The Dow Jones Stoxx 600 Index of European shares headed for its first weekly gain in four weeks as drugmakers including GlaxoSmithKline Plc and tobacco companies such as Gallaher Group Plc rose. Zurich Financial Services AG slid as Merrill Lynch & Co cut its profit forecast for the insurer.
Pharmaceutical and tobacco companies, whose products are still in demand when growth weakens, have advanced since last Friday amid mounting evidence economies are slowing. The pace of expansion in European manufacturing fell in July, and the US economy grew less than half as much as expected in the second quarter, reports this week have showed.
"While we are putting cash to work, we are only buying solid, cash-generative companies," said Chris Alexander, who helps manage euro 7 billion (US$11 billion) as head of UK equity research at Carr Sheppards Crosthwaite in London. He favors companies such as Tesco Plc, the largest UK food retailer, and Unilever, the world's No. 1 soap and food company.
The Stoxx 600 erased a gain of as much as 0.6 percent and closed .2 percent lower at 217.82. It has climbed 1.3 percent since last Friday. The narrower Stoxx 50 Index added 0.1 percent to 2,605.55.
European consumers became more pessimistic in July and are making fewer major purchases than at any time in the past five years, and the US created fewer jobs than expected in July, reports showed Friday.
Benchmark indexes retreated in five of Europe's eight biggest share markets. Two shares declined for every one that advanced in the Stoxx 600.
The Stoxx 50 swung as high as 2,624.53 and as low as 2,572.35 during the session.
Zurich Financial, Switzerland's largest insurer, dropped 2 percent to 144 Swiss francs. Companies in the industry are grappling with a stock-market slump that is wiping billions of dollars from the assets they hold to pay claims and back new business.
"A greater dose of reality will still hurt sector performance," Brian Shea, an analyst at Merrill Lynch, said in a note to investors.
Allianz AG, Europe's No. 1 insurer, shed 4 percent to 133.49 euros after its forecast was cut. Alleanza Assicurazioni SpA shed 2.6 percent to 7.28 euros after Merrill also reduced its profit estimate for Italy's biggest life-insurance company.
Spain's IBEX 35 Index gained 0.7 percent, rebounding from a three-day, 8.8 percent loss. After trading ended Thursday, the International Monetary Fund said it may let Brazil delay repaying about $14 billion in loans. That lifted shares of companies that have invested in South America's largest economy, such as Endesa SA, Spain's largest power provider.
Endesa, which got 15 percent of its first-half operating earnings from Brazil, added 4.2 percent to 11.12 euros. Santander Central Hispano SA, the biggest Spanish lender and owner of Brazil's fifth-largest bank, rose 3.3 percent to 6.20 euros.
Royal Philips Electronics NV led declines by semiconductor makers after US rival National Semiconductor Corp said first-quarter sales will rise less than forecast as customers reduce orders. Philips, Europe's No. 3 semiconductor maker, shed 10 percent to 19.20 euros.
STMicroelectronics NV, Europe's largest maker of computer chips, fell 6.3 percent to 19.40 euros. No. 2 Infineon Technologies AG declined 6 percent to 12.65 euros.
Chip stocks also dropped as Mark Edelstone, an analyst at Morgan Stanley, cut his forecast for revenue growth in the industry next year to between 15 percent and 20 percent, citing concern about the speed of a US economic recovery.
Fiat SpA shed 4.3 percent to 9.76 euros. Shares of Italy's biggest manufacturer slid to their lowest in 17 years during the session on concern Fiat's credit rating may be cut to below investment grade as losses at the company's auto unit widen.
MLP AG tumbled 49 percent, for a loss this week of 58 percent, to 8.00 euros. The German insurance broker said first-half profit was little changed.
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