Euro-Area Stocks Retreat Amid Concern on U.S. Deficit

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Euro-area stocks declined from a 17-month high amid concern a budget deal will fail to reduce the U.S. government’s fiscal deficit. Swiss shares rallied after the New Year holiday.

K+S AG retreated 3.5 percent after Exane BNP Paribas lowered its price forecast for the potash maker’s shares. UBS AG and Cie. Financiere Richemont SA each rallied more than 4 percent, leading Swiss stocks higher. Alcatel-Lucent SA climbed

9.8 percent as Credit Suisse Group AG raised its recommendation on the maker of telecommunication equipment.

The Euro Stoxx 50 Index of the euro area’s biggest companies fell 0.4 percent to 2,701.22 at the close of trading. The broader Stoxx Europe 600 Index added 0.5 percent to its highest since February 2011 as the Swiss Market Index jumped 2.9 percent after opening for the first time since Dec. 28.

“We’re not over all of the problems with the fiscal cliff,” Jane Coffey, who manages $19 billion as head of U.K. equities at Royal London Asset Management Ltd., said in a Bloomberg Television interview. “We still have to get through March. We have to look at the spending cuts they are going to put in this package.”

The Stoxx 600 rallied 2 percent yesterday after U.S. lawmakers passed a budget bill that avoided most scheduled tax increases. The so-called fiscal cliff of sweeping spending cuts and revenue raising had threatened to push the world’s largest economy into a recession.

Budget Deal

The U.S. House of Representatives approved the legislation on Jan. 1, delaying automatic spending reductions by two months. Republicans are now planning to use the need to raise the $16.4 trillion debt ceiling to force President Barack Obama to accept cuts to entitlement programs.

Moody’s Investors Service said the budget agreement won’t reduce the deficit enough to avoid a sovereign-rating downgrade.

The ratio of government debt to gross domestic product will probably peak at about 80 percent in 2014 and stay at that level for the rest of the decade, New York-based Moody’s said yesterday. The ratings company has assigned its top Aaa ranking to the U.S. It has a negative outlook on the country’s debt, as does Fitch Ratings.

A report today showed that companies in the U.S. hired more people last month than economists had predicted. Private payrolls increased by 215,000, compared with the median forecast of 140,000, according to ADP Research Institute.

Payrolls Data

The Labor Department releases the December figures for non-farm payrolls tomorrow. They rose by 151,000 workers last month after increasing 146,000 in November, according to the median forecast of 77 economists surveyed by Bloomberg News. The unemployment rate held at 7.7 percent, the lowest since December 2008, according to economists’ estimates.

“We’re on a roll of better data, so as long as there isn’t a big hiccup in the economy, equities will produce good returns this year,” Royal London’s Coffey said in an interview with Mark Barton. “Valuations aren’t stretched.”

The Stoxx 600 is trading at 11.9 times estimated earnings, near its average price-to-earnings ratio over the last five years of 11.5, according to data compiled by Bloomberg.

National benchmark indexes gained in 15 of the 18 western-European markets. The U.K.’s FTSE 100 added 0.3 percent, while France’s CAC 40 Index and Germany’s DAX each slipped 0.3 percent.

K+S slid 3.5 percent to 33.89 euros. Exane cut its share-price forecast 5 percent to 29.50 euros and left its recommendation at underperform, meaning investors should sell the shares. Citigroup Inc. lowered its rating to neutral from buy, saying that a deal by U.S. and Canadian companies to supply potash to China was negative for European producers.

Potash Sale

Potash Corp. of Saskatchewan Inc., Mosaic Co. and Agrium Inc. said on Dec. 31 that they have agreed to sell 1 million metric tons of the crop nutrient to China’s Sinofert Holdings Ltd. at a price that’s $70 a ton below a March agreement.

UBS, Switzerland’s biggest bank, jumped 4.1 percent to

14.85 Swiss francs. Richemont, the world’s second-largest luxury-goods company, rallied 5.7 percent to 75.50 francs. Swatch Group AG climbed 6.4 percent to 490.50 francs.

Sales of goods including jewelry and watches in Hong Kong jumped 14 percent in November from a year earlier, the city’s government said today. They declined 2.9 percent in October.

Alcatel-Lucent surged 9.8 percent to 1.16 euros after Credit Suisse upgraded the stock to neutral from underperform. Alcatel’s debt agreement means the company will maintain sufficient gross cash to remain a viable business in the long term, Credit Suisse wrote in a note.

Next Climbs

Next Plc advanced 2.7 percent to 3,873 pence. The U.K.’s second-largest clothing retailer said full-year profit will be 611 million pounds ($987 million) to 625 million pounds. The company had forecast pretax profit for the fiscal year ending this month of 590 million pounds to 620 million pounds.

Wacker Chemie AG rose 5.1 percent to 53.47 euros after UBS added the German maker of polysilicon to the list of its most preferred chemical stocks in Europe. The price of the material used to make solar panels climbed, SK Securities Co. said.

Transocean Ltd. surged 11 percent to 44.62 francs, its biggest jump since September 2011, after a person familiar with the matter said the offshore drilling-rig operator will settle all federal claims over the 2010 Deepwater Horizon explosion and subsequent oil spill in the Gulf of Mexico for about $1.5 billion.

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