European stocks fall

European stocks dropped for a third straight week, the longest stretch of losses since March, as concern mounted that the economy won’t recover soon.

Volkswagen AG slumped 6.3 percent, leading declines in automakers, after U.S. car sales fell in June and Credit Suisse Group AG cut its assessment of the industry. ThyssenKrupp AG, Germany’s largest steelmaker, and Finland’s Outokumpu Oyj dropped more than 3 percent as an industry group said European steel consumption will fall in 2009.

The Dow Jones Stoxx 600 Index fell 0.2 percent this week to 204.08 after reports showed unemployment in Europe and the U.S. rose. The measure has fallen 4.8 percent since June 12 on speculation share prices have outpaced the outlook for economic growth after a three-month rally pushed valuations to 25.4 times earnings, near the highest level since 2004. The benchmark index for European equities still rose 17 percent in the second quarter, the biggest gain since 1999.

“Macroeconomic data are still disappointing and show economic recovery is not yet a reality,” said Emmanuel Soupre, who helps manage about $18 billion at Neuflize OBC in Paris. “We are going to keep fluctuating between optimism and pessimism in the months to come.”

Unemployment in the 16-member euro region increased to 9.5 percent in May from a revised 9.3 percent in April, the European Union statistics office in Luxembourg said this week. The U.S. unemployment rate rose to 9.5 percent in June, the highest since August 1983.

U.S. Consumer Confidence

A separate report showed confidence among U.S. consumers slipped unexpectedly in June. The Conference Board’s sentiment index decreased to 49.3 from a revised 54.8 in May.

National benchmark indexes fell in eight of the 18 western European markets. The U.K.’s FTSE 100 slipped 0.1 percent, while Germany’s DAX dropped 1.4 percent. France’s CAC retreated 0.3 percent as PSA Peugeot Citroen and Renault SA declined.

European Central Bank President Jean-Claude Trichet signaled the ECB has no immediate plans to cut interest rates again and said the euro region’s economy will start to recover in the middle of 2010. The ECB kept its key lending rate at a record low of 1 percent.

Volkswagen slumped 6.3 percent as Europe’s largest carmaker said U.S. sales in June fell 18 percent. Separately, German car production is expected to drop 17 percent this year, said Matthias Wissmann, the president of the country’s carmakers association, known as VDA.

‘Increasing Risk’

European auto shares were downgraded to “market weight” from “overweight” by Credit Suisse analysts, who said, “we see increasing risk to first half 2010 estimated cash flows as retail volume and price support from scrappage schemes fade.”

Automobile and parts shares lost 2.9 percent as a group, the second-biggest decline among 19 industry groups in the Stoxx 600. Peugeot, France’s largest carmaker, slid 2.8 percent, while smaller rival Renault declined 2.6 percent.

Basic-resource shares dropped 3 percent for the biggest decline in the Stoxx 600. ThyssenKrupp sank 4.4 percent and Outokumpu, a Finnish stainless-steel maker, dropped 3.2 percent. Steel consumption in the region will fall by almost 33 percent in 2009 as the economic slump saps demand, the European Federation of Iron and Steel Industries said this week.

Commerzbank AG, Germany’s second-largest bank, jumped 13 percent as lawmakers backed Finance Minister Peer Steinbrueck’s plan to purge state and private banks of toxic assets, more than nine months after the global financial crisis brought the banking system to its knees.

Best Performers

Bank shares were the best-performing group in the Stoxx 600 this week, adding 1.2 percent. Barclays Plc, the U.K.’s third- biggest bank, rallied 11 percent.

U.K. consumer confidence increased to the highest level in 14 months in June as shoppers became more optimistic that the worst of the recession is over, GfK NOP said. Debenhams Plc, the U.K.’s second-largest department-store company, rose 12 percent.

CSM NV, the world’s biggest supplier of ingredients to bakeries, added 18 percent as the shares were raised to “add” from “reduce” at Petercam SA. That was the steepest weekly gain on record and the best performance in the Stoxx 600.

Elan Corp. climbed 15 percent. Johnson & Johnson agreed to pay $1 billion for a stake in the Irish drugmaker and will develop the company’s medicines against Alzheimer’s disease.

Source: Bloomberg