Thursday, May 5, 2011

Resources Weigh on Europe Stocks

Thursday, May 5, 2011

European stock markets dropped sharply as weak U.S. economic data, falling commodity prices and disappointing earnings darkened investors' mood.

The Stoxx Europe 600 index slumped 1.4% to end at 278.52. "We are at a bit of a crossroads for financial markets right now," said Kathleen Brooks of "Investors are starting to face the risks that have been around for months, but have mostly been ignored, such as inflation concerns, monetary policy tightening commodity prices and geopolitical fears."

By the close of European trading, U.S. stocks were deep in the red as April data showed a sharp slowdown in service-sector growth. Exacerbating the negative mood, the prices of oil, silver and other commodities fell sharply.

Alternative energy, mining and oil were among the sectors posting particularly heavy losses. Among the biggest decliners, shares of Vestas Wind Systems sank 8% after the Danish wind-turbine manufacturer said its first-quarter loss widened to €72 million ($106.8 million) from €26 million a year earlier. Its loss before interest and tax of €69 million was much bigger than analysts expected.

In France, the CAC 40 index dropped 1.3% to 4043.13, weakened by a 4.6% slump in shares of Alcatel-Lucent. The telecom-equipment firm is scheduled to report first-quarter financial results on Friday.

The biggest gainer in the CAC 40 was BNP Paribas. Its shares rose 1.1% after the bank reported a 15% increase in first-quarter profit.

Also in Paris, Sanofi-Aventis rose 0.8% after Bank of America Merrill Lynch upgraded the pharmaceutical group to "buy" from a "neutral" rating previously.

The German DAX 30 index lost 1.7% to end at 7373.93. Siemens fell 2.8%. The industrial conglomerate reported a jump in second-quarter profit, but analysts at Société Générale said the company's organic growth and sales on the industry side were disappointing.

Car maker BMW fell 1.6%, giving up earlier gains. The firm said profit more than tripled in the first quarter as sales surged 29%.

On the positive side, shares of Henkel gained nearly 1% after statements by the consumer-products maker raised expectations for organic sales growth. It reported an 8.9% increase in first-quarter sales.

In London, the FTSE 100 index dropped 1.6% to 5984.07, as shares of chip designer ARM Holdings tumbled 7.3%.

Miners also posted steep losses, tracking lower metals prices. Fresnillo fell by 5.2% and Rio Tinto declined 3.3%.

Shares of oil group BP fell 2%. BP said Tuesday it will pay $25 million in civil penalties plus an additional $60 million in improvements in its pipeline infrastructure related to an oil spill on Alaska's North Slope in 2006.

Other energy-related stocks declined as well. Royal Dutch Shell was off 2.2%, while Tullow Oil declined by 3.7%.

Away from commodities, shares of Standard Chartered fell 3.7% after the U.K.-based, Asia-focused bank reported double-digit income growth in the first quarter, but said employee numbers fell in the period.

On the upside, shares of Next rose 4.4% after the retailer lifted its profit forecast for the year and reported much better-than-expected first-quarter sales. That boosted several other retail stocks, such as Marks & Spencer Group, up 3.8%, and Kingfisher, up 2%.

However, shares of Delhaize Group slumped 2.2% after the Belgian supermarket retailer reported a 3.1% decline in first-quarter net income. Both revenue and profit fell short of analysts' expectations.

Also in Belgium, brewing group Anheuser-Busch InBev reported first-quarter net income doubled and revenue rose 8.1%, but sales volume fell compared with the year-ago period. Shares fell 3.3%.

In Portugal, the PSI 20 index fell 0.5%, giving up earlier strong gains. Investors digested news that Prime Minister Jose Socrates announced that the government had negotiated a financial-bailout program with the European Union and the International Monetary Fund.

Some bank stocks in Portugal rose sharply, led by Banco BPI, up nearly 5%.

The dollar gave up more ground. At midday in New York, the euro was at $1.4846, compared with $1.4833 late Tuesday. The dollar was at ¥80.50 from ¥80.95. The U.K. pound bought $1.6518, from $1.6474.

Silver continued to slide. In morning trade on the Comex division of the New York Mercantile Exchange, silver for May delivery was down $1.516, or 3.6%, at $41.060 per troy ounce in morning trade on the Comex division of the New York Mercantile Exchange. The contract is down 12% from a 31-year-high settlement set April 29.

The gold contract for May delivery was down $1.10, or 0.1%, at $1,539.00 per troy ounce.

Light, sweet crude for June delivery on Nymex was down $1.99, or 1.8%, to $109.06 a barrel on the Nymex in late morning.

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