European stocks posted their biggest weekly drop since July amid concern the EU may impose restrictions on financial companies in return for government aid and speculation a near eight-month rally in equities has outpaced the prospects for growth.
ING Groep NV sank 23 percent after agreeing to demands from the EU that it sell its insurance units and announcing plans to raise more than US$11 billion in a rights offer to help repay government assistance. Bank of Ireland PLC Allied Irish Banks PLC, which have received 7 billion euros (US$10.3 billion) from the Irish government, tumbled more than 20 percent.
The Dow Jones STOXX 600 Index dropped 3.3 percent, led by industries most-tied to economic growth. The regional gauge, which this month lost 2.3 percent, has surged 50 percent since March 9, pushing its valuation to 52 times reported earnings, the highest level since 2003.
“We have seen enormous sector rotation,” said Kevin Lilley, who helps oversee about US$2 billion at Royal London Asset Management. “ING’s news shocked the market and led to people taking profits in quite a lot of areas that have done very well.”
A Bloomberg poll this week showed the rally in stocks, which has sent the MSCI World Index up more than 60 percent from its March low, had failed to convince investors and analysts that it’s time to take on more risk or dispel their concerns about US economic policies and its banking system.
Only 31 percent of respondents in the survey see investment opportunities, down from 35 percent in the previous survey in July. Almost 40 percent in the latest quarterly survey said they are still hunkering down.
National benchmark indexes fell in 16 of the 18 western European markets. France’s CAC 40 retreated 5.3 percent and the UK’s FTSE 100 slid 3.8 percent. Germany’s DAX Index slumped 5.7 percent, the steepest weekly decline since February.
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