Wednesday, June 17, 2009

European Stocks Drop for Fourth Day

. Wednesday, June 17, 2009

By stockOzone team

European stocks fell for a fourth straight day, the longest stretch of declines since February, amid concern that the three-month rally has outpaced the prospects for earnings growth.

Sandvik AB plummeted 7.7 percent after the world’s largest maker of metal-cutting tools said it expects to post an operating loss as the economic slump curbs earnings. Iberdrola SA, Spain’s largest utility, and J Sainsbury Plc, the U.K.’s third-biggest supermarket owner, slumped more than 4 percent after announcing share sales.

Europe’s Dow Jones Stoxx 600 Index lost 0.9 percent to 206.88 at 9:18 a.m. in London, trimming its surge since March 9 to 31 percent. The rally left the measure trading at 25.4 times earnings amid optimism the $12.8 trillion pledged by the U.S. government and the Federal Reserve will end the first global recession since World War II. That was the most expensive level since March 2004, weekly data compiled by Bloomberg show.

“The economy is not going to improve very much and we are going to have a correction in markets from here,” Philippe Gijsels, a senior structured equity strategist at Fortis Global Markets, said in a phone interview from Brussels. “This is not a great environment for equities.”

The MSCI Asia Pacific Index and futures on the Standard & Poor’s 500 Index were little changed today.

‘Enormous Risk’
U.S. President Barack Obama, in an interview with Bloomberg News on the eve of the release of his plan to revamp financial- market regulation, voiced confidence the economy would recover soon, while warning that robust growth was needed if the U.S. is to rein in its budget deficit without raising taxes on most Americans. The jobless rate will continue to climb from its current 25-year high of 9.4 percent as employers are slow to take on new workers, he said.

The U.S. president pledged to make the derivatives market, which he called a system of “enormous risk,” more transparent ahead of today’s regulatory announcement expected at 12:50 p.m. in Washington.

Sandvik sank 7.7 percent to 57 kronor after predicting a second-quarter operative loss of 2.2 billion kronor ($280 million) to 2.5 billion kronor, citing lower output, adverse metal prices, costs from job cuts and impairment of assets.

Iberdrola retreated 4.9 percent to 5.62 euros. The capital increase will allow the company to lift its cash-flow ratios, Iberdrola said after the close of trading yesterday. The stock sale will be priced in the range of 5.25 euros to 5.50 euros a share, according to terms e-mailed to clients and obtained by Bloomberg News.

Sainsbury Slips
Sainsbury dropped 5.2 percent to 314.5 pence. The supermarket owner announced plans to raise 445 million pounds ($731 million) in a share sale and an issue of convertible bonds to expand its property holdings.

More than 165 companies raised a record $87 billion in U.S. secondary share sales this quarter, and 77 percent of them used the proceeds to slash leverage, according to data compiled by Bloomberg.

SSAB Svenskt Staal AB plummeted 9.7 percent to 91.25 kronor. The world’s largest supplier of high-tensile steel forecast a first-half operating loss of more than 1 billion kronor after slumping demand led it to idle blast furnaces.

Westpac Banking Corp., Australia’s biggest lender by market value, dropped 1.3 percent to A$19.60 in Sydney after a government official said it’s too soon to say the economy avoided a recession.

Australia’s economy unexpectedly grew 0.4 percent in the first quarter after contracting a 0.6 percent in previous three months, government figures released on June 3 showed.

“Celebration would be premature,” David Gruen, executive director of the Australian Treasury Department’s Macroeconomic Group, said in a speech late yesterday. “The global recession, and its Australian counterpart, still has some way to run.”

Disclosure: Author does not own any of the stocks discussed here.

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