By Barbara Kollmeyer
MADRID (MarketWatch) -- European stock markets extended losses
on Tuesday afternoon, as disappointing earnings from Swiss banking
giant UBS AG weighed on the financial sector.
The Stoxx Europe 600 index fell 0.6% to 265.88 in afternoon
trading. The index closed up 0.3% on Monday.
European stocks pushed lower after the release of the
S&P/Case-Shiller home-price index for August, which showed a
0.2% decline.
U.S.consumer-confidence data for October are due at 10 a.m.
Eastern time.
London stocks stayed lower after data showed that U.K.
third-quarter gross domestic product rose 0.8%, beating
expectations for a quarterly rise of 0.4%. The FTSE 100 index
dropped 1.2% to 5,685.76, as mining stocks reversed prior-day gains
and individual company news depressed some key shares.
Banks were in the spotlight in Europe, with shares of UBS AG
(UBS) falling 5.3%. The bank swung to a third-quarter profit,
beating forecasts, but its headline figure included some hefty
one-off items. Analysts said a pretax loss for the
investment-banking arm disappointed the market, which was looking
for a profit.
The news weighed on the banking sector overall, with shares of
Deutsche Bank AG (DB) down 2.4%. BNP Paribas fell 1.4% in
Paris.
Germany's DAX 30 index declined 0.7% to 6,591.72 in afternoon
trading. The index rose 0.5% Monday to end at 6,639.21, a new 2010
closing high and the highest closing value since June 19, 2008.
Tapped-out Europe stocks
Joel Kruger, currency strategist at Daily FX, said questions
have arisen over the scope of another round of easing from the U.S.
Federal Reserve.
"Equities have been supported on the expectation for more QE
[quantitative easing], which also has weakened the dollar;
therefore it stands to reason that if the degree of more QE is
called into question, then it will reverse the trend of higher
equities and lower dollar," Kruger said.
"If you look at the Relative Strength Index, anything above 70
is overbought and the DAX is closer to 73," Kruger added. "The
market is exhausted there and it's overbought. That leaves good
reason for a short-term correction in equities. What's driving it
is a little bit of profit-taking."
The Relative Strength Index charts strength on a current and
historical basis for a stock or a market based on the closing
prices of a recent trading period.
Another big decliner in Europe was Luxembourg-based steel maker
ArcelorMittal (MT), which reported a 48% increase in third-quarter
net income, but maintained a cautious outlook, citing higher
material costs and muted demand. Shares fell 5.6% in Amsterdam.
Investors looking for indications of a global recovery will be
disappointed by ArcelorMittal's lack of short-term confidence and
comments on the long-term outlook, said analysts at Collins Stewart
in a research note.
It's also "evidence of the structural challenges facing steel
producers who are being squeezed by rising raw material costs and a
lack of visibility on the demand for steel output in developed
regions," they added.
In France, the CAC-40 index fell 1.1% to 3,828.97, with shares
of luxury-goods makers LVMH Moet Hennessy Louis Vuitton SA down
nearly 3.2% and Hermes International SA off over 10%, with both
stocks giving up some of the gains posted during the prior
session.
That was the same for other luxury-goods makers. Swiss-based
Compagnie Financiere Richemont SA dropped 1.7% and Italy's Bulgari
SpA fell 2.7%.
Shares of industrial-gas producer Air Liquide SA declined 2.1%.
The company reported third-quarter revenue that inched past
analysts' forecasts.
Resource stocks off in London
In London, shares of Cairn Energy PLC tumbled 8.2% after the
company said it discovered no energy at two wells in Greenland and
would write off the $185 million of related costs.
It's the third disappointment in a "mixed campaign" in the
Baffin Bay region, said analysts at Killik & Co., who advised
steering clear of Cairn shares for now. They added, though, that
Cairn is in the early stages of a long-term exploration program
across a big area that could still offer hydrocarbon
discoveries.
Shares of ARM Holdings PLC slumped 7.1%, the second-biggest
decliner in the FTSE 100. The firm reported higher pretax profit
and sales for the third quarter and said it expects growth for the
fourth.
Jonathan Crossfield, research analyst with Bank of America
Merrill Lynch, said in a note that ARM consensus estimates are
unlikely to go higher after the results. "Overall, these are a
solid set of numbers, but the revenue upside has been absorbed by
the higher cost base," he said.
Miners also gave back some gains from the prior session and
tracked falling commodity prices. Shares of Eurasian Natural
Resources Corp. PLC fell 3.4%, Antofagasta PLC dropped 3%, and BHP
Billiton PLC (BHP) fell 2.4%.