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Autos drive Europe to 5-year low
LONDON, England (Reuters) -- European blue-chip shares closed at their weakest levels in five-and-a-half years on Tuesday, tugged down by sharp losses in autos such as DaimlerChrysler and weak German bank stocks. Food and beverage stocks were knocked by steep falls in the world's biggest food group Nestle and British spirits group Diageo, while energy stocks wilted in sympathy with lower crude oil prices. Germany's Commerzbank ditched seven percent to a new low after Standard & Poor's cut key credit ratings, while Deutsche Bank lost 5.6 percent on rumours its 2002 profits might come in lower-than-expected. The broader market had initially spurted higher, supported by perceptions that a speech by U.S. President George W. Bush overnight signalled that a war against Iraq may not be imminent. But those gains were given up in a late selloff as a familiar litany about a faltering economic recovery and disappointing corporate profits resurfaced. "Economic growth uncertainties plus war fears do not bode well for the market and that's set to continue for the time being," said Henning Kelch, a fund manager at Commerz Asset Managers. The FTSE Eurotop 300 index of pan-European blue chips closed down 1.6 percent at 802.93 points -- its lowest close since April 1997 -- as losers beat gainers by about two-to-one. The DJ Euro Stoxx 50 index of euro zone blue chips shed 1.7 percent to 2,170.54 points. On Wall Street, the Dow Jones industrial average was up 1.9 percent to 7,567 points, while the Nasdaq Composite was up 1.4 percent. Wall Street had been down about one percent when most European bourses closed at 1530 GMT. The auto sector was the hardest hit, tumbling 4.2 percent after Credit Suisse First Boston bank cut its weighting on the sector in the United States. Separately, General Motors, the world's biggest automaker, said the U.S. vehicle market would shrink next year and the size of the fall could be even worse if there was a war against Iraq. DaimlerChrysler, whose Chrysler operations are based in the United States, dropped four percent as France's Renault sank eight percent and Germany's BMW lost 3.9 percent. The food and beverages sector was tugged 2.9 percent lower by Nestle, the world's biggest food group, which fell 4.8 percent amid speculation that it was poised to win majority control of French cosmetics group L'Oreal. The Swiss company denied the speculation as shares in L'Oreal, the world's biggest cosmetics group, rose 0.8 percent. "The consumer related stocks coming off is only to be expected, given the news on the consumer that we've been getting from Europe and the U.S.," said Alia Baig, head of European equities at AXA Investment. Energy stocks were undermined by a technical selloff that sent crude oil prices to three-week lows. BP, Europe's largest company, fell 2.8 percent as France's TotalFinaElf eased 2.2 percent. French consumer electronics group Thomson Multimedia was Europe's biggest loser, falling 18 percent after posting disappointing third quarter sales and saying market conditions would remain difficult in the fourth quarter. Baig said the broader market looked set to remain volatile in the medium-term, as it adjusted to even lower earnings expectations. "The consensus is still for 15-17 percent growth (in earnings) next and that is still too high," she said. "Going forward, I'm a lot more comfortable with things like telecom operators, because I think the forecasts in that area have come down significantly, whereas in other areas like some of the cyclical sectors, their forecasts probably need to be cut," Baig added. The telecoms industry was the only pan-European sector to gain on the day, rising 0.2 percent on the back of a 1.7 percent rise in European cellphone giant Vodafone. Deutsche Telekom erased its earlier 3.8 percent fall to rise 0.8 percent, after announcing it may cut as many as 16,500 more jobs than previously announced as it steps up efforts to cut its huge debt burden. Other gainers included Britain's Logica and Anglo-Dutch rival CMG, which announced they were in talks to create Europe's third-largest computer services firm. CMG rocketed 46 percent, but Logica, although the dominant partner in any merger, gained a more modest 7.8 percent. Analysts see the group as the more desperate of the two for a deal. Elsewhere, UK retailer Marks & Spencer rose 4.5 percent after announcing that its second-quarter sales had risen 10 percent, double what analysts had expected.
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