Inflation and sovereign debt weighs on markets

Eurostoxx 50: 2,910.91 (–25.53) Frankfurt DAX: 7,041.31 (–15.84) Paris CAC: 3,989.18 (–35.26)EUROPEAN STOCKS fell yesterday, as inflation unexpectedly accelerated to the fastest pace in more than two years in March and investors speculated that the region will struggle to contain its sovereign-debt crisis.

“Inflation accelerating makes it more likely that the European Central Bank will tighten monetary policies, deteriorating the environment for European equities,” said Tammo Greetfeld, senior equity strategist at UniCredit in Munich.

“The euro zone debt crisis will not end any time soon,” he said.

Inflation in the 17-nation euro area quickened to 2.6 per cent in March from 2.4 per cent in February, the European Union’s statistics office in Luxembourg said yesterday in an initial estimate. That’s the fastest pace since October 2008 and exceeds the ECB’s 2 per cent limit for a fourth month.

A gauge of European banking shares dropped the most on the Stoxx 600.

HSBC, Europe’s biggest bank, lost 2.3 per cent to 641p, while Banco Santander, Spain’s largest lender, slid 2.4 per cent to €8.19.

HM sank 3.2 per cent to 209.60 kronor as Europe’s second-largest clothing retailer said first-quarter net income fell to 2.62 billion kronor ($415 million) from 3.74 billion kronor a year earlier.

Dixons Retail plunged 8.2 per cent to 12.6p, the largest drop in the Stoxx 600, after Fitch Ratings revised the retailer’s outlook to negative from positive. Dixons’ shares were downgraded to “neutral” at Macquarie Research.

Petropavlovsk slumped 5.9 per cent to 998p. Net income fell to $19.8 million in 2010 from $143.2 million in 2009, London-based Petropavlovsk said yesterday in a statement.

STMicroelectronics slipped 1.9 per cent to €8.79 as Europe’s biggest chipmaker was downgraded to “underweight” from “buy” at Banco Santander.

Gestevision Telecinco dropped 4.9 per cent to €8.08, the biggest decline this year, as shares of the broadcaster were cut to “underperform” from “outperform” at CA Cheuvreux.

Tate Lyle surged 3.2 per cent to 577.5p after the maker of Lyle’s Golden Syrup said higher food-ingredient volume and improved profitability at its industrial starches unit means it will meet analysts’ estimates for the year. – (Bloomberg)