Sun, Mar 09, 2003 - Page 10 News List

Dow Jones Stoxx indexes at six-year lows

WAR WORRIES Slumping oil prices caused by continued US threats to invade Iraq triggered sell offs in the EU, with Aegon leading the way with a 31 percent decline


European stocks fell this week, sending the Dow Jones Stoxx 50 and 600 indexes to six-year lows, as the threat of war with Iraq caused crude-oil prices to rise to the highest since November 2000 and the dollar to slide.

Aegon NV, the second-largest Dutch insurer, plunged 31 percent as the company said it plans to lower its dividend for a second straight year. Royal Philips Electronics NV, Europe's largest consumer-electronics maker, slid amid speculation the value of its US sales will decline with the US currency.

The Stoxx 50 fell 2.3 percent Friday, for a 5.9 percent drop for the week, the biggest in six. The Stoxx 600 slumped 5.5 percent as insurance and auto shares tumbled. Both indexes are at the lowest since at least April 1997 and fell for a second week.

"European economic recoveries are normally led by exporters, but that's going to be very hard" now because of the slumping dollar, said Felix Lanters, who manages 6 billion euros (US$6.6 billion) as head of European equities at ABN Amro Holding NV.

"With very high oil prices the chances of a strong recovery" are also being damaged.

The dollar slid on concern the US will attack Iraq without the backing of the UN after President George W. Bush said that while he hopes not to go to war, he will do what is necessary to prevent more attacks like those on Sept. 11, 2001.

The US currency fell as low as US$1.1066 per euro, taking its slide to 20 percent in the past 12 months. Every 10 percent loss by the dollar cuts European companies' earnings by 4 percent on average, according to Goldman, Sachs & Co research.

Philips, which made almost a third of its sales in the US last year, slid 12.5 percent for the week. Porsche AG, a German sports-car maker that got two-fifths of revenue in the US last year, tumbled 12 percent.

Investors also are concerned that Brent crude oil at US$34.10 a barrel, the highest price in more than two years, will weigh on economies in the region. European Central Bank President Wim Duisenberg said Thursday the growth outlook for this year has weakened partly because of rising oil prices. His comments came after the ECB cut interest rates to the lowest in almost 3 1/2 years.

"I don't expect a meaningful rebound in stocks until the oil price comes under US$28 a barrel," said Gerard Piasko, who manages SF4 billion (US$3 billion) as chief investment officer at Bank Julius Baer. "If the oil price doesn't fall it will hurt consumption and investment."

Aegon's tumble erased 4.4 billion euros from the company's market value for the week. The insurer, which reported a 45 percent drop in fourth-quarter profit Thursday, said it planned to cut its dividend for 2002 by 11 percent to 8 euros, and may lower payout again next year.

"It's probably been the most difficult financial-market environment that we can ever recall," Chief Executive Don Shepard said.

Shepard, who took over in April, was forced to report the first decline in annual earnings in 14 years as he set aside money to strengthen reserves eroded by three years of stock-market declines and record defaults on corporate bonds.

Royal & Sun Alliance Insurance Group Plc, the second-largest U.K. property and casualty insurer, slumped 13 percent for the week as the company cut its dividend for a second year in a row.

Swiss Life, the biggest life insurer in Switzerland, ended the week 29 percent lower after posting a record annual loss Thursday.

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