European Stocks Decline on Higher Oil; U.S. Futures Pare Losses

By Adam Haigh

Sept. 22 (Bloomberg) -- European stocks fell as higher oil prices weighed on retailers and carmakers, overshadowing plans by the U.S. government to buy $700 billion of bank assets. U.S. futures pared losses after Mitsubishi UFJ Financial Group Inc. said it will buy as much as 20 percent of Morgan Stanley.

Carrefour SA, the world's second-largest retailer, slid 3 percent and General Motors Corp. dropped 3.7 percent in Europe as crude climbed for a fourth day. Morgan Stanley soared 9 percent in early New York trading.

Europe's Dow Jones Stoxx 600 Index slipped 0.2 percent to 277.67 as of 1:46 p.m. in London, following its steepest advance on record Sept. 19. Futures on the Standard & Poor's 500 Index fell 0.1 percent after the measure's biggest two-day gain since the aftermath of the 1987 crash. The MSCI Asia Pacific Index added 2.5 percent.

``After such a strong rebound, it's normal that we're taking the time to digest what happened,'' Salah Seddik, a fund manager at Richelieu Finance in Paris, which oversees about $6.2 billion, said in a Bloomberg Television interview. ``The main worries are the return of investors' confidence and the capacity to refinance.''

Ryanair Holdings Plc retreated 3.6 percent as oil rallied and Compass Group Plc, the largest catering company, lost 2.4 percent after Credit Suisse Group AG lowered its recommendation on the shares. Commodity producers including BHP Billiton Ltd. and BG Group Plc limited losses in the Stoxx 600 on higher metals and crude prices.

Short-Selling Ban

The MSCI World Index climbed 0.7 percent, extending its three-day gain to 8.7 percent after the U.S. government announced plans to halt the credit-market seizure and American, British, German, French, Dutch, Belgian, Australian and Taiwanese regulators cracked down on short selling.

The measure for 23 developed countries retreated 7.2 percent in the first three days of trading last week after Lehman Brothers Holdings Inc. and American International Group Inc. collapsed and Merrill Lynch & Co. was forced to sell itself to Bank of America Corp.

Paulson's rescue plan would allow the government to buy a variety of mortgage-related securities to relieve a freeze in credit markets. Democrats, who control both houses of the U.S. Congress, pledged not to slow down its passage or tie it to an economic stimulus plan.

The Federal Reserve yesterday approved bids by Goldman Sachs Group Inc. and Morgan Stanley to become banks, ending the ascendancy of the securities firms 75 years after Congress separated them from deposit-taking lenders.

`Floor'

For Barclays Global Investors' Russ Koesterich, Paulson's move to shift the burden of subprime-mortgage related losses to taxpayers ``put a floor under the equity markets.'' James Swanson, who oversees about $200 billion at MFS Investment Management in Boston, says the S&P 500 may rise 15 percent after the Treasury immunized investors from ``the brunt of the economic cycle.''

BaFin, the German financial regulator, banned short positions in companies including Deutsche Bank AG and Commerzbank AG for the rest of the year. France's Autorite des Marches Financiers and Belgium's Banking, Finance and Insurance Commission imposed a three-month ban for Fortis, Dexia SA, Credit Agricole SA and other firms.

The dollar dropped against the yen for the first time in three days on concern Paulson's plan to allow the government to buy a variety of mortgage-related securities to relieve a freeze in credit markets will widen the country's budget deficit. U.S. Treasuries rose on speculation the Fed will cut interest rates to support the rescue plan.

Carrefour, GM

Carrefour declined 3 percent to 33.08 euros. GM, the biggest U.S. carmaker, retreated 3.7 percent to $12.60 in Germany. Ryanair, Europe's largest discount airline, dropped 3.6 percent to 2.62 euros.

Crude for October delivery climbed as much as $3.25, or 3.1 percent, to $107.80 a barrel in electronic trading on the New York Mercantile Exchange.

Earnings for companies in the Stoxx 600 are forecast to fall 3.3 percent this year, compared with a 2.1 decline predicted at the end of August, according to Bloomberg data. Profits at European travel and leisure companies may slide more than 11 percent this year and in 2009, according to the estimates.

Morgan Stanley soared 9 percent to $29.70 in pre-market trading in New York. Mitsubishi said it is undergoing due diligence and will decide on a price after this.

Metal Prices

Compass lost 2.4 percent to 338.75 pence after Credit Suisse downgraded the shares to ``neutral'' from ``outperform,'' citing a slowdown in European consumer spending.

BHP, the world's biggest mining company, rallied 2.9 percent to 1,489 pence. BG gained 1.6 percent to 1,143 pence. Copper, lead, nickel, and tin prices rose on the London Metal Exchange.

Mitsubishi UFJ, Japan's biggest bank, advanced 4.2 percent to 898 yen, the highest since Aug. 6.

Goldman lost 1 percent to $128.50 and Morgan Stanley added 2 percent to $27.75 in New York pre-market trading. The announcement paves the way for the two New York-based firms, both of which will now be regulated by the Fed, to build their deposit base, potentially through acquisitions.

Wolseley Plc, the biggest distributor of plumbing and heating equipment, soared 9.8 percent to 454.5 pence after saying it is ``confident'' it won't break banking covenants and doesn't need to sell shares to raise cash or renegotiate loan terms.

Cap Gemini, Microsoft

A Rightmove Plc survey showed U.K. house prices declined for a fourth month in September as the global credit crisis intensified, locking out homebuyers and forcing the sale of the country's biggest mortgage lender.

Cap Gemini SA advanced 1.1 percent to 35.57 euros after Deutsche Bank raised its recommendation on shares of Europe's biggest computer-services company to ``buy'' from ``hold.''

Microsoft Corp., the biggest software maker, rallied 4.7 percent to $26.33 in early New York trading after saying it plans to buy back as much as $40 billion in stock and raised its dividend.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net