By Alexis Xydias
Nov. 8 (Bloomberg) -- European stocks resumed their losses this week as interest-rate cuts failed to ease concern the economy and corporate earnings will deteriorate.
The Dow Jones Stoxx 600 Index dropped 1.1 percent in the five days, following the steepest weekly gain since 2001 a week earlier. ArcelorMittal sank 13 percent after the world's biggest steelmaker cut production and Lafarge SA slid 9.4 percent as the largest cement producer abandoned its 2010 profit target. Money managers Man Group Plc and 3i Group Plc dropped more than 10 percent after the value of their assets declined.
Europe's Stoxx 600 retreated 2.47 to 219.6, taking this year's loss to 40 percent as almost $700 billion in credit losses dragged down economic growth. Profit concern this week also overshadowed speculation that U.S. President-elect Barack Obama may boost growth with a stimulus package.
``We are only at the beginning of what we anticipate will be a severe earnings downgrade,'' said Simon Davis, London-based chief investment officer for Putnam Investments' international equities team, which oversees about $10 billion. ``Interest-rate cuts help, but act with a lag. More is needed. Buying now, you do have to take the long-term view. Valuations are not a sufficient driver for sustainable outperformance in the short term.''
U.S. reports this week showed the unemployment rate climbed to the highest level since 1994 and service industries contracted the most on record in October as credit dried up and consumers reined in spending.
Borrowing Costs
Policy makers in the euro zone, the U.K., Switzerland and Denmark lowered rates to ease the effects of the global credit squeeze. The Bank of England unexpectedly cut its benchmark lending rate by 1.5 percentage points to the lowest since 1955. The European Central Bank reduced borrowing costs by 50 basis points to 3.25 percent.
Analysts have scaled back their estimates for 2008 profits at Stoxx 600 companies to a 6.8 percent drop, from an 11 increase forecast at the start of the year, according to Bloomberg data.
The European Commission said on Nov. 3 that the region's economy probably entered a recession in the third quarter and trimmed its growth forecast for this year to 1.2 percent from 1.3 percent.
The Stoxx 600 declined 13 percent in October, its worst month since September 2002.
National benchmark indexes fell in seven of 18 western European markets. Germany's DAX Index dropped 1 percent. France's CAC 40 slipped 0.5 percent, while the U.K.'s FTSE 100 advanced 0.3 percent.
Earnings Analysis
Earnings for the 1,123 companies in western Europe that reported quarterly results since Oct. 7 declined 9.1 percent on average, trailing expectations by 7.1 percent, according to Bloomberg data.
The Stoxx 600 is now trading at 9.3 times its members' reported earnings, Bloomberg data show. The measure was valued on Oct. 27 at 7.9 times earnings, the cheapest level since at least January 2002.
ArcelorMittal, based in Luxembourg, tumbled after it doubled production cuts and said earnings will drop as an economic slowdown erodes demand from builders and carmakers. ThyssenKrupp AG, Germany's biggest steelmaker, lost 6.9 percent.
Lafarge fell 9.4 percent. The Paris-based cement maker said it will scale back expansion and widen a disposal program to meet the terms of debt agreements as demand for cement and aggregates slows in the U.S. and Europe. Holcim Ltd., the world's second- largest cement maker, slipped 10 percent.
Asset Values
London-based Man Group slid 23 percent, the worst week since the largest publicly traded hedge-fund manager went public in 1994. Assets under management, which stood at $70.3 billion as of Sept. 30, slipped to begin November at $61 billion, the least since March 2007, the company said. Profit from continuing operations fell more than analysts estimated.
3i Group Plc, also based in London, tumbled 11 percent. Europe's largest publicly traded private equity firm posted its first drop in asset values for five years on stock market declines that eroded investment values.
JCDecaux SA retreated 10 percent. The world's second-biggest seller of outdoor advertising cut its forecast for sales growth and profitability this year as the slowing economy weighs on advertisement spending in the U.K.
Volkswagen AG declined 20 percent as Deutsche Boerse AG, operator of the Frankfurt bourse, cut the stock's weighting in the DAX to 10 percent as of Nov. 3, forcing index trackers to sell the shares. Europe's biggest carmaker now has a weighting of 8.1 percent in the German benchmark, compared with 13.9 percent at the end of last week, according to Bloomberg data.
Automotive companies were the worst performers among 19 industry groups in the Stoxx 600, with a measure for the sector slumping 11 percent.
Premier Foods Plc soared 30 percent. The second-largest U.K. bread baker said Will Carter became the latest company director to purchase shares. Carter, managing director of Premier's Ambient foods unit, bought 26,579 shares for 27.5 pence each on Oct. 31, the St Albans, England-based company said Nov. 4.
To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.
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