European Stocks Post Biggest Weekly Gain in Five Months

European stocks posted the biggest weekly gain in five months as investors speculated the region’s central bank will cut rates and as companies from BASF SE to Standard Life Plc reported better-than-expected results.

BASF jumped 11 percent as the world’s biggest chemical company posted first-quarter profit that beat analyst estimates. Standard Life surged 16 percent. Cie. Financiere Richemont SA climbed 9.8 percent after full-year profit beat forecasts. Royal KPN NV slid 8 percent after it canceled its dividend for the next two years and said it will sell new shares at a discount.

The benchmark Stoxx Europe 600 Index rose 3.7 percent to 295.89 this week, its biggest weekly advance since November. The measure has rallied 5.8 percent so far this year as U.S. lawmakers agreed on a compromise budget and optimism grew that the world’s biggest economy is recovering.

“This week, market psychology has firmly bought into the prospect of policy escalation,” said Graham Bishop, senior equity strategist at Exane BNP Paribas in London. “Poor economic data is simply reinforcing such expectations. We maintain our view that liquidity strength trumps growth weakness.”

Stocks climbed as investors speculated the European Central Bank will cut its interest rates because of weakening economic data in the euro area. The ECB holds its next interest-rate setting meeting on May 2. Forty-three of 69 economists in a Bloomberg News survey predicted that the central bank will lower its benchmark rate to 0.5 percent from 0.75 percent.

Euro-Area Economy

A report on April 23 showed euro-area services and manufacturing output shrank for a 15th month. The Markit Economics purchasing-managers index was unchanged at 46.5 in April from a month earlier. Numbers below 50 signal contraction.

German business confidence fell for a second month in April, a report showed this week. The Ifo institute in Munich said April 24 its business climate index, based on a survey of 7,000 executives, dropped to 104.4 from 106.7 in March. The median economist forecast in a Bloomberg News survey forecast a decline to 106.2.

In the U.S., a Commerce Department report on April 26 showed that the world’s biggest economy grew at a slower pace in the first quarter than estimated. Gross domestic product rose at a 2.5 percent annualized rate, compared with the 3 percent economists had forecast in a Bloomberg survey.

Chinese manufacturing expanded at a slower pace this month than predicted, according to a release on April 23. The preliminary PMI for April released by HSBC Holdings Plc and Markit stood at 50.5, compared with a final 51.6 in March. That was less than the average economist estimate of 51.5 in a Bloomberg survey.

National Indexes

National benchmark indexes advanced in all the 18 western-European markets this week. The U.K.’s FTSE 100 added 2.2 percent. France’s CAC 40 increased 4.3 percent and Germany’s DAX Index gained 4.8 percent.

Italy’s FTSEMIB Index rallied 5.1 percent this week as Giorgio Napolitano was elected as president for a second term. Napolitano on April 24 named Enrico Letta as prime-minister designate, following Italy’s inconclusive elections in February.

BASF jumped 11 percent after it reported first-quarter earnings before interest, tax and one-time items increased 10 percent to 2.21 billion euros ($2.88 billion) as better-than-predicted orders for herbicides and fungicides cushioned lower demand for paper and pigment additives. The average estimate of analysts in a Bloomberg survey was for 2.09 billion euros.

Standard Life

Standard Life rose 16 percent to the highest price since Scotland’s biggest insurer became a listed company after it said April 24 that long-term savings sales rose to 6.27 billion pounds ($9.7 billion) in the first quarter, beating the 5.36 billion-pound average estimate of analysts in a Bloomberg survey.

Richemont gained 9.8 percent as the maker of Cartier jewelry said in an unscheduled statement on April 23 that full-year net income rose about 30 percent, beating the 25 percent projected by analysts in a Bloomberg survey.

PSA Peugeot Citroen climbed 17 percent. Europe’s second-largest automaker reported first-quarter revenue fell 6.5 percent to 13 billion euros, beating the 12.7 billion-euro average analyst estimate in a Bloomberg survey, as delivery growth in China and Latin America limited the decline.

The carmaker can proceed with the elimination of 11,200 jobs and a factory closing after a French court on April 26 threw out a legal challenge from two unions to the plan.

ARM Beats

ARM Holdings Plc surged 12 percent after the designer of chips for Apple Inc.’s iPhone said April 23 that first-quarter revenue rose 29 percent to 170.3 million pounds. That beat the 160 million-pound average estimate of analysts surveyed by Bloomberg.

Royal KPN slid 8 percent after saying April 25 that it will sell 2.84 billion new shares for 1.06 euros each in a rights offer, a 62 percent discount to the previous day’s closing price. The Dutch phone operator on April 23 canceled dividends planned for 2013 and 2014.

Commerzbank AG tumbled 11 percent as the lender announced its fifth capital increase in four years. Germany’s second-biggest bank this week carried out a reverse share split, after winning the approval of shareholders on April 19 to increase capital by 2.5 billion euros by the start of June.

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