European Stocks, U.S. Index Futures Fall; Asian Shares Advance

By Adria Cimino

Dec. 7 (Bloomberg) -- European stocks fell as a decline in metal prices weighed on basic-resource companies and investors speculated the Federal Reserve may raise interest rates as early as January. U.S. index futures dropped, while Asian shares rose.

Fresnillo Plc, the world’s largest primary silver producer, and Xstrata Plc slid more than 2 percent. Siemens AG, Europe’s biggest engineering company, retreated 2.2 percent after Morgan Stanley cut its recommendation on the shares. Nutreco Holding NV advanced 2.6 percent after ING Groep NV advised investors to buy the stock.

The Dow Jones Stoxx 600 Index, a benchmark measure for the region, slipped 0.7 percent to 247.27 as of 9:50 a.m. in London. Stocks gained last week following government reports that showed manufacturing in China and Europe expanded and employers in the U.S. cut the fewest jobs in November since the recession began.

“There’s a bit of tension on interest rates since the good employment figures” in the U.S., said Matthieu Giuliani, a fund manager at Palatine Asset Management in Paris, which oversees about $4.43 billion in stocks. “Basic-resources shares are very sensitive to economic growth. I would be cautious on the industry.”

Futures traders see a 4.4 percent chance that the Fed may lift its benchmark interest rate to 0.5 percent in January. This compares with a 1.8 percent probability a week ago.

Record-low interest rates and about $12 trillion in spending by governments worldwide have spurred a 56 percent rally in the Stoxx 600 since March 9. The gauge is trading at about 56 times its companies’ reported earnings, near the highest level since June 2003, according to weekly data compiled by Bloomberg.

U.S. Futures

U.S. stocks rose during the last trading session, lifting the Standard & Poor’s 500 Index to the biggest weekly gain in three weeks. S&P 500 futures slipped 0.4 percent today.

Forecasts for the fastest U.S. earnings growth in 15 years are failing to convince options traders that the S&P 500 will extend its biggest rally since the 1930s.

S&P 500 options to protect against declines in stocks over the next year cost 22 percent more than one-month contracts, the highest since 1999, data compiled by London-based Barclays Plc and Bloomberg show. The gap shows concern that analyst estimates for record earnings by 2011 may prove exaggerated, endangering an advance that pushed the S&P 500 up 63 percent since March.

The MSCI Asia Pacific Index added 0.1 percent today.

Asian Shares

Canon Inc., the world’s largest maker of cameras and which gets 28 percent of revenue in the Americas, added 3.3 percent in Tokyo as the U.S. jobs report on Dec. 4 buoyed confidence in an economic recovery. Billabong International Ltd., a clothing maker that gets more than half its revenue in the Americas, added 4.9 percent in Syndey.

Basic-resources shares declined 1.9 percent, the biggest drop among the 19 industry groups in the Stoxx 600, as copper, lead and nickel all dropped on the London Metal Exchange. Gold and silver also retreated.

Fresnillo lost 2.1 percent to 847 pence. Xstrata, the world’s fourth-biggest copper supplier, slid 2.4 percent to 1,041 pence.

Siemens retreated 2.2 percent to 62.10 euros. Morgan Stanley cut its recommendation on the shares to “equal weight” from “overweight,” saying “losses in non-core operations are likely to continue to weigh on reported earnings and cash flow.”

Analyst Recommendations

Bayer AG dropped 1.9 percent to 52.72 euros, snapping four days of gains. Germany’s biggest drugmaker and its partner, Johnson & Johnson, have decided to postpone their response on the rivaroxaban anti-clotting agent to the U.S. Food and Drug Administration, which is part of the application process for the treatment.

Nutreco advanced 2.6 percent to 38.07 euros after the world’s largest maker of fish feed was raised to “buy” from “hold” at ING.

Randstad Holding NV gained 3.1 percent to 33.82 euros. The second-biggest temporary staffing company was upgraded to “buy” from “hold” at Deutsche Bank AG.

European stocks may rally 17 percent by the end of 2010 amid earnings growth and an improvement in economic leading indicators, according to JPMorgan Chase & Co. strategists.

“The near term catalysts are a strong earnings reporting season, positive payrolls, rebound in leading indicators and increasing risk allocation in new year,” Mislav Matejka, London-based head of European equity strategy wrote in a report dated today.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.