European Stocks Fall on Economy Concern; Total, TNT Decline

By Adam Haigh
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Oct. 16 (Bloomberg) -- European stocks declined for a second day on growing concern bank bailout plans in the U.S. and Europe will fail to avert a global recession.

Total SA, Europe's third-biggest oil company, lost 2.8 percent as oil dropped for a third day, extending its decline from a July record to more than 50 percent. TNT NV, Europe's second-largest express-delivery company, lost 8.9 percent after lowering its profit forecast for parcel-delivery operations. Thomson SA dropped 5.9 percent after provider of TV set-top boxes said sales slowed.

``Investor confidence has been hammered,'' said Henk Potts, a London-based fund manager at Barclays Stockbrokers, which has about $45 billion in assets under management. ``There is a considerable amount of unease about how deep the recession could be.''

Europe's Dow Jones Stoxx 600 Index fell 2.4 percent to 212.03 as of 3:08 p.m., trimming this week's gain to 3.4 percent.

Asian shares declined, with Japan's Nikkei 225 Stock Average sinking 11 percent. Banks led South Korea's Kospi Index down 9.4 percent. U.S. stocks were little changed.

European stocks extended declines after reports showed manufacturing in the Philadelphia region shrank more than forecast and U.S. industrial production in the U.S. fell in September by the most in almost 34 years. Earlier, shares pared some losses after the U.S. Labor Department said the cost of living was unchanged in September, less than the 0.1 percent increase anticipated by economists.

Less inflation gives the Federal Reserve more room to cut interest rates to bolster the economy.

Hungary Tumbles

Hungary's BUX Index sank 5.4 percent today, extending yesterday's 12 percent tumble. The European Central Bank will lend as much as 5 billion euros ($6.7 billion) to the Hungarian central bank to help revive the local credit market.


The cost of protecting European corporate bonds from default rose, according to traders of credit-default swaps. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings increased 30 basis points to 740, according to JPMorgan Chase & Co.

Money-market rates fell in London and the three-month dollar rate dropped for a fourth day, the longest sequence of declines since June, as central banks and governments provided funding to ease paralysis in the credit markets. The overnight rate dropped to the lowest in almost four years.

The London interbank offered rate, or Libor, that banks charge each other for three-month loans fell 5 basis points to 4.50 percent today, according to the British Bankers' Association. The overnight rate dropped 20 basis points to 1.94 percent, the lowest level since November 2004.

Spread Narrows

The Libor-OIS spread, a gauge of cash scarcity that measures the difference between the three-month dollar rate and the overnight indexed swap rate, narrowed 5 basis points to 340 basis points today. It was about 24 basis points in January.

Concern the seizure in credit markets will trigger a global recession erased $25 trillion in value from stocks worldwide, dragging the Stoxx 600 down 42 percent this year. Financial firms reported $646 billion in losses and writedowns from mortgage-related investments since the beginning of 2007.

Total lost 2.8 percent to 35.55 euros. Royal Dutch Shell Plc, Europe's biggest oil producer, fell 1.9 percent to 1,368 pence.

Crude oil for November delivery sank as much as $3.33, or 4.5 percent, to $71.21 a barrel in after-hours trading on the New York Mercantile Exchange. It reached a record $147.27 on July 11.

TNT, Thomson

TNT fell 8.9 percent to 16.16 euros. The company expects margins in international and domestic express operations to come in at a ``solid'' 9 percent for the full year with ``somewhat'' lower sales growth. TNT said in July that earnings before interest and taxes as a proportion of sales would be in the low double-digit percentage range.

Thomson dropped 7.9 percent to 1.40 euros. The world's largest provider of TV set-top boxes posted a 13 percent drop in third-quarter revenue, hurt by lower sales from film-printing services, satellite decoders and broadcast equipment.

The Stoxx 600 was valued at 8.5 times earnings of companies in the index last week, the cheapest on record, and closed at 9.1 times profit yesterday. The MSCI World Index traded at 11 times the earnings of its 1,730 companies on Oct. 10, the lowest on record, and ended yesterday at 11.5 times profit.

``People who have an appetite for equity risk should absolutely be committing some money,'' said James Bevan, who helps oversee about $10 billion as London-based chief investment officer at CCLA Investment Management.

Slowing Growth

The Stoxx 600 rallied 13 percent in the first two days this week, its biggest two-day surge on record, as central banks and governments injected $2 trillion to bailout banks and unlock the credit market. Reports showing slow U.S. retail sales and U.K. unemployment climbing to the highest in almost four years sent stocks lower.

The Commerce Department yesterday reported U.S. retail sales dropped more than economists predicted, while in the U.K. unemployment climbed in September to the highest since November 2006. Germany slashed its 2009 growth forecast to 0.2 percent from a prediction of 1.2 percent made in April, Chancellor Angela Merkel said today.

UBS AG added 2.2 percent to 20.52 francs. The Swiss National Bank said it will set up a new fund with as much as $54 billion in loans and the government will inject 6 billion Swiss francs ($5.2 billion) of capital into Switzerland's biggest bank.

Credit Suisse Group AG added 7.1 percent to 49.16 francs. The second-biggest Swiss bank raised 10 billion francs from investors including Qatar and Tel Aviv-based Koor Industries Ltd.

Travis Perkins Plc plunged 39 percent to 295.75 pence. The U.K. building-materials distributor that owns the Wickes home- improvement chain said it was scrapping its dividend to hoard cash.

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