European Stocks Fall

European stocks dropped for the first time in four days after analysts downgraded oil companies and a decline in metal prices pushed mining shares lower.

BG Group Plc and Statoil ASA paced a retreat in energy stocks after a brokerage recommended selling the shares. Anglo American Plc and Antofagasta Plc followed copper and nickel prices lower. Deutsche Bank AG and Allianz AG led declines by financial stocks before a report on U.S. producer prices that may provide clues about inflation and the outlook for rates.

The Dow Jones Stoxx 600 Index lost 0.6 percent to 397.14 as of 11:55 a.m. in London as all 18 industry groups fell. The index has rallied 8.7 percent this year, closing yesterday within 6 points of a record set in March 2000, even as concerns mount that losses in subprime mortgages and higher interest rates will erode earnings.

``The subprime mortgage problem is hurting banks and the risk is it will impact other industries and consumers,'' said Frederic Hamm, who helps manage about $150 million at Agilis Gestion in Paris. ``If the European Central Bank continues to raise rates it's not good. For the market to gain, there has to be a decrease in U.S. rates and the ECB would have to stop increasing rates.''

BHP Billiton Ltd. slid after Deutsche Bank AG downgraded shares of the world's biggest mining company, citing gains this year. Novartis AG fell after forecasting slowing sales growth, and SSAB Svenskt Staal AB tumbled after second-quarter profit missed analysts' estimates.

National benchmarks declined in all of the 18 western European markets except for Iceland. The U.K.'s FTSE 100 and France's CAC 40 fell 1 percent. Germany's DAX decreased 1.3 percent.

The Stoxx 50 dropped 0.5 percent, and the Euro Stoxx 50, a measure for the euro region, lost 0.7 percent.

BG Group, Statoil

BG Group, a U.K. oil and gas company, fell 2.5 percent to 240.75 pence. Statoil, Norway's biggest oil company, lost 2.1 percent to 184.75 kroner. Total SA, Europe's largest refiner, decreased 1.9 percent to 61.11 euros.

ING Groep NV cut its recommendation on shares of BG Group and Statoil to ``sell'' from ``hold.'' ING downgraded Total to ``hold'' from ``buy.''

The downgrades are due to ``current valuation and recent positive stock performance,'' the analysts wrote in a note. Stocks declined today in Japan, while they rose in Taiwan.

Oil stocks ``have had a huge run,'' said Philippe Gijsels, senior equity strategist in Brussels at Fortis Global Markets which manages $62 billion. ``They'll probably fall back a little.''

Oil producers and power companies slid in the U.S. yesterday after forecasts for cooler weather spurred concern that demand for electricity will drop. Speculation of losses in subprime loans triggered declines in financial stocks.

Anglo American, BHP

Anglo American, the world's second-biggest mining company, fell 1.5 percent to 3228 pence. Antofagasta, the owner of three copper mines in Chile, dropped 2.2 percent to 699.5 pence.

Copper fell after global inventories tracked by the London Metal Exchange, the world's biggest metal trading bourse, rose for the first time in three weeks. The metal for three-month delivery slid as much as 0.5 percent to $7,752 a ton in London. Nickel fell as much as 1 percent.

BHP Billiton declined 2.4 percent to 1473 pence. Deutsche Bank cut its recommendation on the shares to ``hold'' from ``buy.'' The stock has climbed about 65 percent in dollar terms this year, according to Deutsche Bank.

``Historically, such outperformance has presented a challenge to main with dollar investors taking profits,'' analysts including Tim Clark wrote in a report today.

Inflation Watch

Deutsche Bank, Germany's largest bank, lost 0.7 percent to 107.50 euros. Allianz, Europe's biggest insurer, slipped 1.1 percent to 172.69 euros.

Prices paid to U.S. producers probably rose in June at the slowest pace in five months as fuel costs dropped, economists said before a government report set for 8:30 a.m. in Washington.

``We're watchful of anything related to inflation,'' said Bruno Ducros, who helps oversee $4 billion at Cardif Asset Management in Paris. ``The concern for stocks is that inflation would lead to a decline in demand in the U.S.''

Reports on consumer prices and housing starts are scheduled for tomorrow. Federal Reserve Chairman Ben S. Bernanke testifies to Congress on the economy tomorrow.

U.K. inflation slowed less than economists forecast in June after food and furniture prices increased, cementing investors' expectations that the Bank of England will raise interest rates further. Consumer prices increased 2.4 percent from a year earlier, the Office for National Statistics said in London.

Novartis, SSAB

Novartis lost 0.8 percent to 65.75 euros. Europe's third- largest drugmaker forecast sales growth will slow in the second half, hurt by generic competition to the heart drug Lotrel and Lamisil for nail fungus, as well as the withdrawal of Zelnorm for bowel disorder.

SSAB plunged 9.4 percent to 284.5 kronor. The Swedish high- tensile steelmaker buying Ipsco Inc. of the U.S. for about $7.7 billion said second-quarter profit rose 8 percent to 1.3 billion kronor ($196 million). That's lower than an SME Direkt estimate of 1.63 billion kronor.

Tate & Lyle Plc rallied 4.5 percent to 597.5 pence. Shares of the maker of the sweetener Splenda were raised to ``buy'' from ``neutral'' at Goldman, Sachs & Co. and added to the firm's ``Conviction Buy'' list.

Goldman removed TomTom NV, the world's largest maker of car navigation devices, from the list but kept a ``buy'' recommendation on the shares. The stock slid 1.7 percent to 42.14 euros.

Electrolux, Rolls-Royce

Electrolux AB climbed 6.5 percent to 171.5 kronor. The world's second-largest maker of household appliances reported second-quarter net income from continuing operations rose 0.7 percent to 545 million kronor ($82 million). Analysts estimated 517 million kronor.

Rolls-Royce Group Plc tumbled 3.8 percent to 543 pence. Credit Suisse Group downgraded shares of the world's second- largest aircraft-engine maker to ``neutral'' from ``outperform,'' citing ``sustained dollar weakness'' and valuations.

``At the current share price we would prefer to put new money into other companies in the sector,'' analysts wrote in a note to investors.

Fresenius SE, parent of the world's largest dialysis company Fresenius Medical Care AG, added 1.5 percent to 60.15 euros. The company said its removab antibody, being developed as a treatment to remove cancerous fluid, also stops tumors growing and helps patients live longer.

source:bloomberg.com