European stocks capped the first weekly decline in more than a month as investors speculated share prices have outpaced the outlook for economic growth and corporate earnings.
Rio Tinto Group, the world’s third-largest mining company, and Royal Dutch Shell PLC, Europe’s biggest oil producer, fell with copper and crude prices. DSG International PLC, Europe’s second-largest electronics goods retailer, slid 15 percent after UK retail sales unexpectedly retreated. K+S AG sank 21 percent as the potash producer forecast a drop in sales and earnings.
The Dow Jones STOXX 600 Index lost 2.8 percent to 208.28 in the week, the biggest drop since the week ended on May 15. A three-month, 36 percent surge through the end of last week had left the measure trading at 25.4 times profit, the highest level since 2004, according to weekly data compiled by Bloomberg.
“It’s not surprising that we saw some profit taking after the tremendous rally,” said Gerold Kuehne, who manages about US$115 million at LLB Asset Management AG in Vaduz, Liechtenstein. “The economy determines the direction of the markets and we saw that if data is better than expected, like US leading indicators, it still has the potential to give the market a boost.”
European stocks pared the weekly loss after reports showed the US leading economic indicators index climbed for a second straight month last month and the number of Americans receiving unemployment benefits dropped for the first time since January.
Even so, US industrial production fell last month for the 16th time in the last 17 months, reflecting declines in consumer goods and business equipment that signals the manufacturing slump remains broad-based.
EU leaders spotted the first signs of a “sustainable economic recovery” and started planning to roll back budget deficits piled up to combat the financial crisis. The 27 government heads said the looming end of the slump means it is time to start hatching an “exit strategy.” They also agreed to overhaul financial regulation after banking supervision failed to contain the crisis.
National benchmark indexes fell in all 18 western European markets. The UK’s FTSE 100 dropped 2.2 percent as Lonmin PLC tumbled. France’s CAC 40 lost 3.2 percent as Michelin & Cie fell, while Germany’s DAX slid 4.5 percent.
A measure of basic-resources shares in the STOXX 600 retreated 9.5 percent, the second-biggest decline among 19 industry groups.
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