Stocks Fall in Europe, Asia on Loss Concern; U.S. Futures Drop

By Sarah Jones

July 8 (Bloomberg) -- Stocks fell in Europe and Asia and U.S. index futures dropped as concern deepened financial firms will need more capital and lower oil weighed on energy producers. The U.K.'s FTSE 100 Index entered a bear market.

UBS AG and Deutsche Bank AG slumped in Europe and Mitsubishi UFJ Financial Group Inc. led a retreat by Asian banks after analysts said the two largest U.S. mortgage-finance companies may have to raise a combined $75 billion. Merrill Lynch & Co. fell in Germany after Wachovia Corp. slashed its earnings forecast for the securities firm. Royal Dutch Shell Plc dropped after oil decreased almost $4 a barrel yesterday.

The MSCI World Index lost 0.9 percent to 1,352.86 at 9:13 a.m. in London, extending its decline from an October record to 19.6 percent. Futures on the Standard & Poor's 500 Index fell 1 percent, indicating the benchmark index may slip into a bear market today. The S&P 500 was down 19.99 percent from an all- time high in October as of yesterday's close.

``Investors are nervous,'' said Chicuong Dang, an analyst at Richelieu Finance in Paris, which has $6.2 billion under management. ``The market is falling on fears of bad news from banks, of new writedowns and need for recapitalization.''

Financial stocks from Citigroup Inc. to HBOS Plc have led declines that erased more than $11 trillion from equity markets worldwide this year as credit-related losses topped $400 billion, forcing banks to raise more than $320 billion in capital and threatening to push the U.S. into recession.

``In a recession, earnings always fall,'' said Joost van Leenders, Amsterdam-based investment specialist for asset allocation at Fortis Investments, which oversees $342 billion. ``There is more to come in earnings and the stock market than is currently foreseen.''

Earnings Kickoff

Profit for Stoxx 600 companies will fall 2 percent this year, according to data compiled by Bloomberg. That's down from 11 percent growth predicted at the start of 2008.

Alcoa Inc., the world's third-largest aluminum company, kicks off the second-quarter reporting season in the U.S. today. Analysts estimate earnings at companies in the S&P 500 dropped 11 percent on average in the quarter, Bloomberg data show.

Europe's Dow Jones Stoxx 600 Index declined 2.5 percent, while the MSCI Asia Pacific Index lost 2 percent. The U.K.'s FTSE 100 dropped 2.3 percent, extending its decline from last year's high to 20 percent, the common definition of a bear market.

Sales of services and manufactured in the U.K. fell in the second quarter, posing ``serious risks'' that the economy will tumble into a recession, the British Chambers of Commerce said.

UBS, Mitsubishi UFJ

UBS, the European bank hardest hit by the subprime contagion, sank 4.1 percent to 19.16 francs. Deutsche Bank, Germany's largest bank, slipped 3.6 percent to 52.62 euros.

Analysts at Lehman Brothers Holdings Inc. said a change in accounting rules may force Fannie Mae and Freddie Mac to raise $46 billion and $29 billion respectively.

Mitsubishi UFJ, Japan's largest bank by market value, declined 3.4 percent to 934 yen.

Kookmin Bank, South Korea's largest, tumbled 8.6 percent to 55,000 won. JPMorgan Chase & Co. cut its recommendation on the stock to ``neutral'' from ``overweight,'' saying Kookmin may not have enough capital to complete its plan to set up a holding company.

Merrill Lynch lost 84 cents to $29.52 in Germany. Wachovia lowered its second-quarter earnings-per-share estimate for the third-largest U.S. securities firm to a loss of $2.16 from a profit of 63 cents and dropped its forecast for 2008 to a loss of $3.11 from a profit of 15 cents.

Analysts forecast $5 billion in writedowns for the quarter concerns and said the sale of stakes in BlackRock Inc. and Bloomberg LP, the parent of Bloomberg News, by Merrill would be ``negative.''

Bank of Ireland

Bank of Ireland Plc tumbled 8.7 percent to 4.62 euros after the Dublin-based lender said slowing economic growth in Ireland and the global shortage of credit are ``adversely impacting'' earnings.

``The slowdown in the overall level of activity and volume growth is most pronounced in our retail businesses in Ireland,'' the bank said.

Separately, the Daily Telegraph reported Bank of Ireland is reducing its commercial lending, telling some U.K. customers it won't be taking new business for the next three months.

Shell, Europe's biggest oil company, slid 2.9 percent to 1,982 pence. BP Plc, the second-largest, retreated 2.5 percent to 558 pence.

Crude for August delivery lost $3.92, or 2.7 percent, to $141.37 yesterday. Oil traded at $142.27 today.

Persimmon Plc lost 4.7 percent to 217.25 pence after the U.K.'s second-biggest homebuilder by market value said first- half sales fell 34 percent and it has cut 1,100 jobs to lower costs amid the worst British housing slump in 30 years.

Great Portland

Great Portland Estates Plc fell 2.1 percent to 316.75 pence after Morgan Stanley rated the company, which develops shops and offices in London's West End, ``underweight'' in new coverage on the possibility that rents in the U.K. capital's center will fall.

Klepierre SA declined 5.8 percent to 29.58 euros after Credit Suisse Group downgraded the European shopping center owner to ``underperform'' from ``neutral.''

Fiat SpA dropped 4.4 percent to 9.87 euros. Italy's biggest manufacturer said it will close four of its six car factories for one week each between September and November because of slumping sales.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.

Last Updated: July 8, 2008 04:23 EDT

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