European stocks fell this week, led by utilities including Suez SA and E.ON AG on expectation that the US Federal Reserve will increase borrowing costs, making debt more expensive.
"The risk is that the Fed will raise interest rates faster than people expect," said Kevin Lilley, who manages about US$1.2 billion in European shares at Royal London Asset Management in London. "That will hurt utilities."
He sold his holding in Suez, the world's second-largest water company, this week.
Carmakers including PSA Peugeot Citroen and building-materials companies such as Lafarge SA declined as the price of oil rose the most in six weeks, renewing concern that higher energy costs will damp profit growth.
The Dow Jones STOXX 600 Index lost 0.3 percent to 265.14 since Feb. 18, snapping a streak of five weekly gains. The STOXX 600 Utilities Index was the biggest faller among the 18 industry groups, posting the sharpest weekly drop in two years.
The STOXX 50 and the Euro STOXX 50, a measure for the 12 countries using the euro, also decreased 0.3 percent.
Benchmark indexes fell this week in 11 out of 18 Western European markets. The UK's FTSE 100 Index retreated 1 percent, the steepest decline since Dec. 10. Germany's DAX Index lost 0.2 percent and France's CAC 40 Index added 0.1 percent.
Since reaching this year's peak on Feb. 15, the STOXX 600 has dropped 0.7 percent amid concern rising interest rates and higher energy costs will hurt profits. Analysts expect companies in the STOXX 600 to increase earnings by an average 11 percent this year, slower than the estimated 27 percent growth last year, according to FactSet JCF Group, a London-based research firm.
The yield on the June Eurodollar futures contract is at 3.43 percent, suggesting the Fed will lift interest rates in the US, the world's biggest economy, to 3.25 percent within three months. On Feb. 2, the central bank raised its target rate for overnight loans between banks to 2.5 percent, the sixth increase in a row.
Paris-based Suez dropped 4.5 percent to 20.22 euros (US$26.78), the biggest slide in the Euro STOXX 50. Dusseldorf, Germany-based E.ON, the world's largest publicly traded utility, slid 4.1 percent to 67.58 euros.
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