By Adam Haigh
June 12 (Bloomberg) -- European stocks fell as declines by commodity producers and concern the three-month surge by the Dow Jones Stoxx 600 Index has outpaced prospects for earnings overshadowed a rally in health-care shares.
Total SA and BHP Billiton Ltd. led basic-resources stocks lower as oil and base metals slipped. GlaxoSmithKline Plc jumped 4 percent as the World Health Organization declared the first influenza pandemic since 1968. Li & Fung Ltd., the biggest supplier of clothes and toys to Wal-Mart Stores Inc., rose 6.2 percent on higher retail sales in China.
Europe’s Stoxx 600 slid 0.3 percent to 214.17 at 12:43 p.m. in London, trimming its fourth straight weekly gain to 1.6 percent. The gauge has surged 36 percent since March 9 on speculation the $12.8 trillion pledged by the U.S. government and Federal Reserve will end the first global recession since World War II.
“There are lots of people who have missed the upturn in equities and there is the end of the quarter looming so I think we’ll see some buying there,” Christian Gattiker, head of research and strategy at Bank Julius Baer & Co. in Zurich, said in a Bloomberg Television interview. We are likely to see “some more difficult markets during the summer lull in July.”
The European index is now valued at 25.5 times the profits of its companies, the most expensive level since 2004, weekly data compiled by Bloomberg show. Corporate earnings in the region will rebound by 15 percent in 2010 after a 25 percent tumble this year, according to strategists at UBS AG.
‘Earnings Momentum’
“European earnings momentum is turning,” London-based strategist Nick Nelson wrote in a note. “We are still seeing more downgrades than upgrades, but the rate of downgrades is slowing.”
The MSCI Asia Pacific Index added 0.1 percent, led by consumer and financial shares. Japan’s Nikkei 225 Stock Average added 1.6 percent, closing above 10,000 for the first time since Oct. 7.
Standard & Poor’s 500 Index futures slid 0.4 percent. Confidence among U.S. consumers probably rose for a fourth straight month in June, economists said before a private report at 10 a.m. Washington time. The Reuters/University of Michigan preliminary index of consumer sentiment increased to 69.5, the highest level in nine months, according to the median estimate of 62 economists in a Bloomberg News survey.
Commodity Producers
Basic-resources companies led declines in Europe as copper and oil retreated. Total SA, Europe’s third-largest oil company, slid 2 percent to 40.725 euros. BHP, the world’s largest mining company, sank 2.6 percent to 1,478 pence.
Crude futures dropped for the first time in four days in New York and copper sank as much as 2.5 percent in London.
Vedanta Resources Plc dropped 6.6 percent to 1,631 pence after India’s largest producer of the metal announced the sale of $1 billion in convertible bonds. Antofagasta Plc, the copper producer controlled by Chile’s Luksic family, slipped 4.5 percent to 672 pence.
Health-care companies posted the steepest gain among 19 industry groups on the Stoxx 600. The WHO yesterday moved its alert on swine flu, which has caused mostly mild disease outbreaks on four continents, to the top of its six-stage pandemic scale on evidence the virus is spreading in communities outside the Americas.
Glaxo, Sanofi
Glaxo surged 4 percent to 1,101 pence, the biggest intraday increase in six weeks, after announcing it has started development of an adjuvanted vaccine against the pandemic flu strain known as A(H1N1). Sanofi-Aventis SA advanced 3.4 percent to 47.81 euros after saying it’s committed to developing its own shot against the virus.
AstraZeneca Plc, the U.K.’s second-biggest drugmaker, gained 3.3 percent to 2,600 pence after being added to UBS’s list of “key calls.”
Telecommunications stocks were second-best performers as BT Group Plc added 5.2 percent to 97.8 pence. Bank of America Corp. raised its recommendation on the U.K.’s largest phone company to “buy” from “neutral.”
The rally in so-called cyclical shares, which has sent European stocks tied to the economy “through the roof,” may end as valuations surpass those of companies whose earnings aren’t as linked to growth, strategists at Axa Investment Managers said this week.
Li & Fung climbed 6.2 percent to HK$23.20 in Hong Kong. China’s retail sales jumped 15.2 percent in May, while Japan’s household sentiment rose to a 14-month high, government reports showed today. The two Asian nations have announced spending plans worth a total $743 billion to jumpstart economic growth. Retail sales also climbed in New Zealand.
Barclays, BlackRock
Barclays Plc slipped 3 percent to 295.5 pence after BlackRock Inc. agreed to buy the U.K. bank’s investment unit for $13.5 billion to become the world’s largest money manager. Barclays will hold a 19.9 percent stake in the combined company. Financing will include $2.8 billion from the sale of equity to institutional investors and as much as $2 billion in loans from Barclays and other banks. BlackRock increased 1.7 percent to $185.62 in Germany.
The rally in stocks is leaving Switzerland behind. The Swiss Market Index of the country’s 20 largest companies has fallen 0.9 percent this year, the worst among the world’s 20 biggest markets in developed nations, according to data compiled by Bloomberg. It’s also the most expensive in western Europe, with the SMI trading at an average price of 2 times the assets of its companies.
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
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