European stocks fell the most in two months on concern a weaker dollar will curb profits for technology and chemical companies and more banks will report losses related to subprime mortgage defaults in the U.S.
Nokia Oyj, Alcatel-Lucent SA and Syngenta AG paced a decline by companies that rely on the U.S. for revenue. Royal Bank of Scotland Group Plc, UniCredit SpA and Barclays Plc led financial shares lower.
The Dow Jones Stoxx 600 Index lost 1.6 percent to 367.57, the biggest drop since Sept. 7, bringing the weekly decline to 3.3 percent and almost erasing this year's gains. Wachovia Corp. of the U.S. said today it may raise allocations for loan losses.
``The sudden spikes of the euro are causing increasing concern currency effects may have a negative impact on earnings,'' said Helge Rechberger, head of equity market research at Raiffeisen Zentralbank in Vienna. ``Wachovia's announcement also weighs on the market.''
Analysts have cut their earnings growth forecasts for Stoxx 600 companies this year to 9.2 percent from 9.9 percent at the start of last month, data compiled by Bloomberg shows.
The risk of European companies defaulting on their debt rose, according to traders of credit-default swaps. European government bonds gained for a third day on speculation losses from the U.S. housing market will spread, fueling demand for the safest assets.
National benchmarks dropped in all 18 western European markets, except in Portugal and Ireland. The U.K.'s FTSE 100 slid 1.2 percent, and France's CAC 40 sank 1.9 percent. Germany's DAX lost 0.1 percent. The Stoxx 50 lost 1.7 percent, and the Euro Stoxx 50, a measure for the euro region, slid 1.5 percent.
Nokia, the world's biggest mobile-phone maker, declined 4.2 percent to 26.2 euros. Alcatel-Lucent, the world's largest maker of telecommunications equipment, lost 3.9 percent to 5.62 euros.
The U.S. was the biggest market for Nokia after China last year, and was Alcatel's most important national market, according to Bloomberg data.
Syngenta lost 3.2 percent to 274 Swiss francs. North America is the second-biggest market for the world's largest producer of agricultural chemicals.
The dollar rebounded from a record low against the euro reached earlier. The U.S. currency fell as far as $1.4752 against the euro, the weakest since the European currency made its debut in January 1999, and was little changed at $1.4659, from $1.4676 in New York yesterday.
Wachovia, the fourth-largest U.S. bank, said it expects to increase its allocation for loan losses to as much as $600 million in the fourth quarter.
Royal Bank of Scotland, the U.K.'s second-biggest bank, decreased 3 percent to 402.75 pence. UniCredit, Italy's largest bank, slid 2.6 percent to 5.12 euros.
Barclays, Britain's third-biggest bank, denied speculation that it will announce a substantial writedown in the value of its assets after its stock fell as much as 9.1 percent. The shares decreased 2.4 percent at 474.5 pence.
``There is absolutely no substance in these rumors,'' spokesman Alistair Smith said. UniCredit also said in a statement that market rumors of possible significant writedowns or a share sale are unfounded.
Banca Monte dei Paschi di Siena SpA tumbled 11 percent to 3.73 euros after the world's oldest bank agreed to buy Banca Antonveneta SpA from Spain's Banco Santander SA for 9 billion euros in cash.
Misys Plc dropped 6 percent to 223 pence after UBS AG downgraded shares of the U.K.'s third-biggest software maker to ``sell'' from ``neutral.''
Rio Tinto Group, the world's third-largest mining company, advanced 6.2 percent to 5,624 pence on speculation BHP Billiton Ltd. may sweeten its offer for the company. BHP Billiton, the biggest, slid 1.7 percent to 1,628 pence.
Rio advanced to a record in London after yesterday rejecting Melbourne-based BHP's approach. A takeover may generate as much as $5 billion in savings, UBS AG said today.
``Cash is king, and it may be the sweetener that could force the hand of Rio's directors,'' said Ric Ronge, who helps manage the equivalent of $1.8 billion at Pengana Capital in Melbourne.
Galp Energia SGPS SA, Portugal's biggest oil company, surged 25 percent to 15.40 euros after partner Petroleo Brasileiro SA said an offshore field could be Brazil's largest oil find.
Galp owns 10 percent of the Tupi Sul field and BG Group Plc, the U.K.'s third-largest natural gas producer, owns 25 percent. BG Group advanced 1.6 percent to 1,005 pence. ( Bloomberg )