European stocks suffered their biggest weekly fall since March as fears that a credit crunch could cause corporate takeovers to dry up spread volatility throughout the market.
The FTSE Eurofirst 300 fell 5 per cent during the week, to close at 1,520.06; its lowest level for almost four months. The index of leading European shares has fallen 6.6 per cent in a fortnight. The Xetra Dax closed down 5.4 per cent at 7,451.68 while in Paris the Cac ended the week 5.3 per cent lower at 5,643.96.
Sounding a note of optimism in a busy week for corporate results, a Citigroup strategy note said improving earnings would continue to lend support to rising equity markets during the next 12 months in spite of credit market concerns. It singled out the oil and gas sector as having the most improved trend in relative earnings during the last three months.
Solvay fell 6.4 per cent on the week to €108.67 after a drug patent expiry affected earnings at the Belgian chemicals and pharmaceuticals group. Second-quarter net income fell 22 per cent to €183m. Currency fluctuations also affected earnings.
Volkswagen boosted the confidence of automotive stocks, adding 2.7 per cent to €124.83 over the week, after it increased second-quarter net income 42 per cent. The German carmaker said full-year operating profit would “significantly” exceed last year’s figure.
Positive news from VW lifted other carmakers after a volatile week for the sector. Porsche closed down 1.9 per cent on the week at €1,285.57. Peugeot was 6.6 per cent lower at €59.75 while Renault fell 8 per cent to €103.26.
Adecco closed down 14.2 per cent at SFr 81.85, as confidence in the European staffing sector waned.
Randstad, a Dutch rival, also saw heavy losses. It was down 23 per cent to €47.86 after its earnings outlook disappointed analysts.
Syngenta saw gains Friday but fell 7 per cent on the week to SFr222.60.
Sal Oppenheim cut its target price despite a 27 per cent increase in first-half profits.
Shares in Finnish paper manufacturers fell after costs increased because of soaring timber prices. Stora Enso, the world’s biggest paper producer, closed at €12.60, down 7.8 per cent, as UBS cut its price target from €15.50 to €15. UPM-Kymmene fell 8.6 per cent to €16.46 after second quarter losses widened.
UPM blamed a disappointing performance by its magazine-papers division and the weak dollar. M-real dropped 13.1 per cent to €4.52.
It was a poor week for European truckmakers after both Volvo and Scania produced disappointing earnings data.
Scania fell 12 per cent to SKr160.50 while Volvo was down 14.1 per cent on the week to SKr 124.50.
Despite a 58 per cent rise in first-half profits Michelin fell 11.6 per cent to €90.08, as the high cost of rubber increased costs at its truck tyre division.
Michelin forecasted sales to US truckmakers would fall 28 per cent this year.
Financial stocks also suffered with Natixis down 10.7 per cent to €15.80 while Deutsche Bank was 5.8 X per cent lower at €97.86.
The big beer companies saw share volatility after a Citigroup report on Monday forecasted consolidation in the sector and said there was a 70 per cent chance of an alliance between InBev and Anheuser-Busch of the US within the next two years.
InBev closed the week 3.4 per cent lower at €58.42 while Heineken was down 3.8 per cent at €44.57.