European Stocks Fall for Third Day; Commodities Producers Drop

By Sarah Jones

Sept. 28 (Bloomberg) -- European stocks declined for a third day, extending the Dow Jones Stoxx 600 Index’s biggest weekly drop since July, as a sell-off in mining companies overshadowed gains by German utilities after Chancellor Angela Merkel won re-election.

Rio Tinto Group and Antofagasta Plc dropped more than 1.8 percent as copper led declines on the London Metal Exchange. RWE AG and E.ON AG, Germany’s biggest utilities, rallied more than 2.8 percent after Merkel’s re-election yesterday fueled speculation that her desired coalition will scrap a nuclear phase-out law. Crucell NA led gains by drugmakers as Johnson & Johnson bought an 18 percent stake.

Europe’s Stoxx 600 lost 0.3 percent to 238.13 at 11:11 a.m. in London, extending last week’s 2.4 percent retreat. The measure has soared 51 percent since March 9, pushing its price- earnings ratio near to the highest level since 2003, according to Bloomberg data.

“Whilst valuations are not expensive there is no doubt that the rally that we have seen has got valuations very quickly to fair value,” said Henk Potts, a London-based fund manager at Barclays Stockbrokers Ltd. in London, which oversees about $45 billion. “Future direction really comes down to the third- quarter reporting season which gets underway next week. In the short term, we can expect to see an element of nervousness in the market or even consolidation.”

Alcoa Inc., the largest U.S. aluminum producer, is due to become the first member of the Dow Jones Industrial Average to post third-quarter results when it reports earnings on Oct. 7.

German Election

Germany’s DAX Index added 0.7 percent after Merkel’s Christian Democrats and the Free Democrats, her preferred allies, won enough votes to form the next government.

Standard & Poor’s 500 Index futures fluctuated after three straight days of losses for the benchmark gauge for U.S. equities. The MSCI Asia Pacific Index slid 1.6 percent as the yen rose to an eight-month high versus the dollar.

Rio Tinto, the world’s third-largest mining company, retreated 2.9 percent to 2,554.5 pence as copper slipped as much as 2.3 percent in London. Antofagasta, owner of copper mines in Chile, dropped 1.8 percent to 721 pence. Vedanta Resources Plc, the biggest copper producer in India, declined 2.4 percent to 1,837 pence.

RWE surged 2.8 percent to 63.93 euros and E.ON climbed 3.4 percent to 29.16 euros on speculation Merkel’s coalition will scrap a law that required Germany’s 17 nuclear plants to close by 2021. Her effort to repeal the legislation was stymied by the Social Democrats, her junior partner the past four years, who imposed the deadlines in 2002 when they were in power.

Crucell, AstraZeneca

Crucell rallied 3.1 percent to 16.45 euros after Johnson & Johnson bought an 18 percent stake in the company for 301.8 million euros ($441 million). Crucell said the transaction was “the best possible combination” for the Dutch vaccines maker.

AstraZeneca Plc advanced 2.4 percent to 2,817.5 pence amid speculation Novartis AG will make a takeover offer for Britain’s second-largest drugmaker. Novartis shares slipped 0.4 percent to 50.15 Swiss francs.

“Astra has had a lot of positive news flow in recent months, but it could also potentially be this takeover speculation that Novartis will buy them,” WestLB AG analyst Simon Mather said today. “We don’t buy into this. A lot of companies have been rumored to buy Astra.”

A spokesperson for AstraZeneca declined to comment when contacted by Bloomberg News.

Honda, Toyota

In Asia, Honda Motor Co., which gets 47 percent of its sales in North America, sank 5 percent to 2,675 yen in Tokyo as the yen strengthened and U.S. durable goods orders missed economist estimates. Toyota Motor Corp., the world’s largest automaker, slumped 3.8 percent to 3,570 yen.

Americans holding $3.5 trillion in cash are giving money managers increasing confidence that the stock market rally under President Barack Obama will continue through the end of the year. Even after reducing money-market accounts by 11 percent this year, investors have cash equal to 73 percent of S&P 500 companies’ net assets, according to data compiled by the Investment Company Institute and Bloomberg. At the peak of the bull market in 2007, the measure of buying power was 62 percent.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.