By Adria Cimino
Dec. 13 (Bloomberg) -- European stocks rose this week, led by construction companies and commodity producers, on speculation a U.S. stimulus plan will prevent a prolonged recession in the world’s largest economy.
Lafarge SA, the biggest cement maker, and Holcim Ltd. climbed at least 11 percent as President-elect Barack Obama said he is planning the most extensive public-works spending package since the 1950s. Rio Tinto Group, the third-largest mining company, surged 42 percent after saying it will reduce debt. Gains in the Dow Jones Stoxx 600 Index were limited after the Senate rejected a $14 billion plan to rescue U.S. carmakers.
The Stoxx 600 added 4.4 percent to 198.22, bringing the rebound from this year’s low in November to 8.8 percent as governments from the U.S. to India announced packages to buoy the global economy and prevent earnings from tumbling.
Stimulus “plans offer oxygen as we face an accumulation of bad news,” said Pierre Nebout, a fund manager at Edmond de Rothschild Asset Management in Paris, which oversees $3.9 billion in stocks. “The market welcomes them,” he said in a Bloomberg Television interview.
The Stoxx 600 has tumbled 46 percent in 2008 as almost $1 trillion in bank losses and writedowns froze credit markets and pushed the U.S., Europe and Japan into the first simultaneous recessions since World War II.
National benchmark indexes rose in all 18 western European markets this week except Iceland. Germany’s DAX Index added 6.4 percent. France’s CAC 40 climbed 7.6 percent and the U.K.’s FTSE 100 increased 5.7 percent.
Obama Plan
Lafarge gained 11 percent. Holcim, the world’s second- biggest cement maker, advanced 19 percent. Lafarge gets 24 percent of its sales in North America, while Holcim generates almost 20 percent of revenue there.
Obama said Dec. 6 he will boost investment in roads, bridges and public buildings to create and preserve 2.5 million jobs. That’s the largest public works program since President Dwight D. Eisenhower created the interstate highway system.
Mining stocks climbed 17 percent as a group this week, the best-performing industry in the Stoxx 600. Rio Tinto surged 42 percent after the company said it will cut 14,000 jobs and slash spending next year to reduce debt as the global financial crisis curbs demand for metals.
Lonmin Plc, the third-largest platinum producer, and Vedanta Resources Inc., the mining company controlled by billionaire Anil Agarwal, each soared 29 percent.
Metal Prices
Copper added 4.1 percent on the London Metal Exchange this week, while gold increased 8.7 percent. Platinum also advanced.
Energy shares posted the third-best weekly performance as a group in the Stoxx 600 as crude oil rebounded on the New York Mercantile Exchange.
The gain in crude prices “is good for oil companies and it’s a positive signal for the stock market,” Yves Bonzon, who helps manage about $348 billion as chief investment officer at Pictet & Cie in Geneva, said in a Bloomberg Television interview. “It rekindles hope that demand is stabilizing and the economic news will perhaps improve.”
BP Plc, Europe’s second-biggest oil company by market value, increased 8 percent. Total SA, the region’s largest refiner, rallied 12 percent.
Tullow Oil Plc, the U.K. explorer with the most licenses in Africa, jumped 30 percent after saying it will increase the size of its resource estimates following “successful” drilling at wells in Ghana and Uganda.
Failed Rescue
The Stoxx 600 pared its weekly gain, losing 2.7 percent Dec. 12, after the Senate’s rejection of a rescue for carmakers in the U.S. The bailout plan was thwarted when a bid to cut off debate on the bill the House passed on Dec. 11 fell short of the required 60 votes.
The Bush administration will “evaluate our options in light of the breakdown in Congress,” spokesman Tony Fratto said.
“It’s a spiral and touches other industries,” said Guillaume Chaloin, a fund manager at Meeschaert Asset Management in Paris, which oversees about $2.7 billion. The failure of the plan “means no boost for consumer spending and no stabilization of the economy,” he added.
Nokian Renkaat Oyj fell 7.3 percent this week after the Nordic region’s biggest tiremaker cut its full-year sales and earnings outlook.
Analysts expect profits at companies in the Stoxx 600 to fall 15 percent this year, compared with 11 percent growth forecast at the beginning of 2008.
Deepening Recession
Infineon Technologies AG, Europe’s second-largest chipmaker, slid 31 percent after competitors United Microelectronics Corp. and National Semiconductor Corp. cut quarterly sales forecasts.
Q-Cells SE tumbled 29 percent. Germany’s biggest solar company cut its 2008 and 2009 earnings forecasts as customers delayed orders on slowing economic growth and tighter financing.
Germany’s economy will shrink 2.2 percent next year and the contraction will continue into 2010, the Ifo institute said, while the U.K. economy may contract at the fastest pace since 1990 in the current quarter, according to the National Institute for Economic and Social Research.
Switzerland’s central bank reduced its interest rate to a four-year low of 0.5 percent this week and said further measures are possible as the economy faces a recession that may be the worst since 1982.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
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