Europe: Shares post biggest five-day drop this year on China rout

[FRANKFURT] European stocks posted their biggest five- day drop this year amid investor concern over China's economy as shares tumbled in Shanghai and data disappointed.

Daimler AG and BMW AG, which are both sensitive to growth in the world's second largest economy, fell at least 2.6 per cent, as auto-related companies slid to the joint-worst performance on the Stoxx Europe 600 Index. UBS Group AG lost 2.3 per cent after results showed its wealth management unit grew by the smallest amount in more than four years in the second quarter. A measure of banks contributed the most to the Stoxx 600's drop, as all industry groups retreated.

The Stoxx 600 retreated 2.2 per cent to 385.91 at the close of trading, for a 5.1 per cent five-day decline. Italy's FTSE MIB Index and France's CAC 40 Index led western-European markets lower, falling at least 2.6 per cent. China's benchmark index tumbled the most in more than eight years after a report showed industrial profits contracted 0.3 per cent in June, while concern grew that a three-week rally sparked by unprecedented government intervention is unsustainable.

"The main theme this summer is increasing uncertainty about emerging markets, China, the whole commodity complex," said Christian Stocker, a strategist at UniCredit Bank AG in Munich. "This is a burden for the export business of European companies, particularly for car producers and the machinery sector."

The Stoxx 600 has given up more than half of the rally sparked by Greece's agreement with its creditors. It reached a peak on July 20 before a rout in commodity stocks, which rely heavily on China's appetite for resources, helped drag European shares to their first weekly drop in three.

In Europe, earnings season is in full swing, with more than 180 Stoxx 600 companies scheduled to report through the rest of this week. MorphoSys AG plunged 5.7 per cent after posting a wider quarterly loss on higher expenses.

Ryanair Holdings Plc and Merlin Entertainments Plc led a gauge of travel and leisure companies lower. Ryanair lost 2.2 per cent after saying that over-capacity could weigh on average fares. Merlin lost 4.3 per cent after lowering its forecast for earnings in 2015 following a roller coaster accident in June.

Valeo SA slid 5.4 per cent after France's second-biggest auto-parts maker posted first-half sales that matched analysts' projections.

Digital Entertainment Plc added 2.9 per cent after GVC Holdings Plc raised its bid to take over the online gaming company. 888 Holdings Plc, which had its earlier offer recommended by Bwin.party's board, lost 1.6 per cent.

Pearson Plc slipped 4.8 per cent, dragging a gauge of media shares to the joint-biggest loss on the Stoxx 600, after saying it will dispose of its stake in the Economist magazine, just days after the sale of The Financial Times newspaper.

Deutsche Boerse AG declined 2.9 per cent after agreeing to buy the rest of its indexing business Stoxx AG, giving the exchange operator direct control over the Euro Stoxx 50 Index.

Royal Philips NV gained 1.2 per cent after posting better- than-expected earnings on rising demand in North America, Eastern Europe and India.

Reckitt Benckiser Group Plc rose 1.4 per cent after the maker of Dettol disinfectants reported second-quarter revenue growth that beat estimates and raised its full-year growth target.

BLOOMBERG