European Stocks Drop, Paced by Tesco, Carrefour; Ryanair Slides

European stocks fell after Tesco Plc, the U.K.'s largest supermarket operator, predicted a ``tougher year'' because of higher interest rates and increased competition. Marks & Spencer Plc and Carrefour SA also retreated.

Ryanair Holdings Plc led airlines lower after Europe's largest low-cost carrier forecast a ``big downturn'' for its industry. Thales SA rose the most in three months as the defense company was shortlisted for a $2.7 billion contract from the U.S. Navy.

Indexes failed to sustain earlier gains after a report showed German investor confidence unexpectedly fell in June as borrowing costs climbed to their highest in almost five years in the euro region.

Rising interest rates ``is one of the main concerns that is being reflected in the market,'' said Mike Lenhoff, who helps oversee about $36 billion as chief strategist at Brewin Dolphin Securities Ltd. in London. ``The environment could get tougher.''

The Dow Jones Stoxx 600 Index fell 0.4 percent to 396.42. The Stoxx 50 dropped 0.4 percent, and the Euro Stoxx 50, a measure for the nations sharing the euro, slid 0.1 percent.

National benchmarks declined in 14 of the 18 markets in western Europe. France's CAC 40 slid 0.3 percent, and the U.K.'s FTSE 100 fell 0.8 percent. Germany's DAX lost less than 0.1 percent.

A U.S. housing report also weighed on equities. Housing starts on an annual basis slid 2.1 percent in May compared with the previous month, adding to speculation the real-estate slump will continue to drag down the world's biggest economy.

ZEW Survey

The ZEW Center for European Economic Research in Mannheim said today its index of German investor and analyst expectations declined to 20.3 from 24 in May. Economists expected a reading of 29, based on the median of 38 forecasts in a Bloomberg News survey.

``It is only natural to see investors get a bit more cautious,'' said Richard Scott, who helps oversee about $1 billion at Iimia Investment Group in Exeter, England.

Tesco sank 4.9 percent to 434.5 pence, the biggest drop since April 2003. The retailer said first-quarter sales, excluding gasoline revenue, gained 4.7 percent at outlets open at least a year in the 13 weeks to May 26. That's the slowest pace in a year and less than the median estimate of 5 percent in a Bloomberg survey of nine analysts.

Marks & Spencer, a fashion and food retailer, slid 2.6 percent to 670 pence. Carrefour, the world's second-largest retailer, dropped 1.4 percent to 52.18 euros. J Sainsbury Plc, the U.K.'s third-largest supermarket chain, slid 0.4 percent to 581 pence.

Ryanair Declines

Retail stocks were the worst performers of the 18 industry groups listed in the Stoxx 600, declining 1.8 percent.

Ryanair lost 3.7 percent to 4.98 euros in Ireland. Chief Executive Officer Michael O'Leary forecast a downturn for the discount airline industry and also said the carrier's average ticket prices will be lower this year.

The airline cut prices on 3 million seats at a cost of as much as 45 million pounds ($89.4 million) over three months, O'Leary said today at a press conference in London.

Air Berlin Plc tumbled 2.8 percent to 16.13 euros. Europe's third-biggest discount airline said prosecutors searched its offices in Berlin for evidence of insider trading during the takeover of competitor DBA. The company denied the allegations.

British Airways Plc, Europe's third-largest airline, dropped 2.6 percent to 424.5 pence. Air France-KLM Group, the region's biggest carrier, declined 2.2 percent to 35.29 euros.

By Sarah Jones
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net
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