European Shares Fall From 3-Month High After U.S. Manufacturing

The Stoxx Europe 600 Index Slips 0.3 Percent
  • FTSE 100 Index is among biggest gainers in western Europe
  • Linde slump drags Stoxx 600 chemical companies lower

European equities closed lower, dropping from a three-month high, after U.S. factory data raised concern that the world’s largest economy may not be strong enough to withstand higher borrowing costs.

The Stoxx Europe 600 Index reversed an earlier gain to end the day down 0.3 percent. Manufacturing in the U.S. unexpectedly contracted in November at the fastest pace since the last recession. The move came after the Stoxx 600 climbed for a second month in November, taking its rebound from a low in September to 14 percent through Monday.

“We have had a nice rally in Europe partly based on a weaker euro and partly in reflection of the potential stimulus that we will get from the ECB,” said Veronika Pechlaner, an investment manager who helps oversee $10 billion at Ashburton Investments, part of FirstRand Group. She’s based in Jersey, the Channel Islands. “Now that we are getting closer to the news it is getting harder to grind up because it is tempting to take some profits.”

Anticipation for further European Central Bank stimulus and confidence that the U.S. economy is strong enough to weather higher interest rates helped spur the recent rally. Data today showed euro-area manufacturing accelerated in November, extending a tepid recovery that sets the scene for more central-bank action.

As shares rebounded from their lows earlier this year, the optimism led to fund managers increasing their allocation to global stocks in November. The timing was no coincidence: equities have wrapped up the year with gains on all but five occasions since 1988, with December posting the biggest and most frequent increases of any month, data compiled by Bloomberg show.

Gases supplier Linde AG slumped 14 percent, the most since 1999, after cutting its earnings targets for the third time in just over a year. Safran SA dropped 2.5 percent after France lowered its stake in the jet engine maker.

U.K. shares managed to maintain gains after the U.S. data, boosted by advances in its lenders as the Bank of England said all seven major firms passed stress tests. Barclays Plc and Lloyds Banking Group Plc climbed more than 2.4 percent. That pushed the FTSE 100 Index to post one of the biggest gains in western-European markets, with the volume of shares changing hands about 22 percent greater than the 30-day average.

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