European Stocks Gain as Oil Slumps; British Airways Advances

By Adam Haigh

Sept. 2 (Bloomberg) -- European stocks climbed to a three- week high after oil's decline eased concern rising fuel costs will spur inflation and curb earnings at airlines and retailers.

British Airways Plc, Europe's third-largest carrier, rallied 6.1 percent and Metro AG, Germany's biggest retailer, gained for a fourth day as crude traded at a five-month low. Taylor Wimpey Plc and Persimmon Plc led an advance in U.K. builders, jumping more than 9 percent each, after Prime Minister Gordon Brown suspended a homebuyer tax and brought forward 1 billion pounds ($1.8 billion) of spending.

The Dow Jones Stoxx 600 Index added 1.3 percent to 290.86 as of 2:36 p.m. in London, the highest since Aug. 12. The measure has lost 20 percent this year on concern more than $500 billion in writedowns and credit losses at the world's largest banks and record crude prices will drag down global economic growth and drive up inflation.

``Inflation is coming off and of course oil prices are a part of that,'' said Nick Nelson, a London-based European equity strategist at UBS AG. Inflation in the euro zone and in the U.K. has ``peaked,'' he added.

Inflation in the euro zone dropped to 3.8 percent from 4 percent last month, according to a report on Aug. 29. Economists had forecast the rate would remain unchanged at a 16-year high. U.K. July inflation accelerated to 4.4 percent from a year earlier, a report on Aug. 12 showed.

National indexes increased in all 18 western European markets except Norway as oil companies weighed on the country's benchmark. The U.K.'s FTSE 100 climbed 0.4 percent, and France's CAC 40 increased 1.5 percent. Germany's DAX added 1.6 percent.

Consumer Shares

Carrefour SA, the world's second-largest retailer, and Carnival Corp., the biggest cruise-line company, also led gains among consumer-related companies as oil's slide eased concern that higher fuel bills will curb spending.

The dollar climbed to its highest since February against the euro on speculation lower oil prices will support economic growth in the U.S., the biggest energy consumer. The U.S. currency rose to $1.7783 versus the pound, the strongest since April 2006.

British Airways rallied 6.1 percent to 277.75 pence. Deutsche Lufthansa AG, Europe's second-biggest airline, climbed 5.2 percent to 15.79 euros.

Crude oil sank to as low as $105.46 a barrel in New York as producers and refiners prepared to restart output and started assessing the damage to production facilities after Hurricane Gustav struck the U.S. Gulf Coast.

`Stabilization'

Metro added 3.2 percent to 39.50 euros, while Carrefour gained 4.4 percent to 36.94 euros. Carnival jumped 4.4 percent to 1,975 pence.

``The decline in the oil price is benefiting shares that are sensitive to it,'' said Guillaume Chaloin, a fund manager at Meeschaert Asset Management, which oversees about $3.9 billion in stocks in Paris. ``We're in a phase of stabilization'' of oil.

Taylor Wimpey, Britain's largest house builder, rallied 9.4 percent to 61.25 pence, while Persimmon surged 11 percent to 427.5 pence.

Residential properties costing less than 175,000 pounds will be exempt from stamp duty for a year under plans announced by the Treasury today. The government also will help 16,000 people struggling to meet mortgage payments and another 10,000 to buy their first home.

Bank shares were buoyed by confirmation from Korea Development Bank Chief Executive Officer Min Euoo Sung that the lender is in talks to buy a stake in Lehman Brothers Holdings Inc., the fourth-biggest U.S. securities firm.

UBS, SocGen

Matthew Russell, a Hong Kong-based spokesman for Lehman, declined to comment.

UBS AG, the hardest hit by the contagion from the U.S. subprime crisis, added 2.3 percent to 24.96 Swiss francs. Societe Generale SA, France's second-largest bank, gained 3.3 percent to 68.15 euros.

Infineon Technologies AG, Europe's second-biggest maker of semiconductors, rallied 6.2 percent to 6.27 euros. Micron Technology Inc. may buy the company's Qimonda AG memory-chip unit, Digitimes reported, without saying where it got the information. Infineon spokesman Guenter Gaugler wouldn't comment on the report.

Bulgari SpA gained 5.5 percent to 7.43 euros. Morgan Stanley upgraded the shares to ``overweight'' from ``equal-weight,'' saying the world's third-largest jeweler is its preferred pick in a sector where it has adopted a ``cautious'' view.

Raw-materials producers led declining shares in the Stoxx 600, following crude, gold and copper prices lower. Rio Tinto Group, the world's third-largest mining company, lost 4.2 percent to 4,800 pence. BHP Billiton Ltd., the biggest, retreated 4.4 percent to 1,576 pence.

Royal Dutch Shell Plc, Europe's biggest oil company, slipped 1.3 percent to 1,862 pence. StatoilHydro ASA, Norway's largest oil and gas producer, dropped 3.8 percent to 154.2 kroner.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net