European stocks dropped for the second week in three as the U.S. currency headed toward its biggest weekly decline against the euro since March, sending companies including Aegon NV and BASF AG lower.
The Dow Jones Stoxx 50 Index gained 1 percent to 2295.76 on Friday, trimming its decline this week to 1.2 percent. The Stoxx 600 Index rose 0.9 percent and is 0.8 percent lower since last Friday.
The US dollar has tumbled about 2.3 percent this week. Demand for the currency fell after the European Central Bank on Thursday left its benchmark rate unchanged at 2.5 percent, double the US. Federal Reserve's level. A lower dollar cuts the value of US-dollar denominated earnings and makes the region's exporters less competitive.
"The euro at this rate is going to put a lot of pressure on earnings forecasts," said Mark Burgess, who helps oversee US$10.3 billion as chief investment officer at American Express Asset Management. "We are reducing stocks that will suffer from currency translation issues."
June futures on the Euro Stoxx 50 Index of companies based in the 12 countries sharing the euro rose 2.7 percent to 2314.00. The index added 1.2 percent to 2314.10.
The dollar's decline by more than a fifth against the euro in the last 12 months may affect many European exporters. Annual earnings fall between 5 percent to 6 percent in Europe for every 10 percent drop in the dollar, according to Deutsche Bank AG.
Conversely, companies including International Business Machines Corp, 13 percent higher this year, and General Electric Co, up a fifth, benefit as the weaker dollar increases the value of sales outside the US The Stoxx 600 has shed 4 percent this year, while the Standard & Poor's 500 Index in the US increased by 5.8 percent.
Aegon, Europe's third-largest insurer, was among financial stocks most affected by the dollar's decline, shedding 5.1 percent for the week. Goldman, Sachs & Co this week cut its recommendation for the insurer, partly on concern about the currency. About 60 percent of Aegon's profit comes from the US, the company and analysts have said.
BASF, the world's biggest chemicals maker, fell 7.2 percent for the week. The German company gets about a quarter of its revenue from North America.
Clariant AG, the world's second-largest specialty chemicals maker, sank 12 percent this week. The Swiss company gets about a quarter of its sales from the US, and the dollar has declined 18 percent against the franc in the past year.
Adecco SA, a Swiss temporary employment agency that gets about 30 percent of revenue in the US, shed 4.5 percent this week. The dollar has declined 18.4 percent against the Swiss franc in the past 12 months. The company was also hurt Thursday after a report showed the US April jobless rate rose to 6 percent for the second time in five months.
Benchmark indexes advanced in nine of the 17 Western European markets. Germany's DAX Index rose 2.4 percent, the UK's FTSE 100 added 1 percent and France's CAC 40 Index climbed 1 percent.
Bayerische Motoren Werke AG, the world's second-largest maker of luxury cars, led gains on Friday by automobile shares after Morgan Stanley raised its 2003 earnings per share forecast by 5 percent to 3.05 euros.
The stock rose 4.5 percent to 29.70 euros. The company on Thursday reported a 19 percent drop in first-quarter profit, less than the 30 percent decline forecast by analysts.