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European, Asian Shares Drop, Led by China; U.S. Futures Fall
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By Adria Cimino

Aug. 31 (Bloomberg) -- European stocks slipped after the Dow Jones Stoxx 600 Index traded at its most expensive level relative to earnings in six years. China led a retreat in Asian shares, while U.S. index futures also declined.

Allied Irish Banks Plc tumbled 9.2 percent as former Irish Prime Minister Garret FitzGerald said in the Irish Times that a rejection by lawmakers of Ireland’s planned National Asset Management Agency could put the country “into the hands of the International Monetary Fund.” L’Oreal SA, the world’s largest cosmetics maker, slid 2.2 percent as ING Groep NV recommended selling the shares. Baoshan Iron & Steel Co. slumped 7 percent in Shanghai as first-half profit plunged 93 percent.

Europe’s Stoxx 600 fell 0.6 percent to 236.07 at 9:16 a.m. in London. The gauge has rallied 49 percent since March 9 as companies from L’Oreal to Goldman Sachs Group Inc. reported higher-than-projected earnings, while the German and French economies unexpectedly expanded. The rally has driven the price- earnings ratio for the index up to 48.6, the highest level since June 2003, according to weekly data compiled by Bloomberg.

“There’s a wide consensus saying that sentiment has been running ahead of fundamentals,” Vincent Juvyns, a Brussels- based strategist at ING Investment Management, which oversees about $476 billion, said in a Bloomberg Television interview. Stocks’ “recovery is probably too fast and too strong. We have to keep an eye on fundamentals.”

The Stoxx 600 has added 5 percent since July 31, the fifth monthly advance since the end of February, as the U.S. economy contracted less than forecast in the second quarter. The Standard & Poor’s 500 Index, the benchmark gauge for U.S. equities, has climbed 4.2 percent in August, heading for its sixth straight monthly gain.

Japan’s Election

“Heading into September, historically the weakest month of the year for global equities, market professionals are united in their calls for a pullback,” Ben Potter, a research analyst at IG Markets in Melbourne, wrote in a report.

Futures on the S&P 500 slipped 0.8 percent today. The MSCI Asia Pacific Index lost 0.6 percent as the Democratic Party of Japan’s election victory drove the yen higher. The Shanghai Composite Index tumbled 6.7 percent, the most since June 2008, as measures to curb lending threatened to damp growth in China.

Japan’s DPJ swept to power for the first time as the nation’s voters turned their backs on half a century of single- party government that failed to reverse economic stagnation and spiraling welfare costs. The party captured a record 308 of the 480 seats in the lower house of parliament.

Irish Banks

Allied Irish retreated 9.2 percent to 2.55 euros, while Bank of Ireland slid 13 percent to 2.35 euros for the biggest declines in the Stoxx 600. The government may fail to get its budgetary proposals and measures to deal with the banking crisis through parliament by early December, FitzGerald said in a column published by the Irish Times yesterday, adding that “this could undermine our capacity to borrow the huge sums we need to keep going.”

Separately, Ireland’s government is prepared to take majority stakes in the country’s banks as part of the creation of the National Asset Management Agency, Finance Minister Brian Lenihan told the Sunday Business Post.

L’Oreal slipped 2.2 percent to 68 euros. The company was cut to “sell” from “hold” at ING, which said that at current valuations it’s “time to take profits.” The stock trades at 22.9 times profit, the most expensive level since 2007, according to weekly data compiled by Bloomberg.

Steelmakers Drop

Baoshan Iron sank 7 percent to 6.42 yuan in Shanghai. The company said the “global economy hasn’t recovered substantially and the foundations for a domestic recovery aren’t solid,” threatening prospects for the steel industry.

ArcelorMittal, the world’s biggest steelmaker, slid 2 percent to 25.20 euros, while ThyssenKrupp AG, Germany’s largest, lost 2 percent to 23.79 euros.

Bayerische Motoren Werke AG and Daimler AG, the world’s largest makers of luxury cars, dropped 1.8 percent to 31.45 euros and 2.5 percent to 31.18 euros, respectively. Germany’s car industry faces a sales slump of as much as 20 percent next year after the country’s “cash-for-clunkers” stimulus program ends this fall, the Wall Street Journal reported, citing a study by management consultants Roland Berger.

Deutsche Post AG retreated 4.1 percent to 11.77 euros, snapping a seven-day advance. Europe’s largest mail carrier was reduced to “hold” from “add” at Commerzbank AG, which cited “downside risks to longer-term earnings potential in the important mail business.”

To contact the reporter on this story: Adria Cimino in Paris at [e-mail].

Last Updated: August 31, 2009 04:26 EDT