Stocks slump on fragile investor sentiment

Eurostoxx 50: 2,593.34 (–77.03) Frankfurt DAX: 6,953.98 (–204.79) Paris CAC: 3,588.05 (–83.05)EUROPEAN STOCKS dropped yesterday, after a report showed US manufacturing expanded at the slowest pace in two years as lawmakers prepared to vote on a proposal to raise the nation's debt limit.

The Stoxx Europe 600 dropped 1.2 per cent in London. The measure has tumbled 10 per cent from this year’s high in February amid speculation the European debt crisis is spreading and concern that Republicans and Democrats will fail to agree on a deal to raise the US debt ceiling before today’s deadline.

“Macroeconomic data are bad and company earnings aren’t good either,” said Jacques-Pascal Porta, oversees $400 million at Paris-based investment firm Ofi Gestion Privee. “The agreement on the US debt ceiling itself isn’t that great and the risk that the US may lose its AAA rating is the Sword of Damocles hanging over the markets.”

Spanish banks led the benchmark Stoxx 600 lower amid concern the debt crisis may spread beyond Greece to Spain and Italy.

Profits at European companies are trailing estimates by the most in at least five years.

About 53 per cent of companies in the Stoxx 600 that have reported earnings since July 11th missed analysts’ projections, Bloomberg data show.

Intesa Sanpaolo, Italy’s second-biggest lender, dropped 7.5 per cent to €1.50 in Milan while UBI Banca slid 7.4 per cent to €3.11.

Santander retreated 3.1 per cent to €6.99 in Madrid while Banco Popular Espanol lost 4.6 per cent to €3.45.

Spanish builders also retreated, led by Ferrovial, which fell 4.3 per cent to €8.52 and Fomento de Construcciones and Contratas, which each lost 4.1 per cent to €18.38s.

Spain’s opposition People’s Party pledged to restore investor trust in the euro area’s fourth-biggest economy by imposing more spending cuts if it wins early elections in November as polls suggest it will.

Veolia Environment slid 4.8 per cent to €15.05, the lowest price since April 2009.

Outotec sank 9.5 per cent to €31.08 in Helsinki, its lowest price since October, as the Finnish supplier of technology and services to mining companies was downgraded to “sell2” from “hold” at Danske Bank. – (Bloomberg)