European stocks fell on speculation that share prices have outpaced corporate profits after the Dow Jones Stoxx 600 Index traded at the most expensive level in five years. Most Asian shares slid on concern North Korea will step up missile tests.
Danone SA declined 5.8 percent after Europe’s biggest maker of baby food said it is seeking to raise 3 billion euros ($4.2 billion) in a rights offer. Porsche SE slipped 2.4 percent amid speculation the automaker is in danger of losing profits recorded from holding Volkswagen AG options.
The Stoxx 600 slipped 0.6 percent at 8:10 a.m. in London. The gauge has rebounded 31 percent from a 12-year low on March 9, driving valuations for the measure to 24 times the earnings of its companies yesterday, the highest since March 2004.
“We are now in a normal consolidation phase after this very sharp upward movement,” said Petra Kerssenbrock, an equity strategist at Commerzbank AG in Frankfurt. “We are digesting this clearly overbought situation,” she said in a Bloomberg Television interview.
The MSCI Asia Pacific Index slipped 0.1 percent as about four stocks fell for every three that rose.
Futures on the Standard & Poor’s 500 Index were little changed before U.S. markets resume trading after the Memorial Day holiday. Economists project the S&P/Case-Shiller home-price index will show property values in 20 of the largest metropolitan areas dropped 18.4 percent in March from a year earlier, compared with an 18.6 percent decline in February.
Shadow of Lehman
The S&P 500 must rise 41 percent to reach its last closing price before the collapse of Lehman Brothers Holdings Inc. in September, even after a 31 percent rally since March 9.
Danone declined 5.8 percent to 37.33 euros as it raises capital to cut debt and increase financial flexibility. The planned rights offer will be its first in 22 years, according to Chief Financial Officer Pierre-Andre Terisse.
Porsche lost 2.4 percent to 42.70 euros. The automaker that is struggling to combine with VW is also in danger of losing some of the 17.3 billion euros in profits recorded from holding VW options because it may not have the money to exercise them.
Porsche bought options and Volkswagen stock for more than three years and controls more than 70 percent of Europe’s biggest automaker. Now, Porsche may be unable to raise the money needed to cash in the options, according to Sanford C. Bernstein & Co., Sal. Oppenheim jr. & Cie. and FAIResearch GmbH & Co.
Arcandor, LG Electronics
Arcandor AG dropped 4 percent to 1.70 euros after the Financial Times Deutschland reported that the company has shelved talks with Metro AG about a combination of their department-store divisions.
LG Electronics Inc., the world’s third-largest liquid crystal display television maker, lost 1.8 percent in Seoul after Yonhap News reported North Korea may fire more short-range missiles.
President Barack Obama told reporters in Washington that the U.S. “will work with our friends and allies to stand up” to North Korea. The United Nations Security Council agreed to pursue new measures against the communist regime.
North Korea’s first nuclear weapons test on Oct. 9, 2006, sent MSCI’s Asia index down 0.5 percent. The gauge rebounded 0.1 percent the next day and finished the month up 2.9 percent. It rose 3.1 percent in both November and December of that year.
AAA Rating
Rising debt may jeopardize the AAA credit rating of the U.S. in the next three years, New York University economist Nouriel Roubini told Il Sole 24 Ore in an interview.
By this time next year, “the market will realize that potential growth for the U.S. is no longer 3 percent, but is 2 percent or under,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said in an interview with Bloomberg Radio.
Separately, Germany’s financial regulator said debts of the country’s banks will blow up “like a grenade” unless the lenders participate in the government’s plan to help them prepare for the credit crunch’s next stage, the Telegraph newspaper reported, citing BaFin President Jochen Sanio.
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