European Stocks Fail to Keep Gains on Growth Concern; BHP Drops

By Sarah Thompson

Sept. 25 (Bloomberg) -- European stocks failed to sustain gains after a U.S. industry report showed sales of previously owned homes fell last month to the lowest since 2004.

Ericsson AB and BHP Billiton led a retreat in technology and mining companies, among the most sensitive to changes in economic growth.

``There are concerns that a downturn in the U.S. housing market could hit consumer spending and sentiment leading to a deterioration in corporate profits,'' said Richard Scott, who helps oversee $922 million at Iimia Investment Group Plc in Exeter, England.

The Dow Jones Stoxx 600 Index was little changed, losing less than 0.1 percent to 334.9, after earlier rising as much as 0.6 percent. The Stoxx 50 also slid less than 0.1 percent, and the Euro Stoxx 50, a measure for the 12 nations sharing the euro, gained 0.3 percent.

Stocks rose earlier after oil dropped below $60 a barrel and UCB SA, a Belgian drugmaker, announced the third takeover in the pharmaceutical industry in a week.

Ryanair Holdings Plc and Volkswagen AG paced gains in airline and auto stocks. France Telecom SA led phone companies higher after Credit Suisse Group recommended investors increase holdings in the industry.

``European markets are being helped higher by lower oil prices,'' said James Crocker, who helps oversee $222 million at Merchant Securities in London. ``The level of merger-and- acquisition activity shows there's still value to be had.''

Home Sales Drop

Purchases of existing homes declined 0.5 percent last month to an annual rate of 6.3 million, from 6.33 million in July, the National Association of Realtors said today in Washington. Resales were expected to drop to an annual rate of 6.2 million, according to a Bloomberg News survey of economists.

Equities tumbled on Sept. 22 after the Federal Reserve Bank of Philadelphia said its economic index unexpectedly shrank and the Conference Board's index of leading indicators showed an economic slump may extend into next year.

National benchmarks fell today in 11 of the 18 western European markets. Germany's DAX added 0.3 percent, and France's CAC 40 gained 0.1 percent. The U.K.'s FTSE 100 Index slid 0.4 percent, led lower by oil and mining stocks.

Stocks have rebounded this quarter from the worst decline in a three-year bull market as companies announced takeovers, earnings beat analysts' estimates and the U.S. stopped raising interest rates. The Stoxx 600 has gained 4.5 percent in the quarter, after losing 4.1 percent in the previous three months.

Tech, Mining Stocks

Ericsson, the world's largest maker of wireless networks, slid 1.4 percent to 25.05 Swedish kronor today. ARM Holdings Plc, a semiconductor designer whose products are used in mobile phones, dropped 2.2 percent to 111.75 pence.

Shares of BHP, the world's largest mining company, dropped 3.8 percent to 853 pence, and Anglo American Plc, the second- biggest, lost 3.5 percent to 2,060 pence.

Copper declined the most in a week after the home sales report. The metal for delivery in three months fell $125, or 1.7 percent, to $7,420 a metric ton in London.

Crude oil dipped to its lowest in six months after Iran's President Mahmoud Ahmadinejad said his country may consider discussions on its nuclear program, easing concerns that supply will be disrupted.

Airlines, Auto Stocks

Ryanair, Europe's biggest discount airline, jumped 3.7 percent to 8.44 euros. Volkswagen, the region's largest carmaker, rose 1.1 percent to 66.02 euros, and PSA Peugeot Citroen, its No. 2 auto producer, advanced 1.3 percent to 43.04 euros.

Energy makes up 30 percent of total costs for airlines, according to analysts at Credit Suisse. Higher fuel costs also discourage demand for new cars.

The drop in crude prices dragged energy stocks lower. Oil and mining stocks are the worst-performing groups this quarter among the 18 industries in the Stoxx 600. Oil has fallen by more than a fifth from a record $78.40 on July 14, and copper has lost 16 percent since its record in mid-May.

BP Plc, Europe's second-largest oil company by market capitalization, lost 1.8 percent to 563.5 pence, and Statoil ASA, Norway's biggest oil company, slid 4.5 percent to 148 kroner.

Schwarz Pharma AG, the first company to introduce a generic version of AstraZeneca Plc's ulcer drug Prilosec, surged 17 percent to 88.25 euros. UCB agreed to buy Germany's Schwarz Pharma for 4.4 billion euros ($5.6 billion) in cash and shares. UCB slipped 0.1 percent to 47 euros.

Record Year

So far this year, a record $1.17 trillion has been spent on European takeovers, compared with $762 billion for the same period last year. About $51.2 billion has been spent on bids involving European pharmaceutical companies, compared with $27.6 billion in the same period last year.

ProSiebenSat.1 Media AG climbed 3.2 percent to 21.40 euros. Apax Partners Worldwide LLP and Goldman Sachs Group Inc. are negotiating to buy Germany's biggest private broadcaster, Focus magazine reported, citing investors it didn't identify.

Scania gained 1.1 percent to 457 kronor. MAN AG, Europe's third-largest truckmaker, plans to sweeten its offer for Scania after the Swedish competitor and its two largest investors rejected a 9.6 billion-euro bid Sept. 18, three people with knowledge of the discussions said last week.

France Telecom, Europe's second-largest phone company, climbed 1.7 percent to 17.82 euros. Deutsche Telekom AG, the biggest, gained 1.7 percent to 12.40 euros.

`Signs of Value'

Investors should add to holdings of European phone stocks, the region's second-worst performers in the past 12 months, because there ``are some signs of value,'' Credit Suisse wrote in a report distributed today.

Strategists including Andrew Garthwaite advised investors to reduce a so-called ``underweight'' position in European phone stocks. Investors should still hold fewer of the shares than are represented in regional benchmarks.

Wolseley Plc sank 6 percent to 1,094 pence. The world's biggest supplier of plumbing and heating equipment reported full-year net income rose 12 percent to 537 million pounds ($1 billion). Analysts expected net income of 558 million pounds. The company is placing 59.5 million new shares.

Tullow Oil Plc fell 2.1 percent to 350.5 pence. The oil and gas explorer on three continents agreed to buy Australia's Hardman Resources Ltd. for about A$1.47 billion ($1.1 billion), boosting its reserves by 30 percent.

Shares of SIG Holding AG, the world's second-largest maker of drinks cartons, climbed 13 percent to 345.5 francs. The Swiss company said it will open its books to potential suitors after rejecting a 2.28 billion-franc ($1.85 billion) takeover bid.

To contact the reporter for this story: Sarah Thompson in London at sthompson17@bloomberg.net.

Last Updated: September 25, 2006 12:31 EDT

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