BL: European Stocks Drop on Concern Aid Plan Won’t End Debt Crisis
By Julie Cruz
May 11 (Bloomberg) -- European stocks fell on concern a $1 trillion lending package, which sent the Stoxx Europe 600 Index to the biggest gain in 17 months yesterday, won’t solve the region’s debt crisis. Asian shares and U.S. index futures slid.
Banco Santander SA, Spain’s biggest lender, sank 5.8 percent as banks led declines in Europe. BHP Billiton Ltd., the world’s largest mining company, retreated 3 percent as accelerating Chinese inflation increased pressure for the government to tighten monetary policy. E.ON AG, Germany’s biggest utility, fell 1.4 percent after reporting earnings that missed analysts’ estimates.
The Stoxx 600 slid 1.8 percent to 249.57 at 12:48 p.m. in London. The benchmark gauge for European shares jumped 7.2 percent yesterday after the European Union and International Monetary Fund unveiled a 750 billion-euro ($954 billion) financial assistance package and the European Central Bank said it will purchase government and private debt. The index is still down 8.3 percent from this year’s high on April 15.
“You cannot resolve the debt crisis by issuing more debt or putting up guarantees,” Christian Blaabjerg, the Hellerup, Denmark-based chief equity strategist at Saxo Bank A/S, said in an interview with Bloomberg Television. “Markets will come back and test the will of the ECB/EU on how to deal with this enormous debt.”
Asian, U.S. Stocks
The MSCI Asia Pacific Index sank 1.1 percent as China’s inflation accelerated, bank lending exceeded estimates and property prices jumped by a record, increasing pressure on the government to raise interest rates and let the currency appreciate. Futures on the Standard & Poor’s 500 Index dropped 1 percent.
The Stoxx 600 retreated 8.8 percent last week, the biggest slump since November 2008, amid concern that a previously announced 110 billion-euro assistance program for Greece would be insufficient to keep Europe’s most indebted nations from defaulting. Greece may have its credit rating lowered to junk within the next month, Moody’s said late yesterday, citing the country’s “dismal” economic prospects.
Marek Belka, the director of the IMF’s European department, yesterday said he doesn’t consider the latest European rescue package a “long-term solution.” ECB council member Axel Weber said the bank’s purchase of government bonds poses “significant” risks, Germany’s Boersen-Zeitung reported.
Brown Quits
In the U.K., Prime Minister Gordon Brown’s decision to quit late yesterday threw into disarray efforts to form a government, pitting his Labour Party against the Conservatives as both bid to forge an alliance with the Liberal Democrats.
The multiparty haggling to form a government is unprecedented in post-World War II British politics and may unnerve investors as it threatens to drag on. With talks in their fifth day after inconclusive May 6 elections, Conservative leader David Cameron said it was “decision time” for his Liberal Democrat counterpart, Nick Clegg, as Clegg’s deputies opened negotiations with Labour.
National benchmark indexes fell in all 18 western European markets, except Iceland. Germany’s DAX lost 1.3 percent, France’s CAC slid 2.4 percent and the U.K.’s FTSE 100 decreased 1.7 percent. In Greece, the benchmark ASE Index tumbled 2.2 percent and Spain’s IBEX 35 plunged 4.5 percent.
Santander fell 5.8 percent to 8.95 euros after yesterday jumping 23 percent, leading the Stoxx 600 Banks Index to a 3.6 percent decline. Barclays Plc sank 3.3 percent to 318.85 pence, while Allied Irish Banks Plc slumped 7.1 percent to 1.28 euros.
Mining Companies
BHP Billiton dropped 3 percent to 1,924.5 pence and Rio Tinto Group, the world’s third-biggest mining company, lost 4 percent to 3,234 pence as copper slid as much as 2.8 percent. Basic-resource shares had the biggest drop among 19 industry groups in the Stoxx 600.
Salzgitter AG lost 2 percent to 56.85 euros. Germany’s second-biggest steelmaker was downgraded to “sell” from “buy” at UBS AG, which said “the risks are now more biased to the downside as the current uncertain real demand outlook and the usual summer lull reduces the likelihood of any panic buying of steel in the near term.”
E.ON dropped 1.4 percent to 24.98 euros as the utility’s adjusted net income, which the company uses to calculate its dividend, climbed to 2.09 billion euros from 1.8 billion euros a year earlier. That missed the 2.13 billion-euro average estimate of 11 analysts surveyed by Bloomberg.
Solarworld AG slid 6.8 percent to 9.13 euros, the lowest level since July 2005. The German solar-panel maker said first- quarter earnings before interest and taxes fell to 24.8 million euros from 37.8 million euros.
Deutsche Boerse
Deutsche Boerse AG retreated 1.7 percent to 54.64 euros. Europe’s biggest exchange said first-quarter net income fell 24 percent to 156.9 million euros, missing the 164.2 million-euro average of six analyst estimates compiled by Bloomberg. The company took a charge of 27.8 million euros for previously announced job cuts.
Portugal Telecom SGPS SA jumped 7.9 percent to 7.68 euros. Portugal’s biggest telephone company rejected an offer from Telefonica SA for its 50 percent stake in Brasilcel, the venture that controls Brazilian wireless operator Vivo Participacoes SA.
Telefonica slid 6.2 percent to 15.64 euros.
Carlsberg A/S advanced 3 percent to 460.30 kroner. The Danish owner of Russia’s largest brewer reported first-quarter earnings that beat analysts’ estimates as improved revenue and profitability in Europe and Asia helped offset plunging sales in Russia.
Of the companies on the Stoxx 600 that have reported earnings since April 12, about 64 percent have beaten analysts’ estimates, according to data compiled by Bloomberg. In the U.S., more than 80 percent of S&P 500 companies have topped projections.
To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net
Last Updated: May 11, 2010 07:49 EDT
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