European Stocks Climb After U.S. Data; Alcatel Rallies
European stocks climbed for a third day, the longest winning streak for the Stoxx Europe 600 Index in five weeks, as a report showed that U.S. consumer spending rebounded last month.
Alcatel-Lucent (ALU) SA rose 6.4 percent as Morgan Stanley recommended the stock. Drax Group Plc jumped 7.3 percent as the U.K. government updated the subsidies for the different forms of renewable-power generation. Subsea 7 SA (SUBC) tumbled the most in more than 4 1/2 years after the oil-field services provider said its earnings will fail to grow this year.
The Stoxx 600 climbed 0.7 percent to 286.42 at the close after earlier declining as much as 0.3 percent. The gauge has still lost 4.8 percent in June, its first monthly retreat in a year. Federal Reserve Chairman Ben S. Bernanke indicated on June 19 that the central bank may start paring its bond-buying program this year if the U.S. economy strengthens.
“Positive reports will be a confirmation that the U.S. economy is indeed in a recovery,” said Guillaume Duchesne, an equity strategist at BGL BNP Paribas SA in Luxembourg, in a phone interview. “From now on, the most important relationship in equity markets will be the link to the economy. We come from a liquidity-driven market to one that is economy driven. Any good news on that side will be positive.”
European stocks followed the Standard & Poor 500 Index higher after a report showed that household purchases, which account for about 70 percent of the U.S. economy, climbed 0.3 percent in May. They declined 0.3 percent in April.
The Stoxx 600 has still lost 2.5 percent this quarter, its first drop in a year, and has pared its advance in 2013 to 2.4 percent. Since rallying to a near five-year high on May 22, the gauge has tumbled 7.8 percent. The index is trading at 12.7 times the estimated earnings of its constituent companies, according to data compiled by Bloomberg. The gauge was valued at 13 times on June 19.
“We have seen some stabilization over the last few days, but it’s not clear whether the correction is over,” David Wartenweiler, chief investment officer at Habib Bank AG Zurich told Mark Barton on Bloomberg Television earlier today. “I still like equities and after the recent minor correction I think the valuations are still attractive.”
Alcatel-Lucent rose 6.4 percent to 1.40 euros. Morgan Stanley reiterated its overweight recommendation, which is similar to a buy rating, after Alcatel yesterday started a 550 million-euro ($716 million) convertible bond issue and bought back debt as part of its strategy to reduce financing costs. The brokerage said the plan would benefit shareholders.
Alcatel said as markets closed that it raised the amount of the sale to 629 million euros.
Drax surged 7.3 percent to 573 pence, after the U.K. Department of Energy and Climate Change set the subsidy rates for power from renewable energy plants. The government said it will pay pay biomass-conversion plants 105 pounds per megawatts per hour.
Drax brought the first converted biomass unit at its coal-burning plant into service in April.
DS Smith Plc (SMDS) climbed 5.4 percent to 252.7 pence. The paper company increased its dividend by 36 percent to 8 pence apiece, more than analysts had estimated. DS Smith also reported full-year revenue and earnings that beat analysts’ estimates. The company added that the current year has started well, matching its expectations.
Sevan Drilling ASA (SEVDR) surged 18 percent to 4.02 kroner after Seadrill Ltd. increased its stake in the company to 50.1 percent. The offshore driller controlled by billionaire John Fredriksen will make a mandatory offer for the rest of the company. Seadrill climbed 1.6 percent to 244.60 kroner in Oslo.
Subsea 7 tumbled 13 percent to 106 kroner after the oil-field services provider said it no longer expects full-year earnings to grow from 2012. The Norwegian company increased its estimate for the full-life loss on the Guara-Lula NE project off the coast of Brazil.
Lanxess AG led a selloff in chemical makers, falling 3.3 percent to 46.61 euros. Solvay SA retreated 2.2 percent to 100.45 euros and BASF SE lost 2 percent to 68.33 euros. JPMorgan Chase & Co. downgraded all three companies to underweight, which is similar to a sell recommendation.
“After three years of tailwinds, the good times may be over,” analyst Martin Evans wrote in a report to clients dated yesterday. “The recent boom years for chemicals were driven by a confluence of several one-offs. In sharp contrast to consensus, we believe that current margins are not sustainable as we see potential major headwinds.”
Bankia SA, which was bailed out by the Spanish government last year, rose 1 percent to 59 euro cents after selling the 12.1 percent holding in IAG SA (IAG) that it obtained in the 2011 merger of British Airways and Iberia.
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