European Stocks Decline, Paced by BNP Paribas, Allianz, BAE

European stocks dropped for a fourth day on speculation central banks will keep raising interest rates. BNP Paribas SA and Allianz SE paced a decline by banks and insurers.

BAE Systems Plc fell by the most in more than four years after the weapons maker said the U.S. started a probe of the company's compliance with anti-corruption laws. Barclays Plc retreated after an adviser to the Dutch Supreme Court said a ruling against ABN Amro Holding NV's sale of its U.S. unit should be overturned, paving the way for Barclays to buy the Dutch bank.

The Dow Jones Stoxx 600 Index has lost more than a third of this quarter's gain in the last month on mounting concern borrowing costs will rise. European Central Bank Council Member Miguel Angel Fernandez Ordonez said today the ECB is alert to inflation risks in the euro region, while the International Monetary Fund said it will raise its forecast for world economic growth and sees increasing price pressures.

``We will continue to see some downside pressure on equities until the market comes to a conclusion on where interest rates will peak,'' said Mike Lenhoff, who helps oversee about $36 billion as chief strategist at Brewin Dolphin Securities Ltd. in London. ``Until then we will see volatility and sell-offs.''

Europe's Dow Jones Stoxx 600 Index lost 0.3 percent to 390.87 at 2:23 p.m. in London. The Stoxx 50 slipped 0.1 percent as a rally in phone stocks, led by Vodafone Group Plc and BT Group Plc, limited declines. The Euro Stoxx 50, a measure for the euro region, dropped 0.4 percent.

BNP, Allianz

National benchmarks decreased in 14 of the 18 western European markets. France's CAC 40 slid 0.4 percent. Germany's DAX lost 0.8 percent. The U.K.'s FTSE 100 fell was little changed.

Stocks in the region also dropped before a U.S. government report today that may show purchases of new homes in the world's largest economy probably fell last month. An index of consumer confidence in the U.S. is also scheduled for release.

The Bank for International Settlements said in its annual report central banks will need to keep raising interest rates to quell inflation. U.S. Federal Reserve policymakers tomorrow begin a two-day meeting to decide on borrowing costs. An announcement is scheduled for release on June 28.

Shares of BNP, France's biggest bank, declined 0.9 percent to 87.83 euros. Allianz, Europe's largest insurer, slid 2.1 percent to 174.60 euros.

Barclays, the U.K. bank vying to buy ABN Amro, fell 1.1 percent to 712 pence. ABN Amro didn't need permission from shareholders for its $21 billion sale of LaSalle to Bank of America Corp., according to a non-binding recommendation by Advocate General Vino Timmerman to the Dutch Supreme Court.

Royal Bank, BAE Systems

The Enterprise Chamber of the Amsterdam Court of Appeal on May 3 froze ABN Amro's sale of LaSalle. The court said the Dutch bank, which in another deal the same day agreed to be bought by Barclays, should have asked for shareholder approval. Bank of America, ABN Amro and Barclays appealed the ruling. London-based Barclays has tied the success of its bid for ABN Amro to the sale of LaSalle.

Royal Bank of Scotland Group Plc led a rival offer for ABN Amro. Shares of Royal Bank climbed 1.6 percent to 649.5 pence.

BAE Systems, Europe's largest weapons maker, dropped 8.8 percent to 403.25 pence, its biggest decline since December 2002. The London-based company said that it's been notified by the U.S. Justice Department of the start of a formal investigation of its operations in Saudi Arabia. BAE gets about 60 percent of sales from the U.S. and is the largest foreign supplier of defense equipment to the Pentagon.

The U.K.'s Serious Fraud Office dropped a probe of alleged corruption in December in connection with BAE's 43 billion-pound ($85 billion) Al-Yamamah arms contract with Saudi Arabia after a review by Attorney General Peter Goldsmith.

Phone Stocks Gain

Phone stocks rallied. Vodafone, the world's largest mobile- phone company, increased 2.1 percent to 160.9 pence. BT, Britain's largest phone company, climbed 2.1 percent to 322 pence. Deutsche Telekom AG, Europe's largest telecommunications company, advanced 1 percent to 13.59 euros.

``People are rediscovering the sector,'' said Franz Wenzel, deputy director of investment strategy at Axa Investment Managers in Paris, which oversees $647 billion worldwide. ``Their yield is fairly attractive.''

The Dow Jones Europe Stoxx Telecommunications has a yield of 4.6 percent, the highest among the Stoxx 600's 18 industry groups.

Iberdrola, Henkel

Iberdrola SA slid 2.3 percent to 41.87 euros after the Spanish utility agreed to buy U.S.-based Energy East Corp. for $4.5 billion, gaining market share in the U.S. utility industry. Energy East shareholders will receive $28.50 in cash per share. That's 26 percent more than the $22.54 closing price in New York.

The acquisition ``is somewhat expensive,'' said Enrique Soldevila, an analyst at Banco BPI who maintained his ``reduce'' rating on the stock.

Henkel KGaA dropped 3.4 percent to 38.44 euros. Deutsche Bank AG is selling about 11.2 million preferred shares in the German maker of Persil detergent to institutional investors.

The shares, representing about 6.3 percent of the company's capital of preferred shares, will be offered on behalf of Jahr Vermoegensverwaltung GmbH & Co. KG, the country's largest bank.

Corporate Express NV rallied 6.2 percent to 11.27 euros. The world's biggest office-supplies distributor said it aims to complete a strategy review within the next three months.

The announcement was made in response to the acquisition of a stake by Centaurus Capital Ltd., a U.K. hedge fund.

Shares of Eiffage SA, the French builder fighting a takeover bid from Spain's Sacyr Vallehermoso SA, rallied 9.3 percent to 105 euros before trading was halted at the request of AMF, the French stock market regulator.

source:bloomberg.com