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European stocks may gain on signs of profit recovery

European stocks may rise in coming weeks amid signs that an economic slowdown isn't as severe as some investors had anticipated and higher sales estimates at companies such as PSA Peugeot Citroen, France's No. 2 carmaker.

The Dow Jones Stoxx 50 Index climbed for the first week in five by rising 2.3 percent. The gain trimmed the index's third-quarter loss to 20.2 percent and may enable the benchmark to avert its worst quarterly performance since 1987.

"We are teetering on the edge of recovery" in earnings and stock prices, said Chris Alexander, who helps manage ?7 billion (US$11 billion) at Carr Sheppards Crosthwaite in London. "Investors' worst expectations aren't being fulfilled anymore."

He favors companies such as Tomkins Plc, an auto-parts maker.

The Stoxx 50 has risen 7.3 percent since Tuesday, when it dropped to a 5 1/2-year low. Axa SA, Europe's second-largest insurer, and Swiss Re, the world's No. 2 reinsurer, both climbed more than 16 percent. Insurers have led the market's retreat during the quarter; their Stoxx index has lost 41 percent as sliding markets cut the value of their stock holdings.

Economic statistics from France and Germany contributed to the market's rebound. In France, the number of people looking for work unexpectedly declined in August, a report showed yesterday.

The Ifo institute's index of western German business confidence was better than forecast on Wednesday.

Peugeot Citroen rose 8.7 percent on Thursday after saying it plans to increase sales by 23 percent to 4 million cars by 2006, led by growth in Western Europe, China and Brazil. Its shares ended the week at 38.45 euros.

Bayerische Motoren Werke AG, the second-largest luxury carmaker, increased projected sales of its new Mini car by 10 percent for 2002 and said it doesn't expect to suffer from any economic slump next year. The Munich-based company's shares rose 6.9 percent Thursday and closed Friday at 34.35 euros.

Serono SA, Europe's No. 1 biotechnology company, reiterated on Wednesday that sales of the multiple-sclerosis medicine Rebif will rise 43 percent this year. Its shares had a two-day gain of 14 percent before shedding 0.3 percent yesterday.

Boots Co, the UK's largest pharmacy chain; HMV Plc, the country's largest music retailer; and Six Continents Plc, the world's second-largest hotel company, plan to update investors on their business prospects next week. Companies reporting earnings include Pernod Ricard SA, the third-largest liquor company.

Recent declines in stocks reflect "a profit scenario that would count amongst the most severe for generations," Standard Life Investments, which oversees about US$124 billion of assets, said in a note to clients yesterday. "Such an outcome is unlikely, and already there are signs of a turnaround in the corporate sector."

The fund unit of Standard Life Assurance Co, Europe's largest customer-owned insurer, said it recently used some of its cash to buy stocks.

If the Stoxx 50 Index loses more than 0.52 percent on Monday, its quarterly drop will become the largest since the fourth quarter of 1987. The comparison is based on historical calculations for the index, introduced in 1998.

Analysts' 2002 earnings forecasts for Europe were cut last month by 6 percent, according to Dresdner Kleinwort Wasserstein.

"It gets easier to meet earnings expectations when they get eroded," said James Clunie, who helps manage US$4 billion at Aberdeen Asset Management in Glasgow, Scotland. He's been buying GlaxoSmithKline Plc, the world's second-largest drugmaker, and Total Fina Elf SA, France's biggest oil company.

An index from Reuters that gauges the mood among purchasing mangers may show that service companies, such as restaurants and airlines, are helping keep economies afloat in the 12 countries sharing the euro. The index's September reading is due Thursday.
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