European Stocks to Watch: Northern Rock

Shares of Northern Rock plummeted 12% after the U.K. mortgage lender cut its 2007 profit expectations Wednesday, as higher interest rates weighed on funding costs and the prospects for real estate in Britain.

The company forecast a 15% rise in full-year profit, below the 17% rise forecast by an average of analysts polled by Reuters. The announcement comes despite the company's record share of the mortgage market and indications it will raise its dividend.

The cut in expectations is based on the prospect of two more rate rises from the Bank of England this year, CEO Adam Applegarth told Reuters.

Northern Rock's dramatic decline put pressure on fellow U.K. mortgage brokers, with Bradford & Bingley declining 3.8%, HBOS falling 2.5% and Alliance and Leicester down 2.6%.

Adidas (Up 0.04%) The German sports-goods maker was the lead gainer in a negative DAX as fourth-quarter profit climbed 32% due to weakness in the dollar boosting U.S. sales.

BAE Systems (Up 0.7%) Following a 40-point drop Tuesday the U.K. defense contractor bucked the overall weakness of the FTSE-100 as fears over an anti-corruption probe from the U.S. Department of Justice eased.

Beneteau (Up 2.9%) The French yacht maker reported a 28% rise in third-quarter sales Tuesday and said it expected its full-year sales to still be 20% higher than the previous year.

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