European Stocks Drop as U.S. Data Signals Fed Tapering

July 5 (Bloomberg) -- European stocks fell, paring their weekly advance, as better-than-estimated U.S. payrolls data for the past three months signaled the Federal Reserve has enough room to pare stimulus this year.

BHP Billiton Plc and Glencore Xstrata Plc led commodity producers lower. Heineken NV fell after JPMorgan Chase & Co. downgraded its rating of the stock. Sky Deutschland AG climbed after Goldman Sachs Group Inc. added the German pay-TV provider to its “conviction buy” list.

The Stoxx Europe 600 Index dropped 1.3 percent to 288.31 at the close in London, trimming its advance this week to 1.2 percent. The gauge yesterday jumped 2.3 percent as the European Central Bank and the Bank of England pledged to keep interest rates low for the foreseeable future.

“Thanks to revisions to April and May, the employment picture has changed dramatically in just one month,” Christopher Low, chief economist at FTN Financial in New York, wrote in a note to clients. “Given Bernanke’s penchant to judge job growth from the 6-month average, he is likely to see this report as evidence of economic strength, both a vindication of QE and a reason to start curtailing it.”

U.S. 10-year Treasury yields climbed 19 basis points to 2.69 percent, the highest level since August 2011, after the jobs report. Fed Chairman Ben S. Bernanke said June 19 the central bank may trim quantitative easing this year and end it in mid-2014 if the economy improves in line with its forecasts.

Payroll Revisions

The U.S. Labor Department reported better-than-forecast nonfarm-payrolls data for June and increased its count of hiring in the previous two months. Jobs rose by 195,000 workers last month, compared with the median forecast of 165,000 in a Bloomberg survey. The jobless rate stayed at 7.6 percent. Revisions for April and May added a total of 70,000 jobs.

National benchmark indexes dropped in 14 of the 18 western European markets. The U.K.’s FTSE 100 lost 0.7 percent, France’s CAC 40 lost 1.5 percent. Germany’s DAX declined 2.4 percent, erasing its increase for the week.

In the euro area, German factory orders unexpectedly slid 1.3 percent in May after a revised 2.2 percent retreat in the previous month. Economists had predicted a gain of 1.2 percent.

BHP Billiton, the world’s largest mining company, dropped 3.6 percent to 1,666.5 pence. Glencore Xstrata tumbled 6.5 percent to 256.85 pence. Fresnillo Plc fell 5.8 percent to 886.5 pence as gold and silver retreated. A gauge of mining companies lost 4.3 percent, falling the most among 19 industry groups on the Stoxx 600.

Heineken Outlook

Heineken fell 1 percent to 50.25 euros after JPMorgan downgraded the stock to underweight, a rating similar to sell, from neutral. The brewer may post a 4 percent drop in beer volumes because of poor weather in Europe and high inflation in emerging markets, analysts led by Mike J Gibbs wrote.

Whitbread Plc dropped 2.8 percent to 3,106 pence after UBS AG cut its rating on the shares to neutral from buy, with analyst Jarrod Castle citing the stock’s valuation. The owner of the Premier Inn hotel chain has rallied 27 percent so far this year and is trading at 18.7 times projected earnings, near the highest level in two years, according to data compiled by Bloomberg.

Sky Deutschland jumped 4.6 percent to 5.99 euros, rising for a ninth day, its longest winning streak since November 2010. Goldman Sachs added the company to its “conviction buy” list, citing increased subscriptions and potential for mergers and acquisitions in six to nine months. Goldman also raised its 12-month price target for the shares to 7.20 euros.

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