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European Stocks Decline to Lowest in Three Weeks

European Stocks Rise on Spanish, French Deficit-Reduction Plans
The interior of the Madrid Stock Exchange is seen in Madrid. Photographer: Angel Navarrete/Bloomberg

European stocks fell to a three-week low, trimming a quarterly gain for the benchmark Stoxx Europe 600 Index, as investors awaited the results of stress tests on the Spanish banking system.

Hennes & Mauritz AB declined 1.7 percent after SEB AB and CA Cheuvreux SA advised investors to sell the shares. Electrocomponents Plc plunged the most in more than seven years after saying full-year profit will miss projections. Cap Gemini SA rose 0.8 percent after Accenture Plc forecast full-year earnings that topped analyst estimates. Air France-KLM gained 4.6 percent after UBS AG upgraded the shares.

The Stoxx 600 lost 1.2 percent to 268.48 at the close of trading in London, the lowest since Sept. 5, as investors awaited the stress-test report from Oliver Wyman, a New York-based management consulting firm. The gauge, which lost 2.7 percent this week, has still rallied 6.9 percent this quarter as global central banks expanded stimulus.

“We’ve seen a fairly tight Spanish budget, we have a tax raising budget out of France,” said Peter Dixon, global equities economist at Commerzbank AG in London. “The very fact that you have yet another stress test coming out of Spain looking at the banks suggests that some of the issues markets have been concerned about in the last year are still alive.”

Stress Tests

Spain will release the results of the banking stress tests today after the European markets close. The independent tests on 14 banking groups help in assessing the damage caused to their balance sheets by the country’s real-estate crisis and are a condition for the 100 billion-euro bailout agreed in July.

Prime Minister Mariano Rajoy’s Cabinet yesterday approved a new tax on lottery winnings and a cut in ministries’ spending to shrink the euro area’s third-biggest budget deficit. The government set a 2013 target of 4.5 percent of gross domestic product, compared with a 6.3 percent goal for this year.

The Cabinet also approved using a pension reserve fund to meet an increase in retirement payments, Deputy Prime Minister Soraya Saenz de Santamaria told reporters in Madrid before markets closed yesterday.

In France, President Francois Hollande’s first annual budget raised taxes by 20 billion euros ($26 billion), including a 75 percent levy on incomes above 1 million euros. He aims to reduce the deficit to 3 percent of GDP from 4.5 percent in 2012.

“The market’s view is that a tax raising budget is never good for growth,” said Dixon. “France is a large part of the euro zone and is already struggling under a number of burdens and growth isn’t particularly strong.”

German Retail

In Germany, retail sales increased 0.3 percent in August from a month earlier, after falling a revised 1 percent in July, according to a Bundesbank report. Economists in a Bloomberg survey had called for a 0.2 percent gain.

National benchmark indexes declined in 16 of the 18 western-European markets. Germany’s DAX slid 1 percent, while the U.K.’s FTSE 100 dropped 0.7 percent. France’s CAC 40 lost 2.5 percent, dropping to its lowest level since Aug. 2.

H&M lost 1.7 percent to 228.20 kronor, falling for a third day. SEB and Cheuvreux downgraded the stock to sell or an equivalent recommendation, while Swedbank and Nordea Bank AB cut the shares to hold or a similar rating. Europe’s second-largest retailer reported on Sept. 27 third-quarter profit that missed analyst estimates.

Electrocomponents tumbled 8.8 percent to 200.30 pence, the sharpest decline since March 2005, after the company said full-year pretax profit will be “slightly below” the lower end of analyst estimates of between 110 million pounds ($179 million) and 120 million pounds.

LSE Uncertainty

London Stock Exchange Group Plc plunged 8 percent to 943 pence, the sharpest decline since April 2009, after saying proposed European Union regulations will cut income at its Italian central counterparty and may require LCH.Clearnet Group Ltd. to boost capital.

LSE agreed to buy a majority stake in LCH.Clearnet, Europe’s biggest clearinghouse, for 463 million euros in March to expand its post-trade services. LCH.Clearnet said in a separate statement today that it will need to boost capital by 300 million euros to 375 million euros to comply with the new regulations.

Cap Gemini rose 0.8 percent to 32.93 euros, paring an earlier gain of as much as 2.9 percent. Accenture, the world’s second-largest technology-consulting company, said earnings for the fiscal year ending in August 2013 will be $4.22 to $4.30 a share, beating the median analyst estimate of $4.13.

Air France-KLM jumped 4.6 percent to 5.04 euros after UBS AG raised its rating on the shares to buy from neutral. The airlines has implemented some key restructuring measures that will help the “pricing environment” and reduce the number of loss-making flights, UBS said in a note.

Syngenta AG added 1.3 percent to 351.50 Swiss francs after HSBC raised its rating on the shares to overweight, the equivalent of buy, from neutral.

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