European Stocks Fall for 2nd Week on Economy, Led by Metro, BP

By Michael Patterson

Nov. 15 (Bloomberg) -- European stocks retreated for a second week as Germany's economy contracted more than forecast, the U.S. scrapped plans to buy mortgage assets from banks and declining oil sent energy shares lower.

Metro AG, Germany's largest retailer, dropped 14 percent as the nation's gross domestic product decreased the most in 12 years. An index of European banks tumbled 14 percent after the U.S. Treasury abandoned part of a rescue plan unveiled eight weeks ago. Intesa Sanpaolo SpA lost 20 percent after canceling its dividend. Swiss Life Holding fell 31 percent as it halted a share buyback. BP Plc dropped 5.2 percent on oil's retreat.

``There's absolutely no reason to take any risk right now,'' Steen Jakobsen, who manages about $140 million as chief investment officer at Saxo Bank AS, said in a Bloomberg Television interview from Copenhagen. ``We need the world economy to reignite.''

Europe's Dow Jones Stoxx 600 Index sank 6.3 percent in the past week to 205.61, bringing its two-week retreat to 7.4 percent and its loss for the year so far to 44 percent.

Gross domestic product in the 15 euro nations shrank 0.2 percent for the second straight quarter in the three months through September, the European Union's statistic office said. Economists at Bank of America Corp., Deutsche Bank AG and Citigroup Inc. predicted the slump will worsen.

The Organization for Economic Cooperation and Development said this week its 30 members will contract 0.3 percent in 2009, compared with a June forecast of 1.7 percent growth.

`Potential For Disaster'

``There is a potential for disaster'' in the economy, Roger Nightingale, the global strategist at Pointon York Ltd., which manages about $1.1 billion, said in an interview on Bloomberg Television. Nightingale said he prefers long-term government bonds over equities.

National benchmark indexes fell this week in all 18 western European markets except Iceland. Germany's DAX dropped 4.6 percent. France's CAC 40 lost 5.1 percent, while the U.K.'s FTSE 100 decreased 3 percent.

Metro, which owns the Media Markt consumer-electronics shops and gets about 41 percent of its revenue in Germany, dropped 14 percent.

Europe's largest economy shrank a seasonally adjusted 0.5 percent from the second quarter, when it fell 0.4 percent, the Federal Statistics Office in Wiesbaden said. Economists expected a 0.2 percent decline. Gross domestic product last slid this much over two consecutive quarters -- the technical definition of a recession -- in 1996.

Paulson's Plan

Separately, Handelsblatt said this week German sales of audio gear and televisions will fall in the second half.

Bank stocks fell more than those of any of the Stoxx 600's 19 industry groups this week.

U.S. Treasury Secretary Henry Paulson said he plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit.

``Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,'' Paulson said. ``This is creating a heavy burden on the American people and reducing the number of jobs in our economy.'

His remarks are an acknowledgement that the pitch he made to Congress for the bailout hasn't delivered what was promised. Paulson sold the Troubled Asset Relief Program as a way to rid bank balance sheets of illiquid mortgage assets.

Intesa declined 20 percent. Italy's second-largest bank cut the dividend to conserve cash after the global financial crisis made borrowing more expensive. The lender said net income fell to 673 million euros ($850 million) from a restated 1.46 billion euros a year earlier, missing the 723 million-euro average estimate of seven analysts surveyed by Bloomberg.

BP, Shell

Swiss Life fell 31 percent after scrapping its profit target, halting a share buyback and saying it can no longer guarantee a 600 million Swiss franc ($505 million) dividend as market turmoil eroded investments.

Irish Life & Permanent Plc, Ireland's biggest mortgage lender, sank 37 percent after it said full-year operating profit will fall 30 percent as it writes down investments in Icelandic banks and because of higher loan-loss charges.

BP, Europe's second-largest oil company, declined 5.2 percent. Crude oil slipped 7.4 percent in New York this week as the global economic slowdown cut demand in the largest energy-consuming countries.

Nokia Oyj lost 17 percent. The world's largest maker of mobile phones said industry-wide handset sales will be lower this year than previously anticipated, forcing the company to deepen cost cuts as consumers hesitate to buy new models.

Taylor Wimpey Plc plunged 34 percent. The homebuilder said U.K. orders have fallen 40 percent and talks to renegotiate its debt have been slightly ``disappointing.''

DSG, Cookson

DSG International Plc, the U.K.'s largest consumer electronics retailer, declined 41 percent after credit insurer Atradius reduced cover to the company's suppliers.

Cookson Group Plc, the world's biggest maker of molds for steelmakers, plunged 36 percent this week after saying it will miss targets as metal makers cut production to counter slowing demand.

Vodafone Group Plc climbed 15 percent. The world's largest mobile-phone company said it will cut 1 billion pounds ($1.6 billion) of costs to make up for slowing growth in some markets and kept its profit forecast.

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.