By Adria Cimino
Sept. 23 (Bloomberg) -- European stocks fell for a second day as Federal Reserve Chairman Ben S. Bernanke warned that financial markets are under ``extraordinary stress.''
Barclays Plc, the U.K.'s third-biggest bank, dropped 6 percent. Vedanta Resources Plc, India's largest zinc producer, and Rio Tinto Group slid more than 4 percent on lower metals prices. Marks & Spencer Group Plc sank 2.3 percent after Deutsche Bank AG cut its recommendation on shares of the U.K.'s biggest clothing retailer.
The Dow Jones Stoxx 600 Index slipped 1.8 percent to 267.59 as of 2:42 p.m. in London. The gauge has erased about half of an 8.3 percent rally on Sept. 19, when the U.S. government announced plans to stem credit-related losses. The Stoxx 50 slid 1.2 percent and the Euro Stoxx 50, a measure for the euro region, retreated 0.9 percent.
``The tough intervention avoided an international crash, but all of the problems aren't resolved,'' said Matthieu Giuliani, a fund manager at Palatine Asset Management in Paris, which oversees about $8.8 billion. ``The economy is fragile. The fundamental problems such as the credit bubble are still there. Confidence hasn't returned to the market.''
Bernanke Testimony
Stocks extended their declines after Bernanke warned lawmakers that failure to pass the $700 billion rescue plan would pose a threat to markets and the economy. Lawmakers have balked at rubber-stamping the proposal, with Democrats demanding support for homeowners and limits on executive pay and some Republicans questioning the plan's reach and size.
``Action by the Congress is urgently required to stabilize the situation and avert what could otherwise be very serious consequences for our financial markets and for our economy,'' Bernanke said in testimony prepared for delivery today to the Senate Finance Committee. ``Global financial markets remain under extraordinary stress.''
The Stoxx 600 is down 27 percent this year on concern more than $500 billion in credit losses and writedowns at financial firms worldwide and a slowing global economy will hurt profits. Earnings for companies in the measure are expected to fall 3.3 percent this year, according to data compiled by Bloomberg. That compares with analysts' estimates for an 11 percent increase at the start of the year.
National Indexes
National benchmark indexes decreased in all 18 western European markets. The U.K.'s FTSE 100 lost 2.1 percent as British Airways Plc and Man Group Plc declined. France's CAC 40 dropped 1.6 percent and Germany's DAX retreated 0.2 percent.
Europe's manufacturing and service industries contracted for a fourth month in September as the credit-market seizure intensified and companies scaled back production in response to slowing orders. Royal Bank of Scotland Group Plc's composite index dropped to 47 from 48.2 in August.
Investors should reduce stock holdings in developed markets because a U.S. plan to shore up financial markets won't stop a ``nasty slowdown,'' according to HSBC Holdings Plc strategists led by Richard Cookson.
Still, the U.S. slowdown may be shorter than expected and private equity investors should start searching for bargains after valuations tumbled this year, said Mark Mobius, executive chairman of Templeton Asset Management Ltd.
Barclays lost 6 percent to 350.5 pence. Societe Generale SA, France's third-largest bank by assets, declined 3.5 percent to 62.31 euros.
Paulson's Plan
Paulson's proposal to stabilize the banking system may push the national debt to the highest level since 1954, threatening an erosion of foreign appetite for U.S. bonds, according to economists. Paulson may be questioned on the borrowing impact of his plan at a hearing at the Senate Banking Committee today that begins at 9:30 a.m. in Washington.
``The crisis is a deep one,'' said Roland Lescure, who manages the equivalent of $128 billion as chief investment officer of Groupama Asset Management in Paris. ``The measures and their amplitude are important, but all isn't known yet. There is enough uncertainty to create concern.''
The cost of borrowing in dollars overnight was little changed before Paulson and Federal Reserve Chairman Ben S. Bernanke give Congressional testimony on the government's rescue plan. Two-year Treasury notes rose for a second day, while the dollar snapped four days of declines versus the euro.
British Airways, whose most lucrative market is trans- Atlantic business travel, sank 4.5 percent to 208.75 pence.
Commodity Producers
Basic-resources shares declined 4 percent as a group in the Stoxx 600 Index as copper, lead, tin and zinc prices fell in London. Vedanta sank 8.3 percent to 1,563 pence. Rio Tinto, the world's third-largest mining company, retreated 4 percent to 4,072 pence.
Marks & Spencer was downgraded to ``hold'' from ``buy'' at Deutsche Bank, which wrote in a note that ``low expectations for the second-quarter are justified.'' The stock sank 2.3 percent to 232 pence.
Swiss Reinsurance Co. lost 4 percent to 60.85 francs. The world's second-biggest reinsurer said it expects the insured claims of hurricanes Ike and Gustav to cost about $300 million.
Man, Tate & Lyle
Man Group Plc decreased 11 percent to 385.5 pence after the largest publicly traded hedge-fund manager was rated ``underperform'' in new coverage at Jefferies, citing the ``prospect of significantly lower profits.''
Tate & Lyle Plc, the maker of the biggest selling U.S. no- calorie sweetener, slid 11 percent to 369 pence. A U.S. judge disagreed with patent infringement claims brought by the company.
STMicroelectronics NV, Europe's biggest chipmaker, tumbled 4.4 percent to 7.66 euros as JPMorgan, Chase & Co. cut its recommendation to ``neutral'' from ``overweight,'' and Exane BNP downgraded the stock to ``neutral'' from ``outperform.''
Escada AG sank 7.8 percent to 10.05 euros after the German luxury women's fashion maker that appointed a new chief executive in July said its loss may widen and third-quarter sales slumped.
Henkel AG dropped 2.2 percent to 27.65 euros. UniCredit Markets & Investment Banking reduced its recommendation for the maker of Loctite glue and Persil detergent to ``hold'' from ``buy,'' citing a ``poor'' economic environment.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
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