European stocks fall on profit outlook

London: European stocks resumed their losses last week as interest-rate cuts failed to ease concern the economy and corporate earnings will deteriorate.

The Dow Jones Stoxx 600 Index dropped 1.1 per cent in the five days, following the steepest weekly gain since 2001 a week earlier. ArcelorMittal sank 13 per cent after the world's biggest steelmaker cut production and Lafarge SA slid 9.4 per cent as the largest cement producer abandoned its 2010 profit target. Money managers Man Group Plc and 3i Group Plc dropped more than 10 per cent after the value of their assets declined.

Europe's Stoxx 600 retreated 2.47 to 219.6, taking this year's loss to 40 per cent as almost $700 billion in credit losses dragged down economic growth. Profit concern last week also overshadowed speculation that US President-elect Barack Obama may boost growth with a stimulus package.

"We are only at the beginning of what we anticipate will be a severe earnings downgrade," said Simon Davis, London-based chief investment officer for Putnam Investments' international equities team, which oversees about $10 billion. "Interest-rate cuts help, but act with a lag. More is needed. Buying now, you do have to take the long-term view. Valuations are not a sufficient driver for sustainable outperformance in the short term."

US reports last week showed the unemployment rate climbed to the highest level since 1994 and service industries contracted the most on record in October as credit dried up and consumers reined in spending.

Borrowing Costs

Policymakers in the euro zone, the UK, Switzerland and Denmark lowered rates to ease the effects of the global credit squeeze. The Bank of England unexpectedly cut its benchmark lending rate by 1.5 percentage points to the lowest since 1955. The European Central Bank reduced borrowing costs by 50 basis points to 3.25 per cent.

Analysts have scaled back their estimates for 2008 profits at Stoxx 600 companies to a 6.8 per cent drop, from an 11 per cent increase forecast at the start of the year, according to Bloomberg data.

The European Commission said on November 3 that the region's economy probably entered a recession in the third quarter and trimmed its growth forecast for this year to 1.2 per cent from 1.3 per cent.