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Sun, May 25, 2008 - Page 10 News List

EUROPE: Crude drags Europe to steepest weekly drop in two months


European stocks had their biggest weekly decline in more than two months after a surge in crude oil to a record US$135 a barrel sparked concern that higher fuel costs will curb profits at airlines and automakers.

Air France-KLM Group tumbled the most since the week of Sept. 11, 2001, after Europe’s largest airline posted its first quarterly loss since 2003. British Airways PLC dropped the most in six months. Porsche SE led a retreat in carmakers as Merrill Lynch & Co recommended investors sell the shares and Ford Motor Co abandoned a target of returning to profit next year.

Europe’s Dow Jones STOXX 600 Index lost 3.3 percent to 319.02, the steepest weekly decline since March. The measure is down 13 percent this year as concern that record oil prices, inflation and US$383 billion in credit losses will curb economic expansion and profit growth.

“Investors are worried that this week’s spike in oil prices is a structural move, rather than just a temporary spike,” said Tony Dolphin, director of strategy and economics at Henderson Global Investors in London, which oversees about US$125 billion. “Unsurprisingly, the focus has been on those sectors where earnings would be hardest hit, such as airlines and autos.”

Crude oil for July delivery climbed more than 5 percent this week, touching US$135.09, the highest since trading began in 1983. Prices have doubled over the last year, aided by a falling US dollar and higher global demand for raw materials.

National benchmarks dropped in all 18 western European markets except Norway. Germany’s DAX Index slipped 3 percent, while France’s CAC 40 fell 2.8 percent and the UK’s FTSE 100 sank 3.4 percent. The STOXX 50 also declined 3.4 percent and the Euro STOXX 50, a measure for the euro region, slid 3.6 percent.

Investors may face further stock-market losses, options traders on the Eurex derivatives exchange said. The VDAX-New Index, which measures the cost of insuring against declines in the DAX, climbed 16 percent to 20.68, the highest in a month and the biggest weekly increase since January.

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