European Stocks Decline; Most Asian Shares Fall on North Korea

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.

Honda overtakes Toyota in parts supplier survey

Honda Motor Co. overtook Toyota Motor Corp. as the top company that auto parts suppliers prefer to do business with, according to an annual survey.

Toyota has been the No. 1 automaker among the parts suppliers since 2002, but its ratings have fallen steadily over the last two years, according to a study by Planning Perspectives Inc., a Birmingham, Mich.-based company that surveys manufacturing and service industries. Honda's marks declined from last year as well, though not by as much.

Japanese automakers continued to boast the best relations with their suppliers, with Nissan Motor Co. coming in third among the six automakers ranked. Ford Motor Co.'s supplier relations improved dramatically for the second year in a row, coming in fourth, followed by General Motors Corp. then Chrysler LLC.

"While Ford still has a lot of work to do, what they're doing with their suppliers is working," said John W. Henke, president and chief executive of Planning Perspectives, in a written statement.

Suppliers who work with Toyota complained of a younger, less experienced staff at the Japanese automaker's purchasing group, Henke said. It said Ford's improvement was due to its recent decision to transfer its top European purchasing executive to the U.S.

Ford remains the only automaker among the Detroit Three that has not accepted government aid. Crosstown rival Chrysler is in the midst of bankruptcy protection and many of its biggest creditors are parts suppliers waiting to be paid.

GM, meanwhile, is holding out hope for an out-of-court restructuring. If faces a deadline at the end of the month to get its bondholders -- who hold $27 billion in debt -- to take a 10 percent equity stake in the company. If it is unsuccessful, it will likely file for bankruptcy protection.

Automakers rely on parts suppliers to meet quality standards, provide new technology and make investments to fulfill supply contracts. But another bankruptcy is likely to be highly disruptive to the supply base, which is already reeling as automakers cut production and idle their factories to cope with falling sales.

A total of 231 first-tier parts suppliers representing 52 percent of automakers' annual purchases responded to the survey, which was conducted over three weeks in April. The survey ranked the automakers based on degree of trust, open and honest communication, amount of help given to suppliers to reduce costs, and supplier profit opportunities, the company said.

AOL turns to ex-Google exec for fresh start

Shortly before taking over as head of AOL in April, Tim Armstrong ripped out some office doors.

The doors — made of glass and requiring a company key card to pass through — stood in AOL's New York headquarters, separating the offices of executives like former CEO Randy Falco and his No. 2, Ron Grant, from the rank and file.

The doors' departure is emblematic of a shift under way at AOL. Armstrong, 38, was recently hired away from Google Inc. and asked to give the long-suffering Internet unit of Time Warner Inc. yet another shot at salvaging its future after what seems like a lost decade.
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If nothing else, Armstrong's arrival has thrilled employees who were unhappy under his predecessors, who were widely considered out of touch and out of place.

But Armstrong's more approachable style won't be enough to restore AOL's luster. AOL's legacy business, its dial-up Internet service, continues to dwindle while its newer online advertising service is not yet picking up all the slack. AOL's operations still make money, but that profit has been falling.

Armstrong's ability to find the right formula could be especially put to the test if Time Warner formally separates itself from AOL by spinning the Internet division off into a standalone business, as the company is exploring. That move would finally undo the $147 billion deal in which AOL bought Time Warner in 2001, which became one of the worst corporate combinations in history.

AOL would not make Armstrong available for comment. But current and former employees said his open management style, which he tried to show by taking out the doors, already has marked a stark change from Falco and Grant, who had snippy nicknames at AOL like "Rondy," a combination of their first names.

Falco and Grant joined AOL in late 2006 as part of a surprising management change by Time Warner that ousted AOL's then-CEO, Jonathan Miller. Falco had been president and chief operating officer at NBC Universal Television Group, while Grant came from Time Warner, where he was senior vice president of operations.

Falco was a terrific media executive but he didn't have Internet experience, and Grant was talented but had not managed large teams of people, said Ted Leonsis, an executive who retired from AOL in late 2006.

Yen Falls as Report Says N. Korea Launched Short-Range Missile

“This is not a pretty picture, especially with this kind of external issue and the North’s stern stance,” said Kim Yong Tae, who helps oversee the equivalent of $1.2 billion in assets as a fund manager in Seoul at Yurie Asset Management Inc. “Investor sentiment will be negatively impacted and it’s going to be difficult to expect big gains” in the short-term.

The won fell 0.1 percent to 1,248.82 per dollar at the close of trading in Seoul after earlier dropping as much as 1.7 percent. The MSCI Asia Pacific excluding Japan index of regional shares fell 0.2 percent.

Eight-Month Low

The yen slumped to an eight-month low against the dollar on Oct. 9, 2006, when the North Korea government said it had detonated its first nuclear bomb. A nuclear test is a threat to Japan, as Tokyo is 809 miles (1,295 kilometers) from North Korea’s capital of Pyongyang.

U.S. President Barack Obama said North Korea’s claim it conducted a nuclear test is of “grave concern,” according to an e-mailed statement from the White House. The test is in “blatant defiance“ of a United Nations Security Council resolution, Obama said.

Losses in the yen against the dollar may be tempered after credit-default swaps for Japan fell last week while those for the U.S. advanced, indicating an improving perception of the Asian nation’s credit quality relative to that of the world’s largest economy.

The cost to protect buyers of Japanese sovereign bonds for five years declined to 45.97 on May 22, the lowest since Jan. 28, according to CMA DataVision. The price for the U.S. climbed to 42.51, the highest since April 28, from 37.75 the previous day.

Credit-default swaps, contracts to protect against or speculate on default, pay the buyer face value if a borrower fails to adhere to its debt agreements.

Most Asian Stocks Rise; Mitsubishi, BHP Gain as Oil Advances

Most Asian stocks rose as the Japanese economy shrank less than economists estimated and oil prices rose to a six-month high. Finance companies declined.

Mitsubishi Corp., a Japanese trading company that gets more than half its profit from commodities, climbed 3.4 percent after Goldman, Sachs & Co. recommended buying the stock. BHP Billiton Ltd., Australia’s biggest oil producer, rose 0.6 percent. Kawasaki Kisen Kaisha Ltd., Japan’s No. 3 shipping line, added 1.8 percent as commodity shipping rates gained for a 13th- straight session.

“Demand for resources looks likely to rebound and investors are willing to buy commodity-related companies on expectations for an earnings recovery,” said Hiroichi Nishi, general manager at Nikko Cordial Securities Co.

The MSCI Asia Pacific Index rose 0.2 percent to 99.53 at 10:07 a.m. in Tokyo, set for its highest close since Oct. 6. Through yesterday, the gauge had surged 41 percent from a more than five-year low on March 9. Stocks on the measure traded at an average 22.4 times estimated profit, compared with 15.6 times for the MSCI World Index.

Japan’s Nikkei 225 Stock Average advanced 0.3 percent to 9,315.78. Gross domestic product contracted an annualized 15.2 percent in the three months ended March 31, the Cabinet Office said today in Tokyo. Economists predicted the economy would shrink 16.1 percent.

Australia’s S&P/ASX 200 Index lost 0.2 percent and South Korea’s Kospi index was little changed.

Brokerage Upgrade

Futures on the Standard & Poor’s 500 Index slipped 0.4 percent. The gauge dropped 0.2 percent in New York yesterday as a Commerce Department report showed housing starts sank 13 percent in April, while economists had expected an increase. Financial shares slumped after Moody’s Investors Service said commercial property values have tumbled.

Mitsubishi Corp. jumped 3.4 percent to 1,718 in Tokyo after Goldman upgraded its rating to “buy” from “neutral.” BHP Billiton gained 0.6 percent to A$34.07. Inpex Corp., Japan’s largest oil explorer, gained 1.6 percent to 718,000 yen.

Crude oil futures in New York rose 1.1 percent to $59.65 a barrel yesterday, the highest settlement since Nov. 10.

Kawasaki Kisen Kaisha added 1.8 percent to 393 yen. The Baltic Dry Index, a measure of shipping costs for commodities jumped for a 13th straight session to a level not seen in seven months.

Nike to Cut About 1,750 Jobs, or 5% of Workforce

Shoe and apparel company Nike said Thursday that it will cut about 1,750 jobs worldwide, or 5 percent of its global work force.

About 500 of the jobs lost will be at Nike's world headquarters in Beaverton, Ore. The company did not specify what departments the cuts would be in.

Shares of Nike [NKE 50.95 1.43 (+2.89%) ] were up $1.43 to close at $50.95 Thursday. They were little changed in after-hours trading following the announcement.

Nike had announced in February that it would cut jobs as part of a realignment of its business. In March, it said it was reducing layers of management, among other organizational changes.

Like many companies, Nike has seen demand for its products slow as the global economic meltdown hurt consumer spending. The company plans to complete the reductions in the coming weeks. "Our new structure sharpens our consumer focus globally to drive continued growth while positioning Nike competitively in today's marketplace," Chief Executive Mark Parker said in a statement. "We remain a growth company and we know these changes have created a stronger organization that will enable us to invest in our most significant opportunities."

The company, whose other brands include Converse, Cole Haan and Umbro, remains the industry leader. But Nike saw its profit drop in the most recent quarter, largely on one-time items, and its revenue fell 2 percent as the economic downturn dragged on.

Euro Drops, Government Bonds Climb as Region’s Economy Shrinks

The euro fell and European government bonds rose after the region’s economy shrank the most in 13 years, increasing investor concern the pace of recovery from the first global recession since World War II is flagging.

The euro weakened 1.2 percent against the yen and 0.5 percent versus the dollar at 9:45 a.m. in London, while the yield on the 10-year German bund dropped three basis points. The MSCI World Index of stocks climbed 0.6 percent, trimming its first weekly drop in two months, as Barclays Plc led a rally in financial shares. Futures on the Standard & Poor’s 500 Index advanced 0.2 percent.

“Almost without exception, the markets seem to be suggesting a real danger that we are about to see a six- to eight-week period that is very risk-negative,” Citigroup Inc. currency strategists Tom Fitzpatrick in New York and London- based Shyam Devani wrote in a note to clients.

The euro is having its worst week against the yen in four months as concern grows that the slump in the 16-nation region is deepening and European Central Bank policy makers differ over the measures needed to spark a recovery. ECB Vice President Lucas Papademos said yesterday the rebound may come sooner than previously thought, while Dutch council member Nout Wellink said economists shouldn’t get too optimistic.

Gross domestic product in the 16-member euro region dropped 2.5 percent from the fourth quarter, the European Union’s statistics office in Luxembourg said today. That’s the biggest drop since the euro-area GDP data were first compiled in 1995 and exceeded the 2 percent decline economists forecast in a Bloomberg News survey.

Dollar Advances

The dollar had its biggest gain against the euro in almost two weeks, strengthening to $1.3575, before reports today that may show U.S. industrial production declined in April at the slowest pace in six months and consumer sentiment climbed to the highest level since September.

New Zealand’s dollar fell 1.6 percent versus the yen and 1.1 percent against the dollar after the nation’s statistics office said retail sales declined for a record sixth quarter.

“The New Zealand dollar is an accident waiting to happen,” Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney, wrote in a report today.

Russia’s ruble strengthened for a 12th week against a basket of currencies, the longest stretch since 2005. The currency, which is managed against the basket to limit swings that hurt exporters, appreciated 0.2 percent to 37.3043, bringing its five-day advance to 0.6 percent.

Emerging Markets

Emerging-market stocks climbed, trimming the first weekly drop in two months, after the U.S. government’s bailout of insurers bolstered confidence in financial companies. The MSCI Emerging Markets Index gained 1.1 percent as Industrial & Commercial Bank of China Ltd., the world’s largest bank by market value, and OAO Sberbank, Russia’s biggest lender, rose.

The Dow Jones Stoxx 600 Index of European shares climbed 0.6 percent, reducing its weekly decline to 3.1 percent. London- based Barclays rose 8.5 percent to 274.5 pence after people with knowledge of the matter said the U.K.’s third-biggest bank is in talks to sell Barclays Global Investors.

Hartford Financial Services Group Inc. rose 10 percent to $16.24 in German trading. The Hartford, Connecticut-based company was among six insurers granted access to U.S. aid as the government moves to shore up an industry battered by investment losses.

Copper fell 0.2 percent to $4,438 a metric ton on the London Metal Exchange, heading for its first weekly drop in three. Crude oil rose 0.2 percent to $58.71 a barrel on the New York Mercantile Exchange, having retreated from a six-month high of $60 a barrel this week.

“This bear market rally will end soon,” said Charles Morris, head of absolute return at HSBC Global Asset Management, which manages $2 billion of assets in London. “I’d stick to high-quality investment: gold and good stocks.”