European Stocks Drop as Bullard Says Fed May Taper

European stocks dropped from a five-year high as Federal Reserve Bank of St. Louis President James Bullard said the central bank may decide to reduce bond purchases at its next policy meeting.

Adidas AG slid 2.9 percent after lowering its profit forecast for 2013. Direct Line Insurance Group Plc lost 2.5 percent as Royal Bank of Scotland Group Plc (RBS) sold a 630 million-pound ($1 billion) stake in the U.K.'s biggest car insurer.

The Stoxx 600 slipped 0.2 percent to 314.42 at 3:19 p.m. in London after earlier climbing as much as 0.2 percent. The equity benchmark has still risen 1 percent this week, extending its rally so far this year to 12 percent, as the Fed refrained from slowing the pace of its bond-buying program at its last policy meeting on Sept. 17-18.

"Almost every single investor expected the Fed to taper," Henrik Drusebjerg, who helps oversee $220 billion as a senior strategist at Nordea Bank AB in Copenhagen, said by telephone. "Bullard's comments are definitely something that would concern investors as we've seen quite a rally this week on the back of the Fed indicating that it will delay tapering."

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Bullard said that economic reports over the next month may lead the Federal Open Market Committee to cut its monthly purchases of Treasuries or mortgage bonds when it next meets on Oct. 29-30. "It's possible that you could get some data that change the complexion of the outlook and could make the committee be comfortable with a small taper in October," Bullard said in an interview with Tom Keene on Bloomberg Television's "Bloomberg Surveillance."

Fed Statement

The Stoxx 600 climbed to its highest level since June 2008 yesterday after the Fed said in a statement that it needs to see more evidence of lasting improvement in the U.S. economy before slowing the pace of its bond-buying program. Some 44 of 64 economists surveyed by Bloomberg before the decision had predicted that the central bank would start tapering stimulus measures this month.

In Germany, an INSA opinion poll published yesterday showed the opposition Social Democrats climbing one percentage point to 28 percent, 10 points behind Chancellor Angela Merkel's Christian Democratic Union and its sister party the Christian Social Union of Bavaria. Both main groups fell short of a majority with their preferred coalition partners in the survey.

Some polls show the Free Democrats, the junior member of the governing coalition, struggling to reach the 5 percent threshold they need to enter parliament, meaning that Merkel may have to form a government with another party.

"The decision of this election is a fulcrum point for the euro for the next two years until the next major set of elections,"said Justin Urquhart Stewart, who helps oversee about $6.8 billion at Seven Investment Management in London.

Consumer Confidence

A measure of euro-area consumer confidence compiled by the European Commission rose less than economists had predicted. The index of household sentiment climbed to minus 14.9 in September from minus 15.6 in August. The median estimate of economists surveyed by Bloomberg had called for a reading of minus 14.5.

Adidas slipped 2.9 percent to 80.18 euros after cutting the low end of its profit forecast for 2013 by 7.9 percent. The world's second-largest sporting-goods maker said the euro's strength would hurt its sales in the third quarter, while the move to a new distribution center in Russia would reduce the availability of products in shops.

Direct Line

Direct Line (DLG) dropped 2.5 percent to 212.6 pence. RBS sold 300 million shares at 210 pence apiece in its third sale of a stake in the insurance company, according to a statement. The bank, which is majority owned by the U.K. government, reduced its holding in Direct Line by 20 percent to 28.5 percent. RBS slipped 1.3 percent to 364.1 pence.

RWE AG retreated 4.2 percent to 24.61 euros after Germany's second-largest utility said it will reduce its dividend. The company will pay 1 euro ($1.35) on each common and preferred share at its annual general meeting in 2014, half of what it paid this year.

ICAP Plc (IAP) lost 3.5 percent to 395.3 pence as Bank of America Corp.'s Merrill Lynch unit downgraded the world's largest broker of transactions between banks to neutral from buy. The brokerage said that U.S. rules governing swap-execution facilities, which come into effect on Oct. 2, will have a wider scope than analysts had expected.

"These appear to be much more extensive than we -- and the market, we suspect -- had envisaged," the note said. "We therefore see short- and medium-term risks to earnings."

Mediaset Rises

Mediaset SpA (MS) added 2 percent to 3.30 euros after Morgan Stanley increased its target price on the broadcaster controlled by former Italian Prime Minister Silvio Berlusconi to 3.65 euros from 2.15 euros. The brokerage said that an improving advertising market and sustained cost savings will enable the company to reduce its indebtedness.

Ackermans & van Haaren NV rose 4.1 percent to 73.55 euros after the investment firm offered to buy Cie. d'Entreprises CFE SA for 451 million euros to gain full control of the world's third-largest dredging company.

The volume of shares changing hands in companies listed on the Stoxx 600 was 14 percent greater than the average of the past 30 days, according to data compiled by Bloomberg.