Stoxx 600 declines to lowest in 3 months

By Adam Haigh  |   2008-6-23  |     NEWSPAPER EDITION

EUROPEAN stocks fell to the lowest in three months last week on concerns that banks will post more losses and a United States manufacturing index provided the latest evidence the world's largest economy is slipping into recession.

UBS AG and Deutsche Bank AG dropped after Goldman Sachs Group Inc forecast more writedowns and Lehman Brothers Holdings Inc cut earnings estimates for the banks. Groupe Danone SA, the world's largest yogurt maker, and Unilever led losses among the food and beverage industry after UBS recommended selling the shares. Trinity Mirror Plc declined as Morgan Stanley downgraded European media stocks.

The Dow Jones Stoxx 600 Index dropped 3.5 percent to 295.08 last week, bringing the total fall for the past three weeks to 8.4 percent, ending the week at its lowest since March 17. The Stoxx 50 retreated 3.3 percent and the Euro Stoxx 50, a measure for the euro region, slid 3.8 percent.

"It will take quite some time before we see an improvement in the banks and in the earnings situation," Petra von Kerssenbrock, an analyst at Commerzbank AG in Frankfurt, said in a Bloomberg Television interview. "It's too early to invest" in financial stocks, she added.

National benchmark indexes retreated in 16 of the 18 western European markets. Germany's DAX Index fell 2.8 percent and France's CAC 40 lost 3.7 percent. The UK's FTSE 100 slipped 3.1 percent.

Testing time

The benchmark Stoxx 600 has fallen 19 percent this year on concerns that credit-related losses approaching US$400 billion, record oil prices and higher inflation will push the US economy into a recession. Stocks slid last week as a report showed the Federal Reserve Bank of Philadelphia's manufacturing gauge shrank more than forecast.

The next 18 months "will be a very testing time," Julian Chillingworth, London-based chief investment officer at Rathbone Brothers Plc, which has US$21 billion, said in a Bloomberg Television interview. "It's really like the early 1990s. I don't think the depth of the slowdown will be as deep but it could be as long."

UBS, the European bank with the biggest losses from the subprime contagion, fell 9.8 percent and Deutsche Bank, Germany's biggest bank, lost 6.3 percent.

Deutsche Bank and UBS face "earnings headwinds" of 480 million euros (US$750 million) and 4 billion francs (US$3.9 billion), respectively, Goldman analysts wrote in a report.

European banks may continue to face "negative value adjustments on US real-estate-related structured credit exposures" in the second quarter, the analysts wrote. Lenders have shed more than 80,000 jobs globally since the crisis began last year and have raised US$303 billion in new capital to shore up their balance sheets.