European Stocks Drop on Earnings Concern; STM, Hannover Re Fall

By Adam Haigh

Oct. 21 (Bloomberg) -- European stocks fell for the first time in three days as disappointing earnings and lowered forecasts deepened concern the economic slowdown will curb profit, overshadowing government efforts to shore up banks.

STMicroelectronics NV and Infineon Technologies AG, the region's biggest computer-chip makers, sank more than 4 percent after Texas Instruments Inc.'s earnings forecast missed analysts' estimates. Logitech International AG slumped 15 percent as the world's biggest maker of computer mice cut its prediction for sales. Hannover Re tumbled 8.8 percent after posting a loss and abandoning its earnings target.

``We are entering a very difficult period for earnings,'' said Trevor Greetham, London-based asset allocation director at Fidelity International Ltd., which manages $261 billion. ``We will enter a period where earnings expectations and actual numbers will come down sharply.''

Europe's Dow Jones Stoxx 600 Index lost 0.5 percent to 220.93 as of 2:51 p.m., reversing earlier gains of as much as 1.7 percent. More than $26 trillion has been wiped off the value of stocks worldwide this year as credit-related losses topped $660 billion in the worst financial crisis since the Great Depression.

The Stoxx 600 has gained 7.9 percent since Oct. 10 as governments injected $2 trillion to bail out banks. Government and central bank efforts to stabilize the financial system have still helped push money-market rates lower in Europe.

`Too Late'

``There are still signs of anxiety and concerns,'' said David Buik, a market analyst at BGC Partners in London. ``Government rescue plans have arrived just too late.''

National benchmark indexes fell in 10 of the 18 western European markets. Germany's DAX Index decreased 1.5 percent. The U.K.'s FTSE 100 lost 1.1 percent, and France's CAC 40 was little changed.

STMicroelectronics slid 4.3 percent to 6.323 euros. Infineon, Europe's second-largest chipmaker, dropped 4.3 percent to 2.645 euros.

ARM Holdings Plc, the U.K. designer of chips used in mobile phones, lost 2.8 percent to 87.75 pence.

Texas Instruments reported a 27 percent decline in third- quarter profit and said sales will fall as much as 20 percent this period.

Logitech slumped 15 percent to 16.92 francs. The company cut its forecasts for sales and profit, citing concerns over slowing economic growth.

Hannover Re sank 8.8 percent to 20.24 euros. Germany's second-biggest reinsurer abandoned its profit target after losing money in the first nine months of the year on declining stock investments and above-average catastrophe claims.

Earnings Outlook

Analysts have cut profit forecasts this year as the credit turmoil spread, threatening economic growth. Earnings for companies in the Stoxx 600 will decline 4.4 percent in 2008, down from 11 percent growth predicted the start of the year, according to estimates compiled by Bloomberg.

Before Lehman Brothers Holdings Inc.'s collapse last month deepened the freeze in credit markets, analysts expected profit would decline 2.2 percent this year, the data show.

Societe Generale SA and BNP Paribas SA climbed more than 8 percent as the French government said it will buy subordinated debt issued by the country's six biggest banks and money-market rates fell.

The cost of borrowing in euros for three months fell to the lowest level since Lehman Brothers Holdings Inc. collapsed last month. The euro interbank offered rate, or Euribor, for such loans dropped 3 basis points to 4.97 percent today, the European Banking Federation said.

Below Fed Target

The comparable London interbank offered rate, or Libor, for dollar loans slid to 3.83 percent from 4.06 percent, the British Bankers' Association said. The overnight dollar rate slid 23 basis points to 1.28 percent, below the Federal Reserve's target for the first time since Oct. 3.

Societe Generale, France's second-biggest bank, climbed 10 percent to 48.43 euros. BNP Paribas, the nation's largest bank, added 8.1 percent to 59.35 euros. Societe Generale and BNP along with four other banks will get 10.5 billion euros ($14 billion) from the French government, tapping for the first time the 360 billion-euro state rescue package unveiled this month.

BNP and Societe Generale led a decline in the cost of protecting bank bonds from default. Credit-default swaps on the Markit iTraxx Financial index of contracts linked to 25 European banks and insurers fell 3 basis points to 101, according to JPMorgan Chase & Co. prices.

Europe's Stoxx 600 was valued at 9.2 times the reported earnings of companies in the index yesterday. It traded at 8.5 percent times earnings on Oct. 10, the lowest level on record, and has averaged 16.2 times over the past five years based on weekly data compiled by Bloomberg. The MSCI World Index traded for 12.1 times the profit of its 1,730 companies, while the S&P 500 was valued at 19.5 times earnings.

Short Sale

Volkswagen AG fell 13 percent to 240.63 euros, extending yesterday's 23 percent plunge as investors short-sold the shares on speculation that the price will decline once Porsche SE gains control of Europe's biggest carmaker.

``Investors are still short-selling,'' said Marc-Rene Tonn, a Hamburg-based analyst with M.M. Warburg. Volkswagen ``is a more volatile stock than others, it has long de-linked itself from fundamentals.''

Actelion Ltd. jumped 7.2 percent to 58.6 francs as Switzerland's biggest biotechnology company said third-quarter profit rose because of increased sales of the Tracleer lung disease medicine.

Norsk Hydro ASA dropped 7.1 percent to 28.6 kroner after third-quarter profit from continuing operations slipped to 202 million kroner ($30.6 million), missing the 581 million-krone estimate from analysts surveyed by Bloomberg.

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