European Drop Second Week on Fed Tapering Concerns
European stocks declined for a second week, trimming their biggest monthly rally since January, amid concern the Federal Reserve will start to taper its debt-buying program as the U.S. economy strengthens.
Royal KPN NV, Hennes & Mauritz AB and SBM Offshore NV fell as analysts recommended investors sell the shares. Fiat SpA rose 13 percent after Italy’s industry minister offered support to keep its plants in the country. Alcatel-Lucent SA posted its biggest weekly gain since January as analysts said it could get up to $3.9 billion if it sold its wireless unit.
The Stoxx Europe 600 Index lost 0.8 percent to 300.88 this week, led by a selloff in real estate, food and health-care companies. The gauge still advanced 1.4 percent this month, climbing to its highest level since June 2008 on May 22. The Stoxx 600 has advanced for 12 consecutive months, the longest winning streak since 1997.
“We are in a bull market for equities and this will continue,” Geoffroy Goenen, who helps oversee $1.3 billion at Dexia Asset Management in Brussels, said in a phone interview. “The day that the Fed reduces the size of its bond purchases, the market will stop and look. If the economy can continue to grow, then the market will continue to go up.”
The yield on benchmark 10-year U.S. debt climbed to as much as 2.23 percent this week, the highest level in 12 months, after economic data and low demand at a government auction of two-year notes added to concerns about the longevity of the Fed’s bond-purchasing program.
Fed Chairman Ben S. Bernanke last week said the central bank may cut the pace of buying “in the next few meetings” if economic conditions improve.
A report from the Conference Board on May 28 showed U.S. consumer confidence climbed to 76.2 in May, the highest level since February 2008. Separate data showed the S&P/Case-Shiller house-price index gained 1.1 percent in March, compared with the 1 percent average projection of economists in a Bloomberg News survey. That means house prices have climbed 10.9 percent from a year earlier, their biggest jump since April 2006.
Another report on May 31 showed business activity rebounded in May after declining for the first time in more than three years last month. The MNI Chicago Report’s business barometer rose to 58.7, exceeding all forecasts in a Bloomberg survey. A reading greater than 50 signals expansion.
Fourteen of the 18 western European benchmarks declined this week. France’s CAC 40 (CAC) lost 0.2 percent, and the U.K.’s FTSE 100 Index retreated 1.1 percent in a four-day week. Germany’s DAX Index (DAX) rose 0.5 percent.
KPN led phone companies lower, retreating 8.9 percent. Kepler Cheuvreux downgraded the Dutch phone operator to reduce, the equivalent of a sell rating, saying its financial situation is still fragile.
Deutsche Telekom AG, Germany’s biggest phone company, fell 4.6 percent after setting the ratio for a scrip dividend at 12.5 rights for each new share with a deadline of June 3.
H&M dropped 2.7 percent as Goldman Sachs Group Inc. lowered its rating for the company to sell, saying profitability at Europe’s second-largest clothing retailer will suffer as customers shift to online shopping.
SBM (SBMO) slid 2.3 percent. Morgan Stanley downgraded the world’s biggest supplier of floating oil-production platforms to underweight, a recommendation similar to sell, from equal weight, citing its 37 percent rally so far this year, and saying it needs to see an “indication of significant cash returns.”
Lagardere SCA (MMB) sank 31 percent, for the biggest decline on the Stoxx 600. Natixis and Bank of America Corp. reduced their share-price estimates for the Paris-based media company after it traded without the right to a special dividend of 9 euros. Both banks rate Lagardere neutral.
Roche Holding AG lost 5.5 percent as a study in south-east Asia showed the effectiveness of its Tamiflu drug remained unchanged when the dosage was doubled for patients with severe influenza. A separate study found a gene mutation known to make flu viruses resistant to Tamiflu in two patients infected with the H7N9 bird flu virus in China, according to an article published in The Lancet medical journal on May 28.
Tate & Lyle Plc (TATE) dropped 6.7 percent after the maker of the artificial sweetener Splenda reported full-year sales of 3.26 billion pounds ($5 billion). That missed the average analyst forecast of 3.28 billion pounds.
Fiat led a gauge of auto companies higher this week, surging 13 percent. Italy’s industry minister, Flavio Zanonato, pledged the government’s support to help the company to keep its plants in the country.
The Italian carmaker is also in talks for as much as $10 billion in financing from a pool of banks to buy the Chrysler Group LLC stake it doesn’t own and refinance the two automakers’ debt, according to people familiar with the matter.
Alcatel-Lucent jumped 16 percent as Societe Generale SA wrote in a report on May 28 that the company’s wireline operations could fetch 3 billion euros ($3.9 billion) if sold.
Club Mediterranee SA soared 28 percent. The French tour operator said it got a takeover bid from its management and two largest shareholders, Axa Private Equity and Fosun International Ltd. (656), that values the company at 540 million euros.
PostNL NV climbed 14 percent after the Dutch mail company raised its annual-profit forecast. It now expects underlying operating income of 50 million euros to 90 million euros in 2013, compared with an earlier forecast of 20 million euros to 60 million euros.
Deutsche Boerse AG advanced 8.2 percent after UBS AG wrote in a note that the operator of the Frankfurt stock exchange will benefit from possible changes to European Union proposals on financial transaction taxes. European countries are planning to scale back the taxes, Reuters reported on May 30, citing unidentified officials.
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