European Stocks Drop After G-20 Fails to Agree on IMF Funding

By Corinne Gretler - Nov 4, 2011 11:53 PM GMT+0700

European stocks fell, capping the first weekly decline in six weeks, after the Group of 20 failed to agree on boosting the International Monetary Fund’s resources and German factory data fueled concern the region is slipping into recession.

Alcatel-Lucent SA, France’s largest telecommunications equipment maker, slumped to the lowest price in more than two years as it cut its full-year profit margin forecast. Commerzbank AG (CBK) dropped 6.3 percent after reporting a bigger- than-estimated quarterly loss on Greek-debt writedowns.

The benchmark Stoxx Europe 600 Index fell 1 percent to 239.76 at the close in London. The gauge has retreated 3.7 percent this week, the first weekly drop since Sept. 23, as Greek Prime Minister George Papandreou’s now-abandoned referendum call spurred concern the country may go into disorderly default.

“Investors will certainly need to digest the latest developments in Greece and the outcome of the latest G-20 summit over the weekend,” said Jean-Maurice Ladure, head of investment strategy at Coutts & Co Ltd. in Zurich. “Hence, investors are likely to remain in ‘wait-and-see’ mode.”

Global policy makers are awaiting more details of a week- old rescue package before they commit fresh cash to the IMF which could then lend to Europe’s bailout facility, German Chancellor Angela Merkel said at the end of a G-20 summit in Cannes, France. French President Nicolas Sarkozy said it may take until February for a deal.

German Manufacturing

German factory orders unexpectedly plunged in September as demand from the euro region slumped, adding to signs the debt crisis is damping growth in Europe’s largest economy.

Orders, adjusted for seasonal swings and inflation, fell 4.3 percent from August, when they dropped 1.4 percent, the Economy Ministry in Berlin said in a statement today. It’s the third straight month orders have declined. The median economist forecast was for a 0.1 percent increase in September, according to a Bloomberg News survey.

“The decline in German factory orders is stunning,” said Manish Singh, the London-based head of investment at Crossbridge Capital, which has more than $2 billion under management. “The risk of a recession in Europe has increased, if it hasn’t already started.”

Zero Growth

European Central Bank Executive Board member Juergen Stark said in a speech in Frankfurt today that the euro-area economy may not grow at all in the fourth quarter.

In the U.S., a Labor Department report showed that the unemployment rate in the world’s largest economy fell to a six- month low of 9 percent from 9.1 percent. Employment climbed in October at the slowest pace in four months, illustrating the “frustratingly slow” progress cited by Federal Reserve Chairman Ben S. Bernanke this week.

Papandreou is facing a confidence vote in parliament today that will determine whether he survives or elections are called.

Papandreou abandoned his planned referendum on his country’s bailout after it split his party, roiled financial markets and drew warnings from euro leaders that it may cost Greece its membership in the 17-nation currency club.

National benchmark indexes retreated in all but three of the 18 western European markets. France’s CAC 40 dropped 2.3 percent and Germany’s DAX declined 2.7 percent. The U.K.’s FTSE 100 slid 0.3 percent.

Alcatel-Lucent

Alcatel-Lucent retreated 17 percent to 1.67 euros, the lowest price since July 2009. The company cut its full-year profit margin forecast to about 4 percent, from its earlier projection of 5 percent.

Commerzbank declined 6.3 percent to 1.64 euros. Germany’s second-largest lender reported a third-quarter loss as it wrote down the value of Greek government-debt holdings. The bank reported a net loss of 687 million euros after a 113 million- euro profit a year earlier, missing the average 679 million-euro analyst estimate.

Fiat SpA, Italy’s biggest automaker, lost 5.5 percent to 4.14 euros as a gauge of European carmakers was the worst performer of the 19 industry groups in the Stoxx 600, sliding 3.5 percent.

Hermes International (RMS) SCA, the French maker of Birkin bags and silk scarves, advanced 3.1 percent to 252.20 euros after raising its full-year revenue growth target to a range of 15 percent to 16 percent at constant exchange rates, from its previous forecast for an increase of as much as 14 percent.

Lundin Petroleum AB (LUPE) rose 2.6 percent to 173.50 kronor, the highest price since at least September 2001.

Royal Bank of Scotland Group Plc (RBS) rose 1.3 percent to 23.09 pence, after saying job cuts are “in the offing.” Britain’s biggest government-controlled bank is “actively working” on cost cuts after third-quarter profit fell 63 percent, Group Finance Director Bruce van Saun said.

Rheinmetall AG, the maker of defense equipment and car parts, jumped 5.8 percent to 37.15 euros after Juergen Pieper, an analyst at Bankhaus Metzler, upgraded the company’s shares to “buy” from “sell.”

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net