Eurostocks Close At Five-Year Low; Alcatel Routed

September 19, 2002
By William Kemble-Diaz

LONDON, Sept 19 (Reuters) - European blue chips posted their weakest close in more than five years on Thursday, as investors were sent scrambling for the exit doors by yet more profit warnings and weak economic data.

ADVERTISEMENT"The realisation has finally dawned that this is not a particularly strong upturn," said David Thwaites, European equities strategist at BNP Paribas, as investors bailed out of economically sensitive industrials like Britain's BAE Systems and French engineer Alstom.

"That doesn't mean it's a double-dip recession, but it is fully consistent with a protracted weak upswing and is damaging earnings expectations."

All this at a time when the spectre of war continues to rattle in the background, with U.S. President George W. Bush calling on Congress to endorse military action against Iraq.

The FTSE Eurotop 300 index of pan-European blue chips fell for the sixth-day running, dipping 1.94 percent to 847 points -- its weakest close since May 1997, ahead of the Asian crisis.

The DJ Euro Stoxx 50 index of large cap euro zone shares fell 2.3 percent to 2,328 points -- its weakest close since November 1997.

Falling stocks outnumbered risers by around four-to-one.

Beleaguered French telecoms equipment maker Alcatel was routed, tumbling almost 18 percent in heavy volume amid continuing concerns about its fixed line telecoms infrastructure business.

Computer service groups Cap Gemini and Anglo-Dutch CMG were also under pressure after U.S. peer Electronic Data Systems slashed its earnings outlook after Wall Street closed on Wednesday.

BANK TROUBLES

Heavily-weighted financials like France's BNP Paribas and Credit Suisse Group fell 3.3 percent and 6.3 percent respectively after U.S. rival Morgan Stanley posted a 17 percent slump in quarterly profits.

That followed a profit warning from J.P. Morgan on Tuesday.

Shares in Germany's top three listed banks -- Deutsche Bank, HVB Group) and Commerzbank -- were pummeled further after Moody's cut their credit ratings outlook to 'negative' and cast doubt over their future profits.

Shares in ING Group fell 5.2 percent after the Dutch banking group kept its 2002 earnings guidance amid growing speculation it is about to issue a profit warning.

Added pressure came from fresh accounting worries.

French catering company Sodexho Alliance said on Thursday that management and accounting problems at its British unit meant it would undershoot its year profit forecast by as much as 14 percent. Its shares fell 30 percent.

WEAK U.S. DATA

In New York, the Dow Jones industrial average dropped 1.8 percent and the Nasdaq Composite eased 2.1 percent.

Sentiment was dented further by the release of latest U.S. jobless claims figures, which were a slightly higher-than-expected 424,000, sparking concerns that higher unemployment could douse U.S. consumers' purchasing power.

"The data is a bit on the gloomy side. The jobless claims number shows that the employment market is getting a little bit worse," said Matthew Wickens, a global economist at ABN AMRO.

Slightly better news came courtesy of the Federal Reserve Bank of Philadelphia business conditions index, which rose to 2.3 in September from -3.1 in August, offering a ray of hope that the summer slowdown in U.S. manufacturing was temporary.

But frazzled investors appeared unmoved.

The market's overall losses were stemmed by a bounce in battered insurers after two of Europe's biggest insurers -- France's Axa and Germany's Allianz -- rebutted rumours they would call on the market for fresh funds.

Zurich Financial, Britain's Aviva and Prudential, and Dutch group Aegon all featured on the blue-chip leader board along with Axa and Allianz.

However, traditionally defensive healthcare stocks were caught in the cross-fire as investors sought refuge in the altogether safer alternatives of government debt and gold, wary of rising generic competition and a weak pipeline of new drugs.

The region's biggest drugs company GlaxoSmithKline, Swiss group Roche and Germany's Bayer lost between 3.8 percent and 5.4 percent each.

"Equities as an asset class are clearly out of favour, and no where within equities is seen as being that immune from worries about growth and earnings," said BNP's Thwaites.

Investors on both sides of the Atlantic were braced for increased volatility ahead of Friday's triple witching -- the quarterly expiry of options and futures. (Additional reporting by Alison Tudor))

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