European stocks dropped as the French government began selling as much as 3.8 billion euros ($5.1 billion) in shares of France Telecom SA and Cazenove downgraded mining companies Anglo American Plc and Antofagasta Plc.
Volvo AB paced the decline after the world's second-largest truckmaker said vehicle sales in the first five months of the year fell 10 percent. Deutsche Bank AG and Suez SA paced a drop by banks and utilities, among the most sensitive to shifts in interest rates.
Central banks will need to continue raising interest rates to quell inflation as global economic expansion continues, the Bank for International Settlements said yesterday. The Dow Jones Stoxx 600 Index has retreated 2.8 percent since reaching a 6 1/2- year high on June 1 on speculation increased borrowing costs and higher oil prices will weigh on corporate earnings.
``The big fear in the market is what central banks are going do with interest rates,'' said Chris Iggo strategist at Axa Investment Managers which oversees the equivalent of $739.6 billion. ``We see further rate rises in Europe.''
The Stoxx 600 fell for a third day, falling 0.6 percent to 389.94 at 10:38 a.m. in London as all 18 industry groups declined. The Stoxx 50 decreased 0.6 percent, while the Euro Stoxx 50, a measure for the euro region, lost 0.9 percent.
U.S. stocks plunged on June 22, paced by financial shares, on mounting concern banks will face losses on mortgage bonds. An industry report today may show U.S. home resales dropped last month as demand remained near a four-year low, reinforcing concerns about a protracted housing slump, economists said.
`Key' Economic Data
``The market will be looking at the economic data,'' said Jane Coffey, head of equities at Royal London Asset Management, which oversees about $14 billion. ``That is going to be key.''
France Telecom slid 2.6 percent to 20.45 euros. The French government is selling as much as 7 percent of the phone company as newly elected President Nicolas Sarkozy seeks to reduce debt before implementing tax cuts.
France will sell between 130 million and 180 million shares, cutting its stake to as low as 25.5 percent, Finance Minister Christine Lagarde said yesterday. The stock will be priced between 20.4 and 20.7 euros apiece, according to an e-mail to clients from Morgan Stanley, which is managing the sale with Societe Generale SA, ABN Amro, Citigroup Inc. and Goldman Sachs Group Inc.
Anglo American, lost 2 percent to 2975 pence after Cazenove lowered its recommendation for the world's second-biggest mining company to ``in-line'' from ``outperform.'' Analysts said the stock is now more expensive than rivals BHP Billiton Ltd. and Rio Tinto Group Plc based on 2008 earnings estimates.
Antofagasta, Volvo
Antofagasta, owner of copper mines in Chile, slipped 1.5 percent to 609 pence as Cazenove downgraded the shares to ``underperform.''
Volvo declined 2.3 percent to 137.25 kronor. Sales in the five months through May fell to 82,865 vehicles worldwide as U.S. deliveries plunged after tougher emissions standards made trucks more expensive. The figures include sales from the Nissan Diesel brand, which were consolidated as of April 1.
Deutsche Bank, Germany's biggest bank, declined 2.2 percent to 108.02 euros. UBS AG, Europe's biggest bank by assets, lost 1.4 percent to 74.3 francs.
Suez, the French utility planning to merge with Gaz de France SA, decreased 1.2 percent to 41.36 euros. RWE AG, Germany's second- largest utility, slid 1.3 percent to 77.55 euros.
Higher borrowing costs erode the value of bonds held by banks, reduce demand for loans and make dividends that utilities pay, among Europe's highest, less attractive relative to bonds.
LSE, Cumerio
London Stock Exchange Group Plc fell 0.6 percent to 1347 pence. The bourse, which agreed to buy Borsa Italiana SpA for 1.63 billion euros, fell after it was put on review by Moody's Investors Services for a possible cut in its debt rating.
Moody's said the decision to review LSE's rating follows the announcement that the exchange had reached agreement with the board of Borsa Italiana on the terms of the recommended offer.
Cumerio NV, owner of the biggest copper smelter in Europe, surged 19 percent to 29.71 euros after Norddeutsche Affinerie AG of Germany agreed to buy the company for 777 million euros in cash.
Groupe Danone SA rallied 2.7 percent to 59.13 euros after Le Journal des Finances said the world's biggest yogurt maker may be a takeover target following recent troubles with sellers of its products in China. The newspaper did not say where it got the information.
Persimmon Plc rose 1.1 percent to 1216 pence. Britain's biggest homebuilder by market value said profitability increased following the integration of Westbury Plc. Operating profit in the six months through June will be equivalent to 20.5 percent of sales, compared with 19.9 percent a year earlier.
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net ;
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