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March 11, 2011, 1:41 p.m. EST

Insurers Pull Down European Stocks

By Aude Lagorce

LONDON—European stocks closed at their lowest level this year on Friday, after insurance stocks tumbled on the strongest earthquake to hit Japan in more than 100 years.

The Stoxx Europe 600 index fell 0.9% to 275.42, its lowest close since Dec. 8. The benchmark ended the week down 2.3%, as euro-zone debt concerns and instability in the Middle East and North Africa spooked investors during that time.

Some of Friday's biggest blue-chip decliners were companies in the reinsurance sector. Shares of Munich Re (FRA:DE:MUV2) fell 4.3% and Hannover Re (FRA:DE:HNR1) dropped 5.3% in Frankfurt, while Swiss Re fell 3.5% in Zurich and Scor sagged 5.2% in Paris.

Analysts at Jefferies, in a note to clients, said that insured losses from Japan's 8.9-magnitude quake appear limited, based on an early assessment. The broker said it's working on the assumption of a $10 billion industry loss and that the impact on insurers' and reinsurers' balance sheets is likely to be about 5%.

Among major national indexes, France's CAC 40 index fell 0.9% to 3928.68, Germany's DAX 30 declined 1.2% to 6981.49, and the U.K.'s FTSE 100 shed 0.3% to 5828.67. That index slumped 4.2% over the week, the worst showing among the trio and its sharpest weekly loss since the week ended July 2.

In Tokyo, the Nikkei Stock Average fell 1.7% to 10254.43. U.S. stocks were modestly firmer in midday trade.

"The earthquake in Japan added to the uncertainty in markets, but you already had tensions in the Middle East, the oil price going up and problems resurfacing in the euro zone. This is a perfect storm of uncertainty coming together, so we could see a couple of weeks of 'risk off,' with corrections in the equity market," said Philippe Gijsels , head of research at BNP Paribas Fortis Global Markets.

Quake reports out of Japan overshadowed a planned meeting of euro-zone leaders in Brussels, who hope to agree on greater economic-policy coordination that would address the European debt crisis.

The leaders, who will be joined by European Central Bank President Jean-Claude Trichet, are set to adopt a pact aimed at improving the region's competitiveness and at preventing countries from letting their public deficit get out of control. The politicians will also be looking at the debt-rescue mechanism put into place last year. The meeting is supposed to lay the groundwork for a larger summit set to take place March 24-25.

Mr. Gijsels cautioned that markets would likely be disappointed with Friday's meeting, because he doesn't expect an immediate extension of the European Financial Stability Facility or new measures to avoid future debt crises.

Portugal, meanwhile, pledged a fresh batch of measures to reduce spending and boost revenue amid growing fears it may soon need a bailout. Portugal's PSI 20 slipped 0.3% to 7896.02.

In Frankfurt, fertilizer company K+S fell 4.7% but closed above the price at which BASF (FRA:DE:BAS) sold its 10.3% stake in the company for €1 billion ($1.38 billion). BASF shed 0.6%.

Cruise operator Carnival (LON:UK:CCL) declined 2.7% in London as it lowered its earnings guidance for the year, blaming fuel prices.

Shortly after the end of European trade, the euro was $1.3877, up from $1.3789 late Thursday in New York, and the dollar was at 81.89 yen, down from 82.93 yen.

April Nymex crude oil futures were down $1.58, or 1.5%, at $101.12.

Write to Aude Lagorce at aude.lagorce@dowjones.com

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