European Stocks Decline After Stoxx 600’s Three-Day Rally

European stocks declined after the biggest three-day rally since April sent valuations to their highest level since 2009.

Erste Group Bank AG tumbled the most since February 2009 after predicting a full-year loss. BNP Paribas SA lost 2.1 percent after Macquarie Group Ltd. downgraded the French lender. JC Decaux SA added 0.9 percent after HSBC Holdings Plc raised its recommendation on the shares.

The Stoxx Europe 600 Index slipped 0.3 percent to 347.95 at the close of trading. The gauge rose 2.1 percent in the three days through yesterday as U.S. jobs data exceeded economists’ forecasts. The U.S. stock market is closed for the Independence Day holiday.

“We’re seeing a pause in European markets today,” said Pierre Mouton, who helps oversee $8 billion at Notz, Stucki & Cie. in Geneva. “With the very good economic news from the U.S., investors should turn more positive, but I would expect some profit taking when the earnings season begins. Valuations are attractive compared with other markets, but earnings don’t grow that much.”

The Stoxx 600 gained 1.8 percent this week, its biggest weekly advance since March. That has pushed the valuation to 15.7 times the estimated earnings of its members, the highest level since 2009, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index trades at 16.8 times projected profit.

European Indexes

National benchmark indexes fell in 16 of the 18 western European markets today. France’s CAC 40 retreated 0.5 percent, while the U.K.’s FTSE 100 rose less than 0.1 percent. Germany’s DAX slipped 0.2 percent.

Erste slid 16 percent to 19.49 euros after forecasting a 2014 net loss of as much as 1.6 billion euros ($2.2 billion) because of bad-debt charges and writedowns in Hungary and Romania. The Austrian bank that earns most of its income in eastern Europe predicted loan-loss provisions will rise to 2.4 billion euros this year, 40 percent more than previously estimated.

Raiffeisen Bank International AG declined 4.1 percent to 23.50 euros. KBC Groep NV dropped 2.8 percent to 40.58 euros. The Brussels-based bank got 38 percent of its 2011 revenue from Russia and central and eastern Europe, according to data compiled by Bloomberg.

BNP Downgrade

BNP lost 2.1 percent to 50.20 euros after Macquarie Group downgraded the stock to neutral from outperform, which is similar to buy. An $8.97 billion fine for U.S. sanctions violations has altered investors’ perception of the lender as a haven from regulatory risk, and earnings growth may have to be sacrificed to rebuild its capital position, analysts Piers Brown and Chantal Sirisena wrote in a note.

JC Decaux rose 0.9 percent to 28.36 euros. HSBC upgraded the shares to neutral from underweight, similar to sell, citing their attractive valuation after a recent drop. The French outdoor-advertising company lost 6.2 percent this year through yesterday’s close and trades at 24.5 times projected profit, compared with 30.4 times at the end of last year.

Banco Espirito Santo SA, which has tumbled 43 percent since a peak in April, jumped 8.2 percent to 75.2 euro cents. Espirito Santo Financial Group SA and Credit Agricole SA, the bank’s largest shareholders, invited Vitor Bento to become Banco Espirito Santo’s next Chief Executive Officer, according to an Expresso report. The newspaper did not say where it got the information.

LEG Immobilien AG climbed 3.8 percent to 51.40 euros. Deutsche Bank AG upgraded the property company to buy from hold, citing the possibility of better-than-expected growth in the second half of the year and a pickup in deal momentum.