Markets can't help but suffer

``Speculation that the Federal Reserve may keep raising rates is building,'' said Massimiliano Pagani, head of equity funds at BNL Gestioni Sgr in Milan, which manages about $17 billion. ``Markets can't help but suffer.''

The Dow Jones Stoxx 600 Index fell 0.4 percent to 310.09 at 10:22 a.m. in London, as all but three of the gauge's 18 industry groups slipped. The Stoxx 50 also dropped 0.4 percent, while the Euro Stoxx 50, a measure for the 12 nations using the euro, declined 0.3 percent.

The Stoxx 600 has lost 9.7 percent since May 9, when it reached the highest since June 2001, as central banks in Europe and the U.S. raised borrowing costs to curb inflation. European Central Bank President Jean-Claude Trichet said today growth is broadening and inflation may remain elevated through next year.  

``If inflation carries on and interest rates rise much more, then that's going to hurt companies' profits,'' said Philipp Musil, who helps manage $12 billion at Vienna-based Constantia Privatbank AG. ``I've increased my cash position to 15 percent. When volumes start to rise again, I'll step back in.''

National benchmarks declined in 11 of the 17 western European markets that were open today. Germany's DAX fell 0.7 percent while France's CAC 40 slipped 0.4 percent, as did the U.K.'s FTSE 100. HBOS dropped 1.5 percent to 939 pence, even as the U.K.'s fourth-largest bank said it expects pretax profit to rise 7.4 percent this year. Axa, Europe's second-largest insurer, slid 1.4 percent to 24.1 euros. Higher interest rates erode the value of bonds owned by banks and insurers and crimp demand for mortgages and loans.

Credit Agricole SA, France's biggest bank, slid 0.6 percent to 28.15 euros. Bank of Cyprus Ltd. will likely make a bid to acquire Emporiki Bank of Greece SA, challenging Credit Agricole for control of Greece's sixth-biggest lender. The French bank, which already owns 8.9 percent of Emporiki, offered on June 13 to buy the rest of the bank for about 2.8 billion euros ($3.5 billion) in cash.

Hennes & Mauritz, which is competing with Inditex SA for the rank of Europe's largest clothing retailer, rose 3.5 percent to 267.5 kronor. Fiscal second-quarter profit rose 12 percent to 2.65 billion kronor ($363 million) after the company added about 50 stores in the U.S. and Europe. (Bloomberg)