January 18, 2008

European stocks slide as banks weigh

Tech stocks staged a comeback on Thursday after a punishing session on Wednesday, boosted by news that Americans are still buying computers in their droves.

The sector has tumbled this year as fears of a US recession cool sentiment towards consumer-driven stocks. But Europe's tech companies received a lift after a report showed that US computer sales rose 8.8 per cent in the last quarter.

Infineon (NYSE:IFX), the semiconductor maker, more than made up for its losses the previous day, jumping 5.1 per cent to EU6.77. The price of D-Ram chips rose 5 per cent overnight, helping support the company's battered shares.

Its Franco-Italian rival STMicroelectronics (NYSE:STM) rose 2.9 per cent to EU8.43 and Dutch chip manufacturing equipment maker ASML gained 3.5 per cent to EU17.80.

"ASML's stock is pricing in a very gloomy scenario. This means for investors with a strong stomach . . . this is a good entry point," said Didier Scemama at ABN Amro, who wrote a cautiously positive note on the sector. After a brutal few days for European equities, bargain-hunters helped lift the wider market in morning trade. But it reversed gear in late afternoon after data showed US manufacturing sharply contracting, and Merrill Lynch announced a bigger-than-feared subprime-related writedown.

The FTSE Eurofirst 300 closed 0.6 per cent lower at 1,374.36, Frankfurt's Xetra Dax lost 0.8 per cent to 7413.53 and the CAC 40 in Paris fell 1.3 per cent to 5,157.09.

Banks swung lower after Merrill Lynch said it lost almost $10bn in the fourth quarter. Commerzbank continued its bad run with a 3.6 per cent drop to EU21.90. UBS fell 2.7 per cent to SFr45.50 and France's Société Générale lost 2 per cent to EU93.00.

French companies had a tough session, with its alcohol-makers suffering big losses after Rémy Cointreau said its pre-Christmas sales unexpectedly stagnated. The cognac-maker's shares sank 11.1 per cent to EU38.73, dragging bigger rival Pernod Ricard down in its wake. The world's second-biggest alcohol maker lost 6.1 per cent to EU66.55.

"People expected much stronger sales of cognac. It's not that you, me, or Americans are drinking less cognac and other spirits, but wholesalers in the US are destocking because they are cautious about the future levels of consumption," said Severim Ble at Fortis.

But it wasn't all bad news for food and drink companies. Dutch supermarkets group Super De Boer said consumer spending was strong over Christmas and it had seen no signs of a consumer slowdown.

Super De Boer shares gained 4.1 per cent to EU2.81, while larger domestic rival Ahold climbed 4.4 per cent to EU8.14. Deutsche Bank upgraded Ahold from "sell" to "hold". While remaining pessimistic about the company's US venture, the Stop & Shop supermarket chain, Deutsche analyst Ingrid Azoulay said its shares had been oversold.

Belgian supermarket operator Delhaize, which makes most of its revenues in the US, climbed 1.7 per cent to EU50.27 after its drop in fourth-quarter sales was no worse than expected.

French engineering group Alstom was another winner, up 3.1 per cent to EU132.55 after reporting better-than-expected, third-quarter sales, up 20 per cent, and confirming its forecasts for its full financial year. The company, which builds power stations and railways, said the third quarter included new orders of EU4.7bn for its Power Systems division. The sector welcomed the results: Sweden's Atlas Copcorose 3.3 per cent to SKr79.50. Truckmaker Scania was up 1.6 per cent to SKr131.

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