European Stocks Fall After Six-Day Rally; U.S. Futures Decline

By Adam Haigh

Jan. 7 (Bloomberg) -- European stocks retreated for the first time in seven days on speculation deteriorating earnings will overshadow government efforts to revive the global economy. U.S. index futures fell, while shares in Asia advanced.

Man Group Plc, the largest publicly traded hedge-fund manager, declined 5.5 percent after UBS AG recommended selling its shares. Commerzbank AG dropped 2.7 percent as JPMorgan Chase & Co. gave the stock an “underweight” recommendation. Rio Tinto Group slid 2.7 percent after surging 29 percent in the first three days of trading in 2009.

The Stoxx 600 had rebounded 17 percent since Nov. 21 through yesterday on speculation that U.S. President-elect Barack Obama will revive the world’s biggest economy with $775 billion of tax cuts and spending as central banks lower interest rates to combat the worst financial crisis since the Great Depression. Meanwhile, the 505 European companies tracked by Bloomberg that announced results since the Stoxx 600 began its rebound posted a 75 percent decline in average profit.

“The Santa Claus rally started just before Christmas and ends today,” Chris Tinker, head of equity research at ICAP Apollo in London, said in a Bloomberg Television interview. “We have seen that rally but we are not comfortable about where we go from here. It is a trading environment, not an investing environment.”

The Stoxx 600 lost 0.8 percent to 211.26 at 8:16 a.m. in London, while futures on the Standard & Poor’s 500 Index declined 0.8 percent.

The MSCI Asia Pacific Index rose 1.8 percent, the biggest gain in three weeks, after Obama said U.S. stimulus spending will continue for years, boosting confidence that consumption in the world’s biggest economy will rebound.

$1 Trillion

The Stoxx 600 slid a record 46 percent last year as more than $1 trillion in losses at financial companies eroded profits and the U.S., Europe and Japan fell into the first simultaneous recessions since World War II. The European Central Bank now has scope to reduce borrowing costs further after the region’s inflation rate fell to the lowest in more than two years.

The global recession may prompt the Bank of England to reduce its key interest rate tomorrow to an all-time low of 1.5 percent from 2 percent, according to economists surveyed by Bloomberg. The ECB has reduced its benchmark rate by 1.75 percentage points to 2.5 percent since October.

Man Group dropped 5.5 percent to 271.25 pence after UBS cut its recommendation to “sell” from “buy” and slashed its price-estimate on the stock 17 percent to 260 pence. The shares soared a record 17 percent yesterday as analysts at Credit Suisse Group AG and Evolution Securities raised earnings estimates for the company.

Commerzbank, Rio Tinto

Commerzbank fell 2.7 percent to 6.22 euros. The bank is facing further “capital erosion” and Dresdner Bank, which Commerzbank is taking over, may make a loss until 2011, according to a JPMorgan note.

Rio Tinto, the world’s third biggest mining company, lost 2.7 percent to 1,875 pence. BHP Billiton Ltd., the largest, slid 3.6 percent to 1,398 pence. BHP had climbed 12 percent in 2009 through yesterday.

Marks & Spencer Group Plc, Britain’s largest fashion retailer, gained 2.7 percent to 245.25 pence after reporting a 7.1 percent drop in same store sales for the fiscal third quarter, less than the 8.3 percent decline forecast by analysts surveyed by Bloomberg.

Profits at European companies may fall at least 20 percent this year, according to strategists at New York-based Goldman Sachs Group Inc. and Merrill Lynch & Co.

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