European Stocks Rise for Second Week; EADS, Volkswagen Gain

By Daniela Silberstein

Jan. 10 (Bloomberg) -- European stocks climbed for a second week as speculation that government stimulus packages and interest-rate cuts will revive the global economy overshadowed concern earnings will deteriorate.

European Aeronautic, Defence & Space Co. led gains among companies that get more than 20 percent of sales from North America. Volkswagen AG jumped 9.6 percent after Porsche SE boosted its stake in Europe’s largest carmaker. Next Plc, the U.K.’s second-biggest clothes retailer, advanced 8 percent after maintaining its full-year profit forecast.

The Dow Jones Stoxx 600 Index added 1.6 percent to 207.82, completing the first back-to-back weekly gains since July. The gauge has rebounded 14 percent since Nov. 21 on speculation U.S. President-elect Barack Obama will revive the world’s biggest economy with $775 billion of tax cuts and spending, while policy makers lower interest rates to combat the biggest financial crisis since the Great Depression.

“It’s a classic January rally,” said Jacques Porta, a fund manager at Ofi Patrimoine in Paris, which oversees about $615 million. “There’s a lot of cash in the market. Risk aversion has diminished. We’ve had a big confidence crisis. The new president will restore confidence.”

The Stoxx 600 slumped 46 percent last year, the worst annual performance on record, as credit losses and writedowns at financial firms topped $1 trillion and the U.S., Europe and Japan entered simultaneous recessions.

U.S. Unemployment

The measure pared its weekly advance after a report showed U.S. businesses cut 524,000 jobs last month, making last year’s collapse in employment the worst since the end of World War II, while the unemployment rate rose to 7.2 percent, a 15-year high.

National benchmark indexes slipped in nine of the 18 western European markets this week. Germany’s DAX fell 3.8 percent as Commerzbank AG slid 31 percent. France’s CAC 40 lost 1.5 percent, while the U.K.’s FTSE 100 dropped 2.5 percent.

The global recession prompted the Bank of England to reduce its key interest rate to 1.5 percent on Jan. 8, the lowest since the bank was founded in 1694.

Confidence in the economic outlook for Europe fell to the lowest on record and unemployment rose to a two-year high, adding to pressure on the European Central Bank to extend a series of interest-rate cuts that already has seen its key rate fall by 1.75 percentage points to 2.5 percent since October.

EADS, which owns planemaker Airbus SAS, rallied 8.4 percent. SAP AG increased 5.9 percent. The world’s largest maker of business-management software generates about a third of its sales in the Americas.

Volkswagen, Peugeot

Volkswagen surged 9.6 percent. Porsche, which raised its holding to more than 50 percent, said reaching a target 75 percent stake this year will take time as the company pledged to keep enough stock on the market for other investors to trade.

PSA Peugeot Citroen climbed 11 percent, while Renault SA gained 4 percent. The French government is considering further assistance to the country’s biggest carmakers which could take the form of state-backed loans, French daily Les Echos reported.

Next climbed 8 percent. The U.K. retailer said its full-year profit forecast remains “in line” with analysts’ estimates after resisting price cuts before the Christmas holiday and clearing inventory from its stores faster than last year.

Debenhams Plc, the second-largest U.K. department-store company, soared 45 percent as a sales drop slowed on demand for exclusive fashions and debt declined. Marks & Spencer Group Plc gained 11 percent. Britain’s biggest fashion retailer posted a 7.1 percent decline in same-store sales for the fiscal third quarter, less than the 8.3 percent drop forecast by analysts surveyed by Bloomberg.

Commerzbank Slumps

Commerzbank was the worst performer in the Stoxx 600 this week, tumbling 31 percent. Germany’s second-largest lender said it will receive additional capital of 10 billion euros ($13.5 billion) from the country’s Soffin stabilization fund, while the government will take a 25 percent stake in the company.

The injection comes as Commerzbank is nearing the completion of its takeover of Dresdner Bank from Allianz SE.

Deutsche Postbank AG retreated 12 percent. Germany’s biggest consumer bank by clients said it will post a pretax loss for 2008 after capital market deteriorated and it suffered losses from selling stock investments.

Analysts estimate earnings at companies in the Stoxx 600 dropped 16 percent on average last year and will decline 1.2 percent in 2009, according to data compiled by Bloomberg.

Metro AG, Germany’s largest retailer, slid 11 percent. Merrill Lynch & Co. downgraded the stock to “underperform” from “buy,” saying profit will fall by about 4 percent in 2009 as “deflationary pressure” increases.

Carrefour SA, Europe’s biggest retailer, retreated 5.9 percent after Wal-Mart Stores Inc., the world’s largest, said fourth-quarter profit will miss its forecast.

To contact the reporter on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net.