European Stocks Fall After Three-Week Rally as Fiat Drops

European stocks declined, snapping a three-week rally for the Stoxx Europe 600 Index, as U.S. factory production and home sales missed economists’ forecasts.

Fiat SpA retreated 3.2 percent as JPMorgan Chase & Co. downgraded automakers. Volvo AB slid 4.3 percent as Natixis SA cut its rating on the Swedish truck producer. TNT Express NV, the Dutch package-delivery company, rallied 4.3 percent after releasing results. Mediobanca SpA climbed 3.3 percent as the Italian investment bank reported increased profit.

The Stoxx 600 slipped 0.2 percent to 319.49 at the close of trading, erasing an earlier gain of 0.3 percent. The benchmark gauge rose 0.5 percent last week as disappointing U.S. jobs data fueled bets the Federal Reserve will maintain its stimulus measures until at least March. The index has soared 14 percent in 2013, closing at a five-year high on Oct. 22.

“We have hit the point now where markets are questioning more and more what could drive the markets up further,” Raimund Saxinger, a fund manager at Frankfurt-Trust Investment GmbH, which oversees about $22 billion, said in a telephone interview. “We have seen quite a significant move, but it is running out of steam now.”

U.S. factory production rose rose 0.1 percent in September, missing the median forecast of economists in a Bloomberg survey that called for a 0.3 percent gain, figures from the Fed showed. Total industrial production, which also includes output by mines and utilities, advanced 0.6 percent as higher temperatures drove up electricity use.

Mortgage Rates

Fewer Americans than forecast signed contracts to buy previously owned homes in September as rising mortgage rates slowed momentum in the housing market. The index of pending home sales slumped 5.6 percent, exceeding all estimates in a Bloomberg survey of economists and the biggest drop in more than three years, the National Association of Realtors reported.

Members of the Federal Open Market Committee are scheduled to meet Oct. 29-30, when they will consider scaling back asset purchases that have helped the Stoxx 600 more than double since March 2009. Policy makers will wait until March before starting to taper the $85 billion of monthly bond purchases, a Bloomberg survey showed this month.

The Stoxx 600 is trading at 14.8 times estimated earnings, the most expensive valuation since the end of 2009, according to data compiled by Bloomberg.

‘Profit Taking’

“We are seeing profit taking,” Soeren Steinert, who helps manage about $24 billion as associate director for equities trading at Quoniam Asset Management GmbH in Frankfurt, wrote in an e-mail. “Air is becoming thinner at these levels.”

Fiat retreated 3.2 percent to 5.74 euros as a gauge of carmakers fell the most among the 19 industry groups in the Stoxx 600. PSA Peugeot Citroen sank 5.8 percent to 9.38 euros, the lowest level since July.

Bayerische Motoren Werke AG, the world’s biggest luxury-car maker, declined 1.5 percent to 82.39 euros and Volkswagen AG, Europe’s largest carmaker, slipped 1.3 percent to 174.25 euros.

JPMorgan downgraded automakers to neutral from overweight, meaning investors should no longer hold more of the shares than are represented in regional benchmarks.

“Autos are the best performing sector year-to-date in Europe,” Mislav Matejka, chief European equity strategist at JPMorgan, wrote in a report today. “We think that their earnings momentum could be stalling in the near term as PMIs have stopped moving higher,” he wrote, referring to gauges of services and manufacturing growth known as purchasing managers’ indexes.

Volvo Downgrade

Volvo dropped 4.3 percent to 84.30 kronor as Natixis cut its rating on the truck maker to neutral from buy. The shares tumbled 6.6 percent on Oct. 25 after the company reported a surprise drop in operating profit.

Technip SA fell 2.1 percent to 87.80 euros. Europe’s second-largest oilfield-services provider won’t pay employees a share of 2013 earnings because of insufficient orders, according to a report in weekly newsletter La Lettre de L’Expansion, which did not say where it got the information.

Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, Spain’s largest lenders, dropped 2.8 percent to 6.35 euros and 2.8 percent to 8.60 euros, respectively, as a gauge of banking stocks in the Stoxx 600 dropped 0.8 percent.

TNT Express climbed 4.3 percent to 7.09 euros even after the package-delivery company reported a decline in sales and operating income. The company said it will step up restructuring efforts, without providing further details.

Mediobanca advanced 3.3 percent to 6.54 euros after fiscal first-quarter profit climbed 57 percent at Italy’s biggest publicly traded investment bank. Net income rose to 171.2 million euros in the three months ended Sept. 30 from 109 million euros a year earlier, including a 58.8 million-euro gain from the sale of part of its holding in Telco SpA.

Aggreko Plc, the world’s largest provider of mobile power generators, rallied 6 percent to 1,608 pence after saying “underlying” revenue and trading margins were “slightly ahead of last year” in the third quarter.

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