Stocks Hit as Eurozone Worries Predominate

Cautious German comments on Europe's sovereign-debt negotiations overshadow a large U.S. corporate merger and a weekend of progress in dealing with the crisis

Holly Cook 17 October, 2011 | 7:33PM
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Stocks started the week in negative territory, reversing an early uptick, after German remarks dampened hope for a quick eurozone fix and turned attention away from a torrent of corporate news.

A spokesman for German chancellor Angela Merkel warned against having unrealistic expectations that every sovereign-debt problem could be solved at this weekend's eurozone summit, dampening the optimism that G20 European officials had created this weekend when they vowed to reveal a comprehensive rescue plan by the end of the week.

Meanwhile, in global economic news, data showed that New York-area manufacturing activity in October was contracting for the fifth consecutive month, according to the Federal Reserve Bank of New York's Empire State Manufacturing Survey. U.S. industrial production grew slightly in September, in line with expectations at a 0.2% increase from the prior month as a mild gain in manufacturing was mostly offset by a decline in utilities.

In London, the FTSE 100 index fell back 30 points or 0.5% to 5,437, while the FTSE 250 index lost 88 points or 0.9% to 10,250.

Though miners and banks were the main drag on the U.K. blue-chip index, BP (BP.) enjoyed a 2.2% climb after the oil major and Anadarko Petroleum reached a $4 billion agreement to settle all claims related to last year's Gulf oil spill. The deal is seen to draw a line under the disaster for BP investors.

AMEC (AMEC) and Royal Dutch Shell (RDSB) also offered support, with the former up 1.7% on the back of a £150 million contract win as part of an exisiting tie-up with BP and Shell. The latter closed 0.8% firmer Monday.

On the downside, though financials and commodities plays were largely responsible for the FTSE's slide amid eurozone concern, G4S (GFS) was the standout casualty after announcing it is to buy Danish rival ISS in a £5.2 billion deal including debt. The deal will create the world's largest security services group but shareholder were less than impressed at the use of G4S's cash--the firm will raise £2 billion through a rights issue to fund the purchase, as well as using new debt facilities to refinance existing loans.

Elsewhere, eurozone jitters and related global growth fears dragged Antofasta (ANTO) and Kazakhmys (KAZ) down 3.6% and 3.1%, respectively, while Lloyds Banking Group (LLOY) lost 2.5%. Find out what Morningstar's senior banking analyst thinks of Lloyds' and its peers' current valuations in Beware of European Bank Value Traps.

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Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

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