European Stocks Retreat After Fed Pares Growth Forecast; Vedanta Declines

European stocks fell this week after the Federal Reserve said the pace of economic recovery is likely to be “more modest” than forecast and European industrial production unexpectedly declined.

Vedanta Resources Plc retreated 20 percent after saying it’s in talks with Cairn Energy Plc to buy a stake in the oil explorer’s Indian unit. Micro Focus International Plc fell the most in the Stoxx Europe 600 Index after it cut its revenue forecast. Food and beverage shares posted the biggest gain of 19 industry groups after Anheuser-Busch InBev NV reported second- quarter net income that beat forecasts.

The Stoxx 600 fell 1.2 percent to 255.56 this past week, paring the previous week’s 1.3 percent rally. The gauge is trading 6.1 percent below this year’s high on April 15 because of concern that the global economic recovery is losing steam as indebted European governments slash spending and China takes steps to tame inflation.

“After a very good earnings season both in Europe and the U.S., investors are focusing on economic numbers again and they were very disappointing this week,” said Alan Lancz, president of Alan B. Lancz & Associates Inc. and director of research at LanczGlobal.com. “We will have a very anemic recovery, but it won’t be a double dip. There are lots of headwinds going into 2011, and I don’t see any catalysts for a buyers’ market.”

Initial jobless claims in the U.S. rose by 2,000 to 484,000 last week, the highest level in five months, Labor Department figures showed on August 12. Economists had forecast claims would fall to 465,000, according to the median of 42 predictions in a Bloomberg News survey. Estimates ranged from 450,000 to 480,000.

Industrial Production

European industrial production unexpectedly declined in June, led by a drop in durable consumer goods such as furniture and home appliances. The industrial output of the 16 nations that use the euro dropped 0.1 percent from May, when it increased by 1.1 percent, the European Union’s statistics office in Luxembourg said. Economists had predicted a gain of 0.6 percent, the median forecast in a Bloomberg survey showed.

National benchmark indexes retreated in all 18 western European markets except Iceland. Germany’s DAX decreased 2.4 percent, the U.K.’s FTSE 100 dropped 1.1 percent and France’s CAC 40 slumped 2.8 percent.

European construction shares were the worst performing industry this week, dropping 5 percent. HeidelbergCement AG, the largest maker of aggregates used to produce concrete and asphalt, plunged 10 percent. Wienerberger AG, the world’s biggest brickmaker, fell 7.7 percent.

Vedanta Acquisition

Vedanta, controlled by billionaire Anil Agarwal, lost 20 percent. The copper, zinc, aluminum and iron ore producer wants to acquire more than 50 percent stake of Cairn India Ltd., leaving the unit’s management in place, said two people with knowledge of the matter who declined to be identified because the talks are private.

Micro Focus, the U.K. business software maker whose clients include Tesco Plc, sank 33 percent. First-quarter underlying revenue was “flat,” missing management forecasts, the company said. Micro Focus predicted “low single-digit like-for-like revenue growth in the 2011 financial year instead of mid single- digit growth.”

Nobel Biocare Holding AG sank 14 percent, the stock’s biggest weekly decline since April. The company said second- quarter net income dropped 31 percent as expenses increased and the company’s sales failed to keep pace with its two closest competitors in the European and U.S. markets.

Brokerages including UBS AG, Credit Suisse Group AG, Deutsche Bank AG and BofA Merrill Lynch Global Research cut their price estimates on the world’s biggest maker of dental implants.

European food and beverage shares posted the best performance this week as AB InBev reported net income of $1.15 billion from $1.07 billion a year earlier, beating the $1.08 billion average of 11 analyst estimates compiled by Bloomberg. The world’s largest brewer advanced 7.1 percent. Heineken NV, the Dutch brewer of Amstel beer, climbed 2.8 percent.