European stocks posted their steepest weekly decline in five years on concerns that slowing growth will curb earnings at commodity producers while banks will face higher costs as the European Central Bank (ECB) tightened lending rules.
Royal Dutch Shell PLC, Europe’s largest oil company, and BHP Billiton Ltd, the world’s biggest mining company, declined as crude and metals prices slumped. Barclays PLC, the UK’s third-largest bank, led a retreat in financial shares after the ECB clampdown. Nokia Oyj plunged 17 percent after the biggest maker of mobile phones forecast a lower market share in the third quarter.
The Dow Jones STOXX 600 Index lost 5.6 percent to 272.24 this week, its biggest slump since 2003. The measure is down 25 percent this year, led by financial firms on concern accelerating inflation and more than US$500 billion in credit-related losses will stifle profits.
“Equity markets keep on suffering from mounting concerns on global growth,” said Gabriele Miodini, Italy country chief for Morley Fund Management, which oversees about US$355.6 billion in assets. “Lack of visibility on interest rates evolution in Europe with a still-high inflation offsetting a worsening economic scenario will keep markets under pressure.”
A US government report showed that unemployment rose to the highest in five years last month, signaling the economic slowdown is worsening.
The ECB on Thursday cut its economic growth forecast for this year to 1.4 percent from 1.8 percent and its prediction for next year to 1.2 percent from 1.5 percent.
National benchmark indexes declined in all 18 western European markets. Germany’s DAX slid 4.6 percent and France’s CAC 40 fell 6.4 percent. A slump in commodity producers sent the UK’s FTSE 100 down by 7 percent.
Basic-resources companies were the worst performers in the STOXX 600 as metal prices declined. BHP lost 16 percent and Anglo American PLC skidded 21 percent.
ArcelorMittal sank 19 percent in Paris. The world’s biggest steelmaker said it will cut South African prices for the first time in a year.
Royal Dutch Shell PLC dropped 9.6 percent in Amsterdam and Total SA, Europe’s third-largest oil company, slumped 9.7 percent. Sevan Marine ASA, a Norwegian oil-service company, tumbled 25 percent, the steepest decline in the STOXX 600 this week.
ECB President Jean-Claude Trichet, concerned that some banks were abusing its willingness to make loans backed by securities most investors won’t accept, said on Thursday that the central bank would increase the so-called “haircut” on securities used as collateral for loans to 12 percent from as little as 2 percent, meaning it will lend just 88 percent of their value.
Nokia tumbled after forecasting a drop in third-quarter market share as competitors slashed prices and a new handset was delayed.