European Stocks Fall on Growth Concern; Hochtief, Anglo Drop

By Adria Cimino

Sept. 17 (Bloomberg) -- European stocks fell for a third day after a report signaled the worst U.S. housing recession in a generation will continue and the takeover of American International Group Inc. failed to ease concern credit-related losses will subside.

Hochtief AG, Germany's biggest builder, dropped 3.7 percent after the Commerce Department said builders in the U.S. broke ground on fewer houses than forecast in August. Anglo American Plc slid 7.3 percent and Xstrata Plc declined 4.6 percent on concern the economic slowdown will hurt demand for metals. Fortis and Royal Bank of Scotland Group Plc fell for a third day, leading financial shares lower.

The Dow Jones Stoxx 600 Index lost 0.2 percent to 263.10 at 2:50 p.m. in London, erasing an earlier gain of as much as 1.9 percent.

``The world economy didn't instantly recover last night,'' said Roland Lescure, who manages the equivalent of $128 billion as chief investment officer of Groupama Asset Management in Paris. ``''We remain cautious on financial stocks. There still will be damage.''

Fortis, the financial-services firm that announced plans in June to raise 8.3 billion euros, slid 5.5 percent to 7.02 euros. Royal Bank, the second-largest U.K. bank, retreated 3.4 percent to 182.7 pence.

AIG, Fed

The U.S. reversed its opposition to a bailout of the nation's biggest insurer by assets after private efforts failed and the Federal Reserve concluded that ``a disorderly failure of AIG could add to already significant levels of financial market fragility,'' according to a Fed statement.

The Fed kept the benchmark rate at 2 percent yesterday, citing risks to growth and inflation.

The bankruptcy of Lehman Brothers Holdings Inc., the biggest in U.S. history, this week roiled credit markets and pushed the Stoxx 600 to the lowest in three years yesterday.

The cost of borrowing in dollars for three months jumped the most since 1999 today as banks hoarded cash on concern more financial institutions will fail. The London interbank offered rate, or Libor, rose 19 basis points to 3.06 percent, the British Bankers' Association said today. The London interbank offered rate, or Libor, dropped 1.41 percentage points to 5.03 percent. It was at 2.14 percent a week ago.

Hochtief lost 3.7 percent to 41.90 euros. Lafarge SA, the world's biggest cement producer, slid 2.6 percent to 79.33 euros.

Housing Starts

Housing starts fell 6.2 percent in August to an annual rate of 895,000, the fewest since January 1991, the Commerce Department said in Washington.

Morgan Stanley, seeking to reassure investors after its stock dropped 23 percent this week, rushed out a third-quarter earning report late yesterday saying profit fell a less-than- estimated 3 percent.

Reserve Primary Fund, the oldest U.S. money-market fund, became the first in 14 years to expose investors to losses after writing off $785 million of debt issued by bankrupt Lehman.

Bank of Ireland Plc sank 11 percent to 4.13 euros. The country's second-biggest bank said it will cut its dividend and post a drop in first-half profit as borrowers struggle to repay loans amid slowing economic growth.

Anglo American, the world's fourth-largest diversified mining company, dropped 7.3 percent to 2,094 pence. Xstrata, the world's fourth-biggest producer of copper, sank 5.5 percent to 1,982 pence.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.