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European Stocks Post First Weekly Drop in Six; Petroplus Leads Declines

Monday, 30 January 2012 | 00:00
European stocks declined for the first week in six after a report showed the U.S. economy grew slower that forecast in the fourth quarter and talks continued between Greece and its creditors for a debt-swap deal.
Petroplus Holdings AG plunged the most ever after filing for insolvency. Royal KPN NV, the biggest Dutch telephone company, dropped 6 percent after predicting a decrease in 2012 profit and cash flow. Greek banks jumped on reports that debt- reduction talks have made progress, with EFG Eurobank (EUROB) Ergasias SA surging 79 percent.
The benchmark Stoxx Europe 600 Index fell 0.2 percent this week. The gauge rallied 20 percent from its most-recent low on Sept. 22 through Jan. 26, satisfying the typical definition of a bull market by analysts. Stocks rebounded as the U.S. economy maintained its recovery and speculation grew that the euro area will contain the sovereign-debt crisis.
“The slightly disappointing data from America reminds investors that being overly bullish in the current environment may not be justified,” said Luis Benguerel, trader at Interbrokers Espanola in Barcelona. “We also have the ongoing Greek debt negotiations and it’s key that a solution in that sense is announced soon.”
The U.S. economy expanded less than forecast in the fourth quarter as consumers curbed spending and government agencies cut back, validating the Federal Reserve’s decision to keep interest rates low for a longer period.
Below Estimates
U.S. Gross domestic product, the value of all goods and services produced, climbed at a 2.8 percent annual pace following a 1.8 percent gain in the prior quarter, Commerce Department figures showed in Washington. The median forecast of 79 economists surveyed by Bloomberg News called for a 3 percent increase. Growth excluding a jump in inventories was 0.8 percent.
“After a rapid rise of the equity market in the past month, the market is certainly reassessing the perceived strength in the economic recovery due to the weaker than expected GDP number,” said Daniel Weston, a portfolio adviser at Schroeder Equities GmbH in Munich.
National benchmark indexes rose in 12 of the 18 western European markets. France’s CAC 40 lost less than 0.1 percent, the U.K.’s FTSE 100 increased less than 0.1 percent and Germany’s DAX Index advanced 1.7 percent. Greece’s ASE rallied 5.3 percent.
Greek Debt Burden
Greece must repay 14.5 billion euros ($19 billion) of bonds maturing in March and the International Monetary Fund is demanding a deal with investors in exchange for aid.
Greek Prime Minister Lucas Papademos and Charles Dallara, managing director of the Institute of International Finance, representing private creditors, resumed their negotiations this week to reduce the country’s borrowings. The talks came three months after private bondholders agreed to a 50 percent cut to the face value of more than 200 billion euros of debt by voluntarily swapping bonds for new securities.
European Union finance ministers, meeting in Brussels, failed to reach an agreement on Greek debt-swap, driving stocks down from a five-month high early this week. The balked at putting up more taxpayer money for Greece and called for private bondholders to provide greater relief.
New Proposal
Private creditors will submit a new offer with an average interest rate of 3.75 percent on bonds issued as part of a debt restructuring, Kathimerini reported, without saying where it got the information. IIF’s Dallara was going to make the proposal in his talks with Greek officials, the newspaper said.
Meanwhile, European Union Economic and Monetary Affairs Commissioner Olli Rehn said Greece’s government will probably reach an agreement on a debt swap with its private creditors this month.
In the U.S., the Fed said it sees the “exceptionally low” interest rates to continue through 2014, having earlier pledged to refrain from raising borrowing costs until at least the middle of 2013.
U.S. policy makers are “prepared to provide further monetary accommodation if employment is not making sufficient progress towards our assessment of its maximum level, or if inflation shows signs of moving further below its mandate- consistent rate,” Fed Chairman Ben S. Bernanke said. Bond buying is “an option that’s certainly on the table,” he added.
Petroplus Insolvency
Petroplus (PPHN) sank 83 percent, its biggest decline and the lowest price since it issued shares to the public in November 2006. The company said it plans to file for insolvency in Switzerland and other jurisdictions. The Swiss refiner had about $1 billion in credit lines suspended last month, preventing it from supplying its refineries with crude.
Royal KPN NV, the biggest Dutch telephone company, dropped 6 percent. The company said 2012 profit and cash flow will be lower. Royal KPN reported fourth-quarter earnings before interest, taxes, depreciation, and amortization of 1.32 billion euros, compared with the average analyst estimate of 1.36 billion euros. The company also said there will be no share buyback in 2012.
STMicroelectronics NV slid 3.8 percent as Europe’s largest semiconductor maker predicted that first- quarter revenue will fall as much as 10 percent from the previous three months because of lower sales at its wireless business.
Ericsson AB, the world’s largest maker of wireless networks, fell 12 percent after reporting fourth-quarter net income that missed analysts’ estimates.
Eurobank rallied 79 percent, while National Bank of Greece SA jumped 23 percent.
Outokumpu Oyj, Finland’s biggest stainless-steel maker, rose 14 percent. ThyssenKrupp AG said it’s in talks to merge its Inoxum stainless steel unit with Outokumpu. All options for the unit are still open, including an initial public offering, spinoff and a sale to an investor, ThyssenKrupp said.
Source: Bloomberg
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