European Stocks Fall, Led by BA, Merck KGaA, Pearson; ICI Gains

European stocks fell for the first time in four days on speculation gains last week were overdone given prospects for earnings growth.

British Airways Plc led airlines lower as oil jumped to a nine-month high. Merck KGaA dropped the most in two months before GlaxoSmithKline Plc releases details on a lung-cancer vaccine. Imperial Chemical Industries Plc surged 16 percent, sending the Dow Jones Stoxx 600 Chemicals Index to a record, after Akzo Nobel NV made an offer for the company.

Takeover speculation and evidence inflation in the U.S. remains in check last week sent Europe's Dow Jones Stoxx 600 Index to its biggest gain since March 23.

``We had a solid week last week and people may be starting to consider how far this bull market can run,'' said Henk Potts, who helps oversee $45 billion at Barclays Stock brokers in London.

Pearson Plc fell after the Wall Street Journal said the company was in talks with General Electric Co. to make a joint offer for Dow Jones & Co.

The Stoxx 600 lost 0.4 percent to 397.72 as of 4:20 p.m. in London. The index climbed 3.7 percent last week. The Stoxx 50 fell 0.4 percent today, as did the Euro Stoxx 50, a measure for the nations sharing the euro.

Profit growth for Stoxx 600 companies is expected to slow to 7.1 percent in 2007, according to FactSet Research Systems Inc. in London. The index has rallied 9.1 percent so far this year.

`Overstretched'

Indexes extended losses after the yield on the 10-year Treasury bond, which influences, interest rates on mortgages and corporate loans, traded near a five-year high.

``There is a lot of merger-and-acquisition activity around and enough liquidity to push equities higher,'' said Andy Lynch, who helps manage about $11 billion at Schroder Investment Management in London. Some ``equities may be looking a little overstretched.''

Deals in Europe have topped $1.2 trillion so far this year, compared with a record $1.6 trillion in 2006, based on data compiled by Bloomberg.

National benchmarks retreated in 13 of the 18 markets in western Europe. France's CAC 40 lost 0.5 percent and the U.K.'s FTSE 100 declined 0.3 percent. Germany's DAX was little changed.

Shares of ENI SpA and Enel SpA weighed on indexes as they were among stocks that traded without the right to the latest dividend.

Air France-KLM Group, Europe's biggest airline, retreated 2 percent to 36.03 euros. Lufthansa AG, the No. 2, lost 1.1 percent to 20.67 euros. British Airways, Europe's third-largest airline, slid 1.8 percent to 438 pence.

Crude oil rose to a nine-month high in New York on concern that U.S. refiners aren't keeping up with increased gasoline demand. The contract for delivery in three months gained 1.4 percent to $68.96 a barrel in New York.

Telefonica, Merck KGaA

Telefonica, Spain's largest telephone company, lost 1.4 percent to 16.52 euros. Telecom Italia SpA, Italy's biggest telephone company, fell for the first time in five days, dropping 1.3 percent to 2.11 euros. The Stoxx 600 Telecommunications Index has climbed 8.6 percent this quarter, compared with 6.5 percent for the broader index.

Merck, the German drugmaker that sells the Erbitux cancer treatment, declined 1.8 percent to 104.68 euros. Rival GlaxoSmithKline Plc today may provide analysts with details on the success of its lung-cancer vaccine, subject of the largest late-stage study of a treatment for the disease. Glaxo is competing with Merck to produce the first lung-cancer vaccine.

ICI Gains

ICI added 91 pence to 640 pence after Akzo Nobel, the world's largest maker of paints and coatings, said it made an offer for the U.K. company that was rejected.

Akzo offered 7.2 billion pounds ($14.2 billion) for ICI, which was turned down for being too low. Shares of Akzo Nobel declined 1.3 percent to 60.78 euros.

``I am sure there is a deal to be done,'' said Schroder's Lynch. ``Akzo can probably afford to go higher. They have got a lot of cash on the balance sheet.''

The Dow Jones Stoxx 600 Chemicals Index climbed 1.6 percent to an all-time high. Shares of Akzo Nobel declined 1.8 percent to 60.50 euros.

Pearson fell 0.9 percent to 865.5 pence. Under the plan, GE's CNBC unit, Pearson's Financial Times and Dow Jones, owner of the Wall Street Journal, would be merged in a closely held venture, the Journal said, citing unidentified people familiar with the matter. The talks between GE and Pearson are exploratory and may collapse, the newspaper said.

Andrea Grinbaum, a spokeswoman for Dow Jones, and Gary Sheffer, a spokesman for Fairfield, Connecticut-based GE, declined to comment on the report. Roy Winnick, a spokesman for the Bancroft family, said he ``can't comment on rumors.'' Pearson spokesman Luke Swanson didn't immediately return phone messages.

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