Hennes & Mauritz posts profit rise; British Airways and Iberia ink merger deal
By Sarah Turner, MarketWatch
LONDON (MarketWatch) -- European shares dropped on Thursday, as continued worries about Greece's fiscal health pressured the banking sector, with rate decisions from two of the region's central banks on tap.
The Stoxx Europe 600 index (ST:SXXP 265.91, -2.70, -1.01%) fell 1.1% to 265.54.
The U.K. FTSE 100 index (UK:UKX 5,702, -60.07, -1.04%) declined 1.1% to 5,698.52, the German DAX index (DX:DAX 6,158, -64.06, -1.03%) lost 1.1% to 6,153.39 and the French CAC-40 index (FR:PX1 3,970, -57.31, -1.42%) fell 1.5% to 3,965.75.
Asian shares were broadly lower, while futures on the Dow Jones Industrial Average fell 35 points. See Indications.
Reports that Greek banks wanted access to a 28 billion euro government support package as cash flowed out of the country hit stocks on Wednesday. Those losses continued on Thursday, with National Bank of Greece (NBG 3.73, -0.12, -3.12%) down another 8.1% and Alpha Bank down 7.3%.
The Greek ASE Composite Index (XX:??? 1,988, -61.11, -2.98%) dropped 4.9% to 1,889.37 and the euro declined 0.3% to $1.3300 against the dollar.
The yield premium demanded by investors to hold 10-year Greek government bonds over German bunds rose to 4.4 percentage points, the highest since Greece joined the euro. The cost of insuring Greek debt against default soared to a record. It widened to 466 basis points, up from 413.4 on Wednesday according to data provider CMA. Read more on Greek bonds.
"Rates go higher and that causes more and more problems as the servicing of this debt becomes more and more expensive. It turns into a vicious circle," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.
Later in the session, the European Central Bank is virtually certain to leave interest rates unchanged and economists expect the onus will be on Jean-Claude Trichet to use his monthly news conference to reassure investors that Greece can survive its chronic debt woes.
The Bank of England is also widely expected to sit on the sidelines. Read ECB/BoE preview.
Banks dropped across the board in Europe, with Banco Santander (ES:SAN 10.00, -0.20, -1.96%) (STD 13.63, +0.05, +0.37%) down 1.7% in Madrid and BNP Paribas (FR:BNP 54.83, -1.50, -2.66%) shares down 2.5% on the Euronext Paris exchange.
Turning to retailers, Sweden's Hennes & Mauritz (SE:HMB 470.80, -6.00, -1.26%) climbed 5.4%. It reported a 45% rise in first-quarter net profit, to 3.74 billion Swedish kroner ($523 million), or 4.52 kroner a share, exceeding analysts' forecast for a profit of 3.48 billion kroner. Revenue rose 7% to 24.85 billion kroner.
"We upgrade our recommendation to hold from sell as we expect support to the share price from upgrades in fiscal 2010 consensus expectations on the back of better-than-expected profitability for the quarter," said analysts at Standard & Poor's Equity Research.
However, shares of department-store retailer Marks & Spencer (UK:MKS 373.30, -4.90, -1.30%) declined 1.4%.
International sales were down 5.9% in the 13 weeks to March 27, hit by "particularly difficult" trading conditions in Ireland and Greece. U.K. sales rose 6.2%, helping the firm to record an overall increase in sales of 4.8%.
It's expecting to report a 52-week pretax profit in a range of 620 million pounds to 630 million pounds. Analysts polled by FactSet had expected a pretax profit of 635 million pounds. Read more on retailers.
British Airways (UK:BAY 238.60, +0.30, +0.13%) shares rose 0.2% and Iberia (ES:IBLA 2.60, -0.02, -0.91%) shares declined 1% after the airlines inked a merger pact, after having signed a memorandum of understanding on a planned merger. The proposed deal still needs European Commission and shareholder approval. Read more on merger pact.
TNT (NL:TNT 23.17, +1.57, +7.24%) shares jumped 4.8%. The Dutch postal and parcel delivery group said that it's considering taking the mail business public.
The firm also said that first-quarter operating income is expected be ahead of last year in both its mail and express divisions.
