European Stocks Drop, Led by Banks; U.S. Index Futures Decline

By Alexis Xydias

Aug. 25 (Bloomberg) -- European stocks fell as concern deepened that credit losses will spread and oil's advance above $115 a barrel pushed retailers and consumer companies lower. U.S. index futures declined, while Asian shares advanced.

Natixis SA, the French bank planning a 3.7 billion-euro ($5.5 billion) rights offer to replenish capital, dropped 2.5 percent, and KBC Group NV, Belgium's second-biggest financial- services firm, lost 1.8 percent. Bouygues SA, the world's second-largest builder, led a retreat by companies whose earnings are more sensitive to the pace of economic expansion, sliding 1.7 percent. Carrefour SA slipped 1.9 percent in Paris, while Wal-Mart Stores Inc. sank 0.8 percent in German trading.

Europe's Dow Jones Euro Stoxx 50 Index, the benchmark gauge for the nations sharing the euro, decreased 0.7 percent to 3,290.91 at 1:57 p.m. in London. The index is down 25 percent this year even after a 4.7 percent jump since mid-July, as credit losses at banks topped $500 billion, inflation accelerated and oil rose to a record.

``We still have severe writedowns and as markets undergo a squeeze, banks will face even bigger problems in trying to sell assets,'' said Madrid-based Cesar Martinez, a fund manager at Gesmadrid, which has about $18 billion. ``We still see much volatility, a very complicated macroeconomic picture and further downgrades to earnings estimates.''

Indexes extended declines on reports the International Monetary Fund trimmed its forecast for euro-zone economic growth. The fund cut this year's outlook for the region to 1.4 percent from 1.7 percent, Reuters said. Next year's growth estimate was reduced to 0.9 percent from 1.2 percent, the article, which cited an unidentified finance official for the Group of 20 nations, said.

Bank Collapse

The Danish Central Bank said yesterday it will buy Roskilde Bank A/S after no buyers were found for the regional operator, which last month became the first bank in the country to be bailed out for 15 years. U.S. regulators closed Columbian Bank and Trust Co. of Topeka, Kansas, the nation's ninth bank to collapse this year, according to a statement late on Aug. 22.

Profit for companies in the pan-European Stoxx 600 will drop 2 percent in 2008, according to analysts' estimates compiled by Bloomberg. That's down from growth of 11 percent forecast at the start of the year.

Futures on the Standard & Poor's 500 Index fell 0.6 percent today, while the MSCI Asia Pacific Index rose 1.5 percent.

Morgan Stanley cut its year-end forecast for the S&P 500 by 7.1 percent to 1,300 on expectations that banks will post more writedowns and the slowing global economy will curb profits at technology and industrial companies. The index for U.S. equities closed at 1,292.20 on Aug. 22.

National Markets

National benchmark indexes declined in 14 of the 17 western European markets that were open. Trading will probably be slower than average today with the U.K. market closed for a holiday. France's CAC 40 fell 0.7 percent, while Germany's DAX slipped 0.5 percent.

The yearlong credit crisis has yet to run its course, with continued turmoil likely in housing and banking, Bank of Israel Governor Stanley Fischer said Aug. 23 at the Federal Reserve's annual symposium for central bankers in Jackson Hole, Wyoming.

Natixis lost 2.5 percent to 5.92 euros, while KBC fell 1.8 percent to 61.55 euros. Bouygues retreated 1.7 percent to 41.50 euros. Vestas Wind Systems A/S, the world's biggest wind-turbine maker, declined 2.2 percent to 656 kroner.

``The market focus will soon shift from writedowns to unprecedented credit-cycle deterioration,'' Cheuvreux analysts wrote in a note to investors today. Lower asset quality ``coincides with capital, funding and liquidity constraints, making the downturn more severe,'' said the brokerage, which forecast earnings for European banks will drop 23 percent next year.

Carrefour, Europe's biggest retailer, fell 1.9 percent to 34.12 euros. Adidas AG, the world's second-largest sporting- goods maker, slipped 1.6 percent to 39.15 euros.

Wal-Mart

Wal-Mart, the world's largest retailer, decreased 45 cents to $58.99 in Germany as crude rose for the fourth time in five days. Oil rose as much as 0.9 percent to $115.67 on the New York Mercantile Exchange.

Consumer stocks in the S&P 500 have climbed 7.6 percent in August, headed for the biggest monthly rally in five years. As the shares advanced, the extra yield bond investors demanded to own the industry's debt rose to 2.5 percentage points over U.S. Treasuries.

Every time bondholders sought that much compensation to guard against default, shares of retailers, restaurants, and hotels slumped an average 16 percent, according to data compiled by Bloomberg.

Metall Zug AG slumped 6.1 percent to 2,160 francs, the most in almost seven years, after the Swiss maker of dishwashers reported lower first-half profit.

Allianz SE added 3 percent to 110.64 euros. The insurer may be close to an agreement to sell its Dresdner Bank unit to Commerzbank AG, Germany's second-largest bank by assets, for 9 billion euros ($13 billion), Welt am Sonntag and the Sunday Times reported.

NicOx SA tumbled 7.1 percent to 7.50 euros. The French drugmaker developing treatments with Pfizer Inc. said the U.S. pharmaceutical company won't develop an experimental glaucoma medicine after a study in Japan failed to reach its goal.

VMetro ASA, the Norwegian computer-technology provider, jumped the most in six years in Oslo trading after Curtiss- Wright Corp. offered to buy the company. The shares rallied 16 percent to 11.35 kroner, the steepest gain since March 2003.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.