European Stocks Retreat, Led by Carmakers

By Adria Cimino - Feb 23, 2012 6:23 PM GMT+0700

European (SXXP) stocks fluctuated between gains and losses as German business confidence exceeded forecasts, while the European (SXXP) Commission said the region’s economy will shrink this year. U.S. index futures and Asian shares were little changed.

Commerzbank AG (CBK) tumbled 5 percent after saying it won’t pay a dividend for 2011 and will ask investors to swap some hybrid instruments for shares. Swiss Re Ltd., the world’s second- biggest reinsurer, gained 2.5 percent after raising its shareholder payout.

The Stoxx Europe 600 Index dropped 0.1 percent to 264.33 at 11:21 a.m. in London. The gauge has still rallied 8.1 percent this year amid speculation that euro-area leaders will contain the region’s debt crisis and as U.S. economic data exceeded forecasts. Futures on the Standard & Poor’s 500 Index rose 0.1 percent. The MSCI Asia Pacific Index slid less than 0.1 percent.

“We’ve had four months of improving global growth,” Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment in London, with $11 billion in assets under management, said in a Bloomberg Television interview. “In the shorter term, I’m getting more positive.”

The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, climbed to 109.6 in February from 108.3 in January. That’s the fourth straight gain and the highest reading since July. Economists predicted an increase to 108.8, according to the median estimates in a Bloomberg News survey.

Economic Forecast

The 17-nation euro economy will contract 0.3 percent, the European Commission said, abandoning a November forecast of 0.5 percent growth. The downgrade was mainly due to projected contractions of 1.3 percent in Italy and 1 percent in Spain.

“Although growth has stalled, we are seeing signs of stabilization in the European economy,” European Union Economic and Monetary Commissioner Olli Rehn said in the introduction to the quarterly forecasts today in Brussels. “Economic sentiment is still at low levels, but stress in financial markets is easing.”

German Chancellor Angela Merkel indicated she will maintain pressure on Greece to meet debt-cutting pledges required for its second financial rescue, saying fiscal discipline is needed to hold the euro area together.

Euro-area finance ministers this week approved a 130 billion-euro ($172 billion) aid package for Greece and persuaded investors to provide more debt relief to the nation.

A report at 8:30 a.m. Washington time may show U.S. initial jobless claims increased to 355,000 in the week ended Feb. 18.

Earnings Scorecard

Of the 202 companies on the Stoxx 600 that have reported quarterly earnings so far, 101 have missed analyst estimates, while 89 have surpassed them, according to data compiled by Bloomberg.

Commerzbank fell 5 percent to 1.97 euros. Germany’s second- largest lender said it won’t pay a dividend for 2011 and will ask investors to swap hybrid capital instruments trading below face value for new shares, in a plan to boost its financial strength. The measures could increase the core Tier 1 capital by more than 1 billion euros ($1.33 billion), the bank said.

Vallourec SA (VK), a French producer of steel pipes for the oil and gas industry, tumbled 5.8 percent to 53.30 euros. The company reported a fourth-quarter profit that beat analyst estimates and forecast a lower profit margin this year.

Deutsche Telekom, Swiss Re

Deutsche Telekom AG (DTE) fell 2.3 percent to 8.76 euros. The company forecast earnings will fall further this year after posting a 1.34 billion-euro quarterly net loss because of writedowns on T-Mobile USA and its Greek business.

Earnings before interest, taxes, depreciation and amortization excluding some items will be about 18 billion euros, or 3.7 percent less than in 2011, Germany’s largest phone company said today. That compares with the 18.5 billion-euro average analyst estimate compiled by Bloomberg.

Swiss Re (SREN) rose 2.5 percent to 54.30 francs. The world’s second-biggest reinsurer may use excess capital to pay a special dividend for this year, after increasing its 2011 payout as fourth-quarter profit exceeded analyst estimates.

The company posted a net income of $983 million following a loss of $725 million in the year-earlier period. That beat the $299 million average estimate of 16 analysts surveyed by Bloomberg.

Natixis (KN) SA, the investment-banking and asset-management unit of Groupe BPCE, jumped 6.5 percent to 2.49 euros. The bank said fourth-quarter profit fell 32 percent to 302 million euros after it wrote down Greek sovereign debt. That compares with the 215 million-euro average estimate of five analysts surveyed by Bloomberg.

Yara International ASA (YAR), the largest publicly traded nitrogen-fertilizer maker, added 0.7 percent to 274.70 kroner. A pick-up in the urea market may act as a “positive catalyst” for Yara shares, Morgan Stanley said in report.

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

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