European Stocks Decline Most in Two Weeks on Fed, Economy

European stocks declined the most in more than two weeks as a measure of services and manufacturing output contracted, while concern mounted that the Federal Reserve will scale back its asset-purchase program.

All 19 industry groups in the Stoxx Europe 600 Index retreated with a gauge of carmakers dropping 2.5 percent. BHP Billiton Ltd., the world’s biggest mining company, posted its largest two-day drop in more than nine months. Safran SA slid the most since August after saying it may make an offer for Avio SpA’s space-propulsion business.

The Stoxx 600 sank 1.5 percent to 284.86 at the close of trading in London, its biggest tumble since Feb. 4., after the minutes of the Federal Open Market Committee’s Jan. 29-30 meeting showed policy makers disagreed over how long to operate the central bank’s bond-buying program.

“The FOMC minutes may have started an adjustment process for the markets, with a bit of realism setting in with investors,” Mark Andersen, who helps oversee $1.7 trillion as co-head of asset allocation at UBS AG in Zurich, said in a telephone interview. “You can’t have both stronger growth and ever expanding balance sheets at central banks. Central-bank members are starting to consider the longer-term consequences.”

National benchmark indexes fell in every western-European market except Iceland. France’s CAC 40 declined 2.3 percent, while the U.K.’s FTSE 100 slid 1.6 percent. Germany’s DAX dropped 1.9 percent.

Volatility Climbs

The VStoxx Index, a measure of the price of options on the Euro Stoxx 50 Index, climbed 9.7 percent to 21.51 today, its highest level in two weeks. The volume of shares changing hands in Stoxx 600-listed companies was 1.2 percent lower than the average of the last 30 days, data compiled by Bloomberg show.

Fed officials debated whether monetary easing risks exacerbating inflation or fueling asset-price bubbles.

Several participants at the FOMC’s meeting “emphasized that the committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolves,” according to minutes released after the close of European markets yesterday.

“The minutes of the Fed meeting further expose the policy rifts within the FOMC and presage a gradual scaling back of the Fed’s asset-purchase program,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy Ltd. in London, wrote in an e-mail. “Investors are -- not surprisingly -- taking fright at the possibility of the removal of the main pillar of support for risk assets.”

Services, Manufacturing

Euro-area services and manufacturing shrank in February more than economists had forecast. A composite index of both industries in the 17-nation currency bloc fell to 47.3 from 48.6 in January, London-based Markit Economics said today. Economists had predicted a reading of 49, according to the median of 22 estimates in a Bloomberg News survey. A reading below 50 means that activity contracted.

PSA Peugeot Citroen slumped 4.2 percent to 5.86 euros and Fiat SpA lost 4.1 percent to 4.12 euros. A gauge of European carmakers posted the biggest decline in more than two weeks.

BHP Billiton and Rio Tinto Group, the world’s largest mining companies, slid 4 percent to 2,097 pence and 3.5 percent to 3,519 pence, respectively. Copper, lead, nickel and tin all dropped more than 1 percent in London.

Safran, Axa

Safran decreased 3.1 percent to 34 euros. Europe’s second-biggest maker of aircraft engines has begun exploratory discussions with Avio, Chief Executive Officer Jean-Paul Herteman said on a conference call.

Axa SA retreated 3.1 percent to 13.27 euros as net income unexpectedly fell to 4.15 billion euros ($5.5 billion) in 2012 from 4.19 billion euros in 2011. That missed the 4.47 billion-euro average analyst estimate in a Bloomberg survey.

Swiss Re Ltd. gained 2.5 percent to 75.65 francs, its highest price since June 2008. Investors will receive a special dividend of 4 francs a share, plus an ordinary dividend of 3.50 francs, the insurer said. That exceeded the average forecast of eight analysts surveyed by Bloomberg for a total payout of 6.21 francs a share. Fourth-quarter net income of $795 million beat the average analyst estimate of $240.3 million.

Schneider Electric SA climbed 2.3 percent to 56.67 euros after the world’s biggest maker of low- and medium-voltage equipment said revenue will rebound in 2013. The company added that net income rose 3 percent to 1.84 billion euros in 2012. The average analyst estimate had called for profit of 1.83 billion euros.

BAE Systems Plc jumped 4.1 percent to 345.9 pence, its biggest rally in more than five months. Europe’s largest arms company said it will buy back as much as 1 billion pounds ($1.5 billion) of shares over three years after reporting full-year earnings that fell less than analysts had predicted.