European Stocks Retreat, Led by Barclays, Nokia, BHP Billiton

By Adam Haigh

Sept. 5 (Bloomberg) -- European stocks fell for a third day, sending the Dow Jones Stoxx 600 Index to its worst weekly slump since January, after U.S. unemployment climbed to a five-year high and concern mounted credit losses at banks will increase.

Barclays Plc sank 3.9 percent, leading a retreat among financial firms, as Goldman Sachs Group Inc. advised clients to sell Merrill Lynch & Co. shares on concern the bank may post more writedowns. Nokia Oyj plunged 11 percent after the world's biggest maker of mobile phones forecast a lower market share in the third quarter. BHP Billiton Ltd. slipped 2.6 percent as copper headed for its second straight weekly drop.

The Stoxx 600 lost 1.1 percent to 275.13 at 2:43 p.m. in London, bringing the weekly slump to 4.6 percent. The measure is down 25 percent in 2008 as subprime-related losses at global banks topped $500 billion and the global economy cooled.

``The unemployment rate at these levels adds fuel to the market's fear of a more dramatic slowdown than we've seen so far,'' said Simon Carter, who manages about $3 billion at Aegon Asset Management in Edinburgh. ``Of course, this is a lagging indicator but it does feel as if it could deteriorate rather persistently from here. Investor stress is rising.''

A U.S. government report showed the jobless rate climbed to 6.1 percent in August, topping the 5.7 percent forecast in a Bloomberg survey.

Almost $17 trillion has been wiped off global stock markets since the peak in October 2007. Financial stocks have led the rout, with a measure for the industry in the Stoxx 600 dropping 33 percent this year. Banks from UBS AG to Citigroup Inc. had to raise more than $360 billion worldwide in capital after contagion from the subprime-mortgage crisis in the U.S. eroded earnings.

Growth Forecast

The cost of protecting European corporate bonds from default rose today, according to traders of credit-default swaps.

The European Central Bank yesterday cut its 2008 economic growth forecast to 1.4 percent from 1.8 percent and its 2009 prediction to 1.2 percent from 1.5 percent.

National benchmark indexes decreased in all 18 western European markets today. France's CAC 40 lost 1.3 percent, and Germany's DAX retreated 1.7 percent. The U.K.'s FTSE 100 slipped 0.9 percent.

``What we are experiencing at the moment is the follow-up impact of the financial crisis and its effect on economic growth,'' said Christoph Berger, a Frankfurt-based fund manager at Cominvest Asset Management. The ECB's ``lowered growth forecast combined with the very hawkish comments don't help improve sentiment.'' Cominvest has about $100 billion.

`Conviction Sell'

Barclays, the U.K.'s third-biggest bank, declined 3.9 percent to 316.5 pence. UBS AG, the European bank hardest hit by subprime-related losses, sank 5 percent to 22.08 Swiss francs.

Goldman added Merrill, the third-biggest U.S. securities company, to its ``conviction sell'' list, according to a report by analysts including William Tanona. The share-price estimate was lowered 23 percent to $22.

Separately, U.K. broker Collins Stewart said Barclays may post further writedowns in its investment-banking unit and may not be able to replace credit-related revenue with other types of asset trading.

Nokia tumbled 11 percent to 13.96 euros, leading technology shares lower. The Dow Jones Stoxx Tech Index slid 4.9 percent, the biggest decline among all 18 industry groups in the Stoxx 600. Nokia said it expects its mobile phone market share to fall from the previous quarter as competitors slashed prices and a new handset was delayed.

`Difficult'

Ericsson AB, the world's largest maker of wireless networks, retreated 2.6 percent to 68.3 kronor.

STMicroelectronics NV, Europe's largest chipmaker, lost 5.4 percent to 8.16 euros after UBS cut its recommendation on the shares to ``sell'' from ``neutral.'' The brokerage also slashed its 2009 revenue-growth forecast for semiconductors worldwide to 4 percent from 8 percent previously.

``The past couple of weeks have started to provide ample evidence that the second half of 2008 could be difficult for the semis industry,'' analysts Nicolas Gaudois and Richard Potter wrote in a research note.

Basic-resources companies slid with metal prices. BHP, the largest mining company, lost 2.6 percent to 1,448 pence and Xstrata Plc slipped 3.5 percent to 2,520 pence. Copper fell to a seven-month low in London as the largest surge in inventories in three years signaled slowing demand in China, the biggest buyer.

Crude oil traded below $107 a barrel in New York today, set for its biggest weekly slump in a month as the dollar gained, curbing demand for commodities as a currency hedge.

J Sainsbury Plc declined 3.3 percent to 336 pence after Deutsche Bank AG cut its recommendation for the U.K.'s third- largest supermarket chain to ``sell'' from ``hold.''

``We expect newsflow on inflation, industry growth and competition to deteriorate'' in the fourth quarter, analysts James Collins and Ingrid Azoulay wrote in a note to clients.

William Morrison Supermarkets Plc retreated 1.8 percent to 274.25 pence. Deutsche Bank downgraded the shares to ``hold'' from ``buy.''

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