Bourses lower as auto and energy stocks fall

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Nokia raised its third quarter sales and profit forecasts on Tuesday but failed to lift a market dogged by uncertainties over the prospects for oil prices, the outcome of the German elections and the state of the global economy.

The FTSE Eurofirst 300 was down 0.7 per cent to 1,201.33, but Frankfurt’s Xetra Dax fell a more severe 1.7 per cent to 4,903.15 on growing concerns the German election on Sunday will not result in a clear winner.

Angela Merkel’s lead over Chancellor Gerhard Schröder was shown by polls over the last few days to be narrowing, and some analysts suggested that in the absence of a clear victory, there was a threat that a reform-stifling coalition government may emerge.

“Corporate Germany wants Merkel, but with a clear mandate,” said Stephen Pope, head of equity research at Cantor Fitzgerald.

Of the tumbling German stocks, carmakers were the worst hit. Volkswagen’s keenly awaited restructuring plans, which may include up to 14,000 job cuts, could be dealt a blow if labour market reforms promised by Merkel are not realised.

VW reached an agreement with unions last year and promised no layoffs to its 103,000 west German employees before 2011 in return for a wage freeze out to 2007. The company is now considering whether it needs to renegotiate these terms.

Shares in the carmaker fell 2.3 per cent to €44.13. Elsewhere, BMW fell 2.2 per cent to €36.46, while DaimlerChrysler shed 2.7 per cent to €40.80. Continental, the German tyre maker, was 2.7 per cent lower at €65.84.

Most of Europe’s equities markets ended the day nursing sharp losses, but Finland’s HEX finished 1.7 per cent higher thanks to strong performances from its key stocks – mainly Nokia.

The world’s leading maker of mobile phones climbed 3.8 per cent to €13.55 after it raised forecasts on strengthening demand. Having spooked investors in July with a third quarter forecast of just 14-17 cents a share, the mobile phone maker lifted its forecast to 18-19 cents a share.

Mixed interpretations of the outlook for paper manufacturers failed to dent enthusiasm for the stocks, and Finland’s Stora Enso and UPM-Kymmene both ended just behind Nokia at the top of the Eurofirst 300 leaderboard.

Mathias Carlson at Deutsche Bank said expectations of recovery for the sector in the second half were likely to disappoint. “Demand has weakened, and price hikes are unlikely to stick.”

But Swedish brokerage Enskilda raised its recommendation on the sector to “accumulate” from “reduce”, and shares in Stora rose 2.1 per cent to €11.41, while those of UPM gained 1.9 per cent to €16.50.

Also in the sector, Oslo-listed Norske Skogindustrier rose 1.7 per cent to NKr104.50, while Sweden’s Holmen added 2.3 per cent to SKr242.

Oil prices dropped on Monday, and the energy sector fell on Tuesday. This left Finnish refiner Neste Oil down 0.8 per cent at €28.40, while Italy’s Saipem was 1.9 per cent lower at €13.30. Norway’s Statoilshed 1.6 per cent to NKr158.50.

Vivendi Universal buckled under the weight of a falling market after a healthy start to trade. The French media group beat forecasts with a 34 per cent rise in operating profit in the first half thanks to sales growth at its telecoms division and a revival in its music business. The company said it would exceed its previously announced targets for 2005 and added it would pay out half of its full-year net income, estimated at €1.8bn, in dividends.

“On a full-year basis, these figures are unlikely to cause us to change our estimates,” said Paul Reynolds at Deutsche Bank, but the company remained one of the broker’s top picks in the media sector. Profit-taking followed early gains, and the shares fell 0.5 per cent to €25.92.

Allianz fell 1.9 per cent to €103.50 after UBS cut its price target on the German insurer to €118 from €123. This followed Monday’s announcement by Allianz of the placement of 20.8m shares at €105, raising €2.2bn to help fund its buyout of Italian subsidiary RAS. UBS warned the buyout would dilute the net asset value of the group, and it saw limited synergies.

Spanish construction company ACS fell 3.4 per cent to €25.50 after it said it had placed 9m shares via investment bank Merrill Lynch. The shares represented 2.55 per cent of the company’s share capital.

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