European Stocks Fall in Week as U.S. Stalls Bailout; Banks Drop

By Sarah Jones

Sept. 27 (Bloomberg) -- European stocks retreated for a second week as negotiations on the U.S. government's $700 billion bank rescue plan stalled, adding to the turmoil that has roiled financial markets this month.

Bradford and Bingley Plc and Natixis SA led a gauge of bank shares to its biggest drop in three months as Republicans said they wouldn't support the proposed bailout plan and as Washington Mutual Inc. was seized in the largest U.S. bank failure. Fortis plunged 35 percent on speculation the Belgian bank will struggle to raise 8.3 billion euros ($12.2 billion) to bolster capital.

``This rescue package is extremely important,'' said Stephen Thornber, who oversees about $1 billion as a London-based money manager at Threadneedle Asset Management. ``The politicians are picking at the details, but both sides recognize that something has to be done. Markets will be volatile while we wait for something to be put in place.''

The Dow Jones Stoxx 600 Index lost 4.4 percent to 265.92 this week, as 17 of 19 industry groups declined. The measure has fallen 27 percent this year as banks racked up more than $556 billion in credit losses and writedowns. WaMu is the latest casualty of the crisis that drove Lehman Brothers Holdings Inc. out of business and led to the emergency takeovers of Merrill Lynch & Co. and Bear Stearns Cos.

Federal Reserve Chairman Ben S. Bernanke warned of ``grave threats'' facing the world's largest economy unless the bailout is approved. President George W. Bush warned the U.S. will face a ``long and painful'' recession without it.

`Sharp Slowdown'

National benchmark indexes declined in 17 of the 18 western European markets. Only Iceland advanced. France's CAC 40 slipped 3.7 percent. The U.K.'s FTSE 100 retreated 4.2 percent, while Germany's DAX fell 2 percent.

``It is unavoidable that we are going into a sharp slowdown,'' said Jane Coffey, head of equities at Royal London Asset Management, which oversees about $63 billion. ``I don't think this package was ever able to change what was going on in the economy. What it did do was stop us from going into financial Armageddon.''

The Dow Jones Europe Stoxx Banks Index fell 5.1 percent, the steepest weekly retreat since June.

Bradford & Bingley sank 28 percent after the U.K.'s biggest lender to landlords announced cost cuts that failed to relieve concerns about the bank's funding. Spokesman Tony McGarahan said the company is a ``strongly capitalized bank.''

Natixis, France's fourth-biggest bank, declined 17 percent as the lender sold the remaining stock issued as part of its 3.7 billion-euro ($5.4 billion) rights offer.

Vedanta Resources

Fortis slumped 35 percent this week amid speculation the company will struggle to raise the cash and may even need more funds as financial markets deteriorate. Chief Executive Officer Herman Verwilst, seeking to stem the sell-off, told reporters he was ``flabbergasted'' by the share decline.

Anglo Irish Bank Corp. Plc lost 24 percent and Bank of Ireland Plc sank 21 percent.

Vedanta Resources Plc led a slump in mining shares on concern slowing economic growth will hurt demand for metals.

India's largest copper producer dropped 22 percent as shareholders forced the company to dump reorganization plans unveiled earlier in the month. The company said ``feedback'' and market conditions prompted the U-turn.

Xstrata Plc, the world's fourth-largest diversified mining company, tumbled 18 percent as base metals declined in London. Anglo American Plc, the world's second-biggest mining company, slid 17 percent.

Arcandor

Copper fell 3.9 percent in London on speculation manufacturers and investors are pulling away from markets because of reduced lending.

Pub company Punch Taverns Plc tumbled 31 percent and rival Enterprise Inns Plc lost 23 percent as competitor Mitchells & Butlers Plc said it faces ``substantial'' cost growth, which sent the shares down 19 percent this week.

Arcandor AG, Germany's biggest department-store owner, plunged 44 percent after Boersen-Zeitung reported that regulators are probing the company and investors demanded Chief Executive Officer Thomas Middelhoff resign.

The company's travel unit, Thomas Cook Group Plc, lost 24 percent after Arcandor said it may sell stock in the tourism division as part of a loan agreement.

Holcim Ltd., the world's second-biggest cement maker, declined 24 percent as hopes of a takeover by Russian investor Eurocement Group faded.

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