Stocks in Europe, Asia Fall on AIG Debt Rating Cuts; UBS Drops

By Adria Cimino

Sept. 16 (Bloomberg) -- Stocks in Europe and Asia fell for a second day and U.S. index futures retreated after Standard & Poor's and Moody's Investors Service cut debt ratings for American International Group Inc., threatening efforts to keep the company afloat.

UBS AG, which took more than $43 billion of subprime-related writedowns, lost 10 percent, while Lloyds TSB Group Plc and Barclays Plc both fell more than 4 percent. Mitsubishi UFJ Financial Group Inc. slumped 8.5 percent. Rio Tinto Group, the world's third-biggest mining company, fell 2.3 percent, and Total SA, Europe's third-largest energy producer, slipped 1.7 percent, following metals and oil prices lower.

The MSCI World Index lost 0.9 percent to 1,225.86 at 8:05 a.m. in London as all 10 industry groups decreased. Futures on the Standard & Poor's 500 Index fell 0.5 percent, while Europe's Dow Jones Stoxx 600 Index declined 1.5 percent. The MSCI Asia Pacific Index decreased 3.8 percent as trading resumed in Japan, China, Hong Kong and South Korea after markets were shut for public holidays yesterday.

``None of the companies have come out and said we're trading fine, business is normal,'' Andy Brough, a fund manager at Schroder Investment Management in London, which has about $12.7 billion under management, said in a Bloomberg Television interview. ``AIG will be the next big test and then you look at the banks.''

The dollar fell against the yen and was little changed against the euro.

Fed Rates

Traders increased bets the U.S. Federal Reserve may cut borrowing costs today. Futures traders put the odds of a quarter point reduction in interest rates at 68 percent, up from zero a week ago.

U.S. stocks slid yesterday, pushing the Standard & Poor's 500 Index to the steepest drop since the September 2001 terrorist attacks, as Lehman Brothers Holdings Inc.'s bankruptcy increased speculation that credit-market losses will worsen.

``Lehman is the latest episode in a series of dark events,'' said Jean Bruneau, head of sales trading at Societe Generale SA in Paris. ``In a healthy economic system, there is confidence --that confidence is gone.''

UBS lost 10 percent 18.09 francs. Lloyds TSB, the U.K.'s largest provider of checking accounts, lost 4.3 percent to 262 pence. Barclays, the U.K.'s third-biggest bank, retreated 4.4 percent to 302 pence.

Barclays said today it's in talks with Lehman on a possible purchase of certain assets. The bank said it would make a further announcement in due course.

Mitsubishi UFJ fell 8.5 percent to 786 yen, while Sumitomo Mitsui Financial Group Inc. declined 11 percent to 612,000 yen.

AIG Ratings

AIG's credit ratings were downgraded by S&P and Moody's, threatening efforts to raise emergency funds to keep the company afloat. S&P lowered AIG's long-term counterparty rating three grades to A- from AA-, citing a ``combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses.''

The ratings assessor also lowered AIG's short-term counterparty credit rating and cut its counterparty credit and financial strength ratings on most of AIG's insurance operating subsidiaries. AIG's senior unsecured debt rating was downgraded by Moody's to A2 from Aa3.

Washington Mutual Inc., the biggest U.S. savings and loan, had its credit rating cut to junk by S&P because of the deteriorating housing market.

Rio Tinto, Total

Rio Tinto, the world's second-largest iron-ore producer, decreased 2.3 percent to 4,096 pence. Total, Europe's biggest oil refiner, lost 1.6 percent to 42.70 euros.

Copper declined for a second day in Asia. Gold and silver also fell.

Crude oil tumbled below $92 a barrel to a seven-month low and gasoline fell on concern that turmoil on Wall Street may weaken the global economy and reduce demand for fuels and raw materials. The contract for October delivery fell as much as 4.3 percent to $91.56 on the New York Mercantile Exchange.

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