(BN) European Stocks Decline After Seven-Day Rally; Lonza Retreats

By Adam Haigh
July 22 (Bloomberg) -- European stocks slipped after a seven-day rally pushed valuations on the Dow Jones Stoxx 600 Index to the highest in five years, overshadowing better-than- estimated earnings from Apple Inc. and TomTom NV.
Lonza Group AG slid 4.6 percent after reporting a 55 percent drop in first-half earnings. BHP Billiton Ltd. and Rio Tinto Group led raw-material shares lower as metals retreated.
Apple surged 3.8 percent in Germany. TomTom, Europe’s largest maker of car-navigation devices, advanced 7.6 percent.
Europe’s Stoxx 600 lost 0.9 percent to 213.13 as of 9:30 a.m. in London. The measure is trading at 26 times the profit of its companies, the highest since January 2004 according to Bloomberg data, after climbing 8.1 percent since July 10 as results from Goldman Sachs Group Inc. to Johnson & Johnson and Coca-Cola Co. exceeded analysts’ predictions.
"It’s all got a little bit ahead of itself," said Ian Williams, chief executive officer of Charteris Treasury Portfolio Managers Ltd., which oversees about $142 million.
"There is the scope there for disappointment on the economic numbers as they unfold over the next month," he told Bloomberg Television.
The Dow Jones Industrial Average capped its longest stretch of gains in two years yesterday as Caterpillar Inc.’s earnings tripled analyst estimates and Federal Reserve Chairman Ben S.
Bernanke said there are signs the economy is stabilizing.
Futures on the Standard & Poor’s 500 Index slipped 0.8 percent today. The MSCI Asia Pacific Index advanced 0.2 percent, rising for a seventh day in the longest stretch of gains since January.

‘Sell Into’ Rally

Morgan Stanley advised investors to "sell into" the equities rally, saying "cyclical growth risks have diminished but not disappeared."
"The key drivers behind improving sentiment, upside to near-term growth estimates and continued positive earnings momentum, may prove more transitory than the market believes,"
New York-based strategist Jason Todd wrote in a report dated yesterday.
Lonza sank 4.6 percent to 106.4 Swiss francs. The world’s biggest maker of ingredients for pharmaceuticals said first-half net income fell 55 percent to 120 million francs ($112 million) as orders from drugmakers slowed and costs from opening plants increased.
BHP Billiton, the world’s largest mining company, slid 2.4 percent to 1,493.5 pence. Rio Tinto, the third-biggest, dropped
1.9 percent to 2,240.5 pence. Copper, lead, nickel, tin declined in London.

Axa Declines

Axa SA, Europe’s second-largest insurer, lost 3.4 percent to 13.48 euros as Cazenove cut its recommendation on the shares to "underperform" from "in-line."
"Neither 2009 earnings nor valuation are likely to be a catalyst for the stock," London-based analyst Andreas Van Embden wrote in a note to clients. "This is partly the result of low returns in the U.S. businesses."
Apple rose 3.8 percent to $157.30 as price cuts attracted more first-time buyers for Macintosh personal computers. The maker of the iPhone reported third-quarter profit of $1.35 a share, surpassing the $1.17 estimated by analysts in a Bloomberg survey. Sales in the quarter ended June 27 rose to $8.34 billion, topping estimates of $8.21 billion.
Per-share earnings beat projections by an average of 14 percent for the 85 companies in the Standard & Poor’s 500 Index that reported quarterly results since July 8, according to data compiled by Bloomberg. Analysts forecast profits fell an average
33 percent in the second quarter and will decrease 20 percent from July through September, Bloomberg data show.

‘Expecting the Worst’

The earnings season "has been a positive surprise in so far as people were expecting the worst in the second quarter and the worst has not happened," Hugh Young, a fund manager who helps oversee $35 billion in equities for Aberdeen Asset Management Plc in Singapore, said in a Bloomberg Television interview.
TomTom jumped 7.5 percent to 6.75 euros after second- quarter net income of 19.9 million euros ($28.3 million) beat analysts’ forecasts for 15.5 million euros.
Tele2 AB, Sweden’s second-biggest telephone company, added
5.9 percent to 87.70 kronor after posting a second-quarter net income of 1.14 billion kronor ($149 million), compared with a net loss of 54 million kronor a year earlier. Analysts had estimated profit of 945 million kronor, according to a Bloomberg survey.
In the U.S., companies including Wells Fargo & Co. and Pepsi Co. are scheduled to report results today, while GlaxoSmithKline Plc is among European companies set to release earnings.