European Stocks Are Little Changed; M&B Slides, BP Shares Rally

May 20, 2011, 10:33 AM EDT By Giles Broom

May 20 (Bloomberg) -- European stocks were little changed as Greek 10-year bond yields rose to a record high, offsetting speculation that the Federal Reserve will maintain its stimulus.

BP Plc advanced after the oil company reached a settlement with a unit of Mitsui & Co., one of its partners on the Macondo well. Micro Focus International Plc rallied 6.8 percent after saying that Advent International Corp. has made an approach for the U.K. software producer. Mitchells & Butlers Plc, the owner of Harvester and Toby Carvery pubs and restaurants, sank 5 percent after posting reduced fiscal first-half profit.

The Stoxx 600 increased less than 0.1 percent to 280.05 at 3:07 p.m. in London, heading for a weekly decline of 0.2 percent. The gauge advanced 0.7 percent yesterday as companies from Glencore International Plc to LinkedIn Corp. held initial public offerings. Even so, the measure has fallen 3.8 percent since this year’s high on Feb. 17.

“Valuations are cheap and extremely attractive compared with government or corporate bonds,” said Ian Richards, an equity strategist at Royal Bank of Scotland Plc in London. “The economic growth outlook is still okay and the U.S. and European countries are progressively addressing the structural debt problems.”

Federal Reserve Stimulus

Fed Bank of Chicago President Charles Evans said improvements in the economy, labor market and the outlook for inflation aren’t sufficient for the Fed to begin withdrawing its record monetary stimulus.

“Slow progress in closing resource gaps and a medium-term outlook for inflation that is too low lead me to conclude that substantial policy accommodation continues to be appropriate,” Evans said yesterday.

Fed Bank of New York President William C. Dudley said it’s important for the central bank not to “overreact” to the recent pickup in inflation by tightening monetary policy.

The Bank of Japan kept its benchmark interest rate unchanged near zero and refrained from increasing its credit programs at the end of a two-day meeting today, as predicted by all 14 economists surveyed by Bloomberg News.

European shares pared their earlier advance as Germany’s Bundesbank said that the continent’s largest economy will probably lose some momentum. The economy’s 1.5 percent growth rate in the first quarter from the previous three months “considerably overstates the underlying economic momentum. Output growth was clearly lifted during the reporting period by backloading and catching-up effects,” the Frankfurt-based bank said in its monthly bulletin published today.

Greek Debt

Greek bonds slid on speculation that the Mediterranean nation will have to reorganize its debt obligations as it struggles to reduce its fiscal deficit this year.

National benchmark indexes retreated in 14 of the 18 western European markets. The U.K.’s FTSE 100 Index lost 0.1 percent and France’s CAC 40 Index dropped 0.4 percent. Germany’s DAX Index retreated 1.1 percent. Copenhagen’s stock market was closed for a public holiday.

BP surged 2.2 percent to 457.7 pence after saying a unit of Mitsui will pay Europe’s second-largest oil company by sales $1.1 billion after reaching a settlement over last year’s Gulf of Mexico spill. The stock has fallen 30 percent since the Deepwater Horizon oil rig exploded last year, while the MSCI World/Energy Index has risen 13 percent.

Separately, Investec Plc upgraded the shares to “buy” from “hold” today. “We believe CEO Bob Dudley can regain BP’s once fundamentally unique reputation as the industry ‘thought leader,’” Stuart Joyner, an analyst at Investec in London, wrote in a note to clients today.

CGGVeritas, the world’s largest seismic surveyor of oilfields, climbed 3.4 percent to 25.02 euros after announcing it will create a marine joint venture with Elnusa Tbk PT.

Micro Focus Advances

Micro Focus soared 6.8 percent to 395 pence for the largest gain in the Stoxx 600. Advent International has approached the company about a potential takeover, Micro Focus said in a statement.

“At this stage, there can be no certainty that any offer for the company will be forthcoming nor as to the price at which any offer might be made,” the statement said.

Prudential Plc advanced 1 percent to 747 pence after UBS AG said that the “underperformance” by the U.K.’s largest insurer by market value produced “an attractive buying opportunity” in a note to clients today.

Credit Suisse Rises

Credit Suisse Group AG climbed 1 percent to 36.75 Swiss francs after Deutsche Bank AG upgraded the shares to “buy” from “hold.” Switzerland’s second-biggest bank is “not exposed to peripheral Europe” and “is strengthening its capital base,” Matt Spink and Alexander Hendricks, both research analysts at Deutsche Bank, wrote in a note to clients today.

Scottish & Southern Energy Plc rose 1.9 percent to 1,352 pence, bringing the stock’s gain this year to 10 percent. The U.K. power producer posted full-year adjusted profit after taxes that increased 2.5 percent to 1.04 billion pounds ($1.7 billion).

BioMerieux, the maker of HIV and hepatitis tests, soared 3.9 percent to 78.57 euros after agreeing to buy AES Laboratoire Groupe for 183 million euros ($259 million).

Rhoen-Klinikum AG, the German operator of medical clinics, increased 4 percent to 17.29 euros.

“Privatization activity is picking up and Rhoen has enough firepower to participate successfully,” Holger Blum and Gunnar Romer, analysts at Deutsche Bank, wrote in a note to clients today. The bank upgraded the company to “buy” from “hold.”

Mitchells & Butlers Slips

Mitchells & Butlers slumped 5 percent to 319.7 pence, its biggest drop in almost six months. The company reported that net income fell 29 percent in the 28 weeks ended April 9 as revenue declined and the company incurred one-off costs. Profit dropped to 37 million pounds from 52 million pounds a year earlier, the Birmingham, England-based company said today.

Shares in Inditex, the world’s largest clothing retailer, slid 2.2 percent to 61.24 euros. Gap Inc., the largest U.S. apparel chain, yesterday cut its profit forecast 22 percent as the cost of making clothes rose more than it had predicted.

--Editor: Will Hadfield

To contact the reporter on this story: Giles Broom in Zurich at gbroom@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

View the original article here