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European Stocks Retreat as China Cuts Growth Forecast

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Source: Bloomberg

European stocks dropped, snapping a two-day gain, as China cut its economic growth forecast and data showed manufacturing and services shrank more than estimated in the euro area. US index futures and Asian shares also fell.

Rio Tinto Group led mining shares lower as copper declined in London. Salzgitter AG tumbled 5.6 per cent amid uncertainty over the company’s outlook. BP Plc advanced 2 per cent after reaching a US$7.8-billion settlement with the victims of 2010’s Gulf of Mexico oil spill.

The Stoxx Europe 600 Index retreated 0.8 per cent to 265.21 at 10:12 am in London, paring last week’s 0.9-per cent advance. The benchmark measure has rallied 8.5 per cent this year. Futures on the Standard & Poor’s 500 Index expiring this month decreased 0.5 per cent Monday, while the MSCI Asia Pacific Index declined 0.9 per cent.

“The market is really taking more of a pause for breath after the strong rally that we have seen,” said Edmund Shing, an equity strategist at Barclays Capital in London. “People are actually a little bit less pessimistic on the economic front than late last year, but clearly we would like to see more positive macro data going forward. We don’t expect growth in Europe this year.”

China reduced its growth target to 7.5 per cent this year, the lowest goal since 2004, according to a transcript of Premier Wen Jiabao’s address to the National People’s Congress. The government will also aim for inflation of about 4 per cent this year, unchanged from its goal in 2011.

Stocks extended declines after euro-area services and manufacturing output shrank in February more than economists had estimated as the region’s economy struggled to rebound from a contraction in the fourth quarter of last year.

A euro-area composite index based on a survey of purchasing managers in both industries dropped to 49.3 from 50.4 in January, London-based Markit Economics said Monday. That was below an initial figure of 49.7 published on February 22. A reading below 50 means the measure contracted.

Investors are waiting to see how many of Greece’s private creditors agree to write down their debt by the March 8 deadline. Greece’s government has set a 75-per cent participation rate as the threshold for proceeding with the transaction, in which investors will forgive 53.5 per cent of their principal and exchange their remaining holdings for new Greek government bonds and notes from the European Financial Stability Facility.