President Mario Draghi said at a press conference in Frankfurt today that bond yields that throw into question the future of the euro are “unacceptable” and “need to be addressed in a fundamental manner.” Photographer: Hannelore Foerster/Bloomberg

European stocks declined, erasing earlier gains, as European Central Bank President Mario Draghi’s comments disappointed investors seeking more definitive measures to stimulate the region’s economy.

Banks pulled the index lower, with Banco Santander SA and Deutsche Bank AG losing at least 5 percent each. Veolia Environnement SA plummeted 12 percent after the French utility said the economy in Italy and France hurt first-half results. Deutsche Post AG rose 2.3 percent after earnings beat estimates.

The Stoxx Europe 600 Index fell 1.3 percent to 259.28 at the close of trade. The gauge has still rallied 3.6 percent since Draghi promised on July 26 to do whatever it takes to preserve the euro. The volume of shares changing hands in companies listed on the index was 20 percent higher than the average of the last 30 days, data compiled by Bloomberg show.

“The markets were expecting too much from the meeting and were disappointed,” said Peter Dixon, global equities economist at Commerzbank AG in London. “There were some ideas brought forward by Draghi today, but they were sketchy and light on detail, while the markets were looking for a concrete plan.”

Draghi signaled that the ECB will join forces with governments to buy sovereign bonds. Still, he didn’t give details on how such a program would work, saying that they will be fleshed out in coming weeks.

Bond yields that throw into question the future of the euro are “unacceptable” and “need to be addressed in a fundamental manner,” he also said at a press conference in Frankfurt today after the ECB kept the benchmark interest rate unchanged at 0.75 percent.

German Outlook

Germany retained a stable outlook for its top credit rating, Standard & Poor’s said in a statement today, after Moody’s Investors Service warned last week that the nation’s Aaa grade was at risk.

The Bank of England maintained its current bond-buying program today as policy makers wait to assess the impact of the latest stimulus and their new lending program to end the recession. The nine-member Monetary Policy Committee held the quantitative-easing target at 375 billion pounds ($582 billion), as forecast by all but one of 40 economists in a Bloomberg News survey. It also kept the key interest rate at a record low of 0.5 percent.

In the U.S., central bankers led by Federal Reserve Chairman Ben S. Bernanke concluded their two-day meeting yesterday saying they “will provide additional accommodation as needed” to bolster the expansion. The Federal Open Market Committee also said it will “closely monitor” economic data and financial developments.

Stocks Rally

European stocks have rallied 11 percent from this year’s low on June 4 as policy makers pledged to preserve the euro and central banks from Europe to China eased monetary policy to boost economic growth.

National benchmark indexes fell in 15 of the 18 western European markets today. The U.K.’s FTSE 100 Index slid 0.9 percent, France’s CAC 40 Index declined 2.7 percent and Germany’s DAX Index retreated 2.2 percent.

An index of banking shares was the worst-performing industry group on the Stoxx 600.

Santander plunged 6.7 percent to 4.63 euros and Deutsche Bank slid 5.3 percent to 23.21 euros. Credit Agricole SA slumped 8 percent to 3.28 euros.

Veolia Sinks

Veolia plunged 12 percent to 8.15 euros, the biggest drop in a year. First-half results were hurt by writedowns in Italy, the economic slowdown and a “contractual erosion” at Veolia’s water division in France, the Paris-based company said. Veolia plans to sell 5 billion euros of assets and reduce investment by 500 million euros this year and next.

“The deterioration of the economic environment, in particular in Italy and in France,” weighed on the company’s results,” Chief Executive Officer Antoine Frerot said in a statement. “In this difficult context, we have decided to increase our cost reduction efforts and reduce investments.”

D.E Master Blenders 1753, the beverage business spun off from the former Sara Lee Corp., tumbled 5.6 percent to 8.95 euros after saying it will restate earnings because of accounting irregularities and tax provisions at its Brazilian operations.

The adjustments will reduce shareholders equity by as much as 95 million euros and its 2012 net result by about 55 million euros, the company said late yesterday.

Deutsche Post

Deutsche Post, the world’s biggest carrier of air and sea freight by volume, advanced 2.3 percent to 15.02 euros after it posted earnings before interest and taxes of 543 million euros, down from 562 million euros a year earlier. Earnings exceeded the 491.1 million-euro average estimate of 11 analysts surveyed by Bloomberg.

Segro Plc, the U.K.’s largest publicly traded owner of industrial properties, rallied 4.9 percent to 238 pence after saying first-half results were “solid” and it is confident of maintaining current dividend levels.

Societe Bic SA rose 4.9 percent to 86.54 euros, the most since April, after the French manufacturer of pens and pencils said second-quarter operating income jumped 28 percent to 119.1 million euros.

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