European Stocks Fluctuate Near Two-Year Low; U.S. Index Futures Advance

European stocks fluctuated between gains and losses near a two-year low after a seven-day slump in the benchmark Stoxx Europe 600 Index.

RWE AG (RWE), Germany’s second-largest power company, led utilities lower after profit fell. Yara International ASA (YAR) dropped 3.6 percent as BofA Merrill Lynch Global Research advised selling the shares. Raw-materials stocks rebounded from an 11-day slump, led by gains at Antofagasta Plc. (ANTO)

The Stoxx 600 rose 0.3 percent to 229.7 at 3:03 p.m. in London, having earlier tumbled 5.1 percent and climbed 1.6 percent. The gauge has plunged 21 percent from this year’s high on Feb. 17 amid mounting speculation that Europe will fail to contain its sovereign-debt crisis and concern that the economic recovery is faltering in the U.S.

“Sentiment is already pretty battered,” George Godber, who manages 150 million pounds ($245 million) at Matterley LLP, said in a Bloomberg Television interview in London. “The fears of the U.S. going into recession have now passed and we’ve priced in a double dip.”

Federal Reserve policy makers are holding a one-day meeting today as S&P’s unprecedented downgrade of the U.S.’s top credit rating fuels concern about the world’s largest economy. Speculation has grown that the Fed will initiate a third round of emergency stimulus measures, known as QE3, to prop up growth. A report today showed China’s inflation accelerated to the fastest pace in three years in July, limiting the scope for monetary easing as risks to the global economy mount.

‘Double-Dip Risk’
“We see equity markets pricing in double-dip risk until just before the Fed moves with its possible QE3 policy response in the week of Aug. 26,” Todd Martin, a Hong Kong-based equity strategist at Societe Generale SA, wrote in a report.

The Stoxx 600 has still rallied 42 percent since March 2009 when governments and central banks around the world enacted emergency stimulus measures to boost the economy. The valuation of the Stoxx 600 has fallen to 9.06 times its companies’ forecast earnings, below the 12.2 times average multiple during the past five years, according to data compiled by Bloomberg. That’s the cheapest since the bull market began in March 2009.

The Fed will “hint that we’ll get help for the economy,” James Bevan, London-based chief investment officer at CCLA Investments, said in an interview on Bloomberg Television. “If I look at the fundamental free cash flows that many companies are giving, there is outstanding value.”

Benchmark Indexes
National benchmark indexes rose in 10 of the 18 western European markets. The U.K.’s FTSE 100 climbed 0.3 percent and France’s CAC 40 increased 0.7 percent. Germany’s DAX Index slid 0.8 percent.

The VStoxx Index (V2X), which measures the cost of protecting against a decline in shares on the Euro Stoxx 50 Index, jumped 7.5 percent to 48.7, its highest level since May 2010.

RWE tumbled 6.5 percent to 28.70 euros, the lowest since 2003. The company said first-half profit dropped after cutting full-year earnings targets yesterday because of the costs of phasing out nuclear power stations. Larger rival EON AG lost 7.5 percent to 15.27 euros.

Yara, the world’s biggest publicly traded nitrogen- fertilizer maker, slumped 3.8 percent to 243.20 kroner as BofA Merrill Lynch downgraded the shares to “underperform” from “neutral.”

Antofagasta rose 3.9 percent to 1,180 pence, ending seven days of losses. A gauge of basic-resource shares in the Stoxx 600 gained 1.6 percent.