Global Stocks Decline on Economy Concern; Euro, Oil Retreat

By Adam Haigh

Oct. 22 (Bloomberg) -- Stocks fell around the world, the euro sank to a 20-month low against the dollar and oil retreated as the deepening economic slump sapped corporate profit.

Wachovia Corp., the bank being acquired by Wells Fargo & Co., sank 4.3 percent after reporting a wider-than-expected loss. Royal Bank of Scotland Group Plc dropped 9.8 percent and the pound tumbled to a five-year low after Bank of England Governor Mervyn King said the country probably is in a recession. BHP Billiton Ltd., the world's largest mining company, slipped 6.2 percent after saying ``uncertainty'' will persist in China as the economy slows.

The Standard & Poor's 500 Index lost 2 percent to 936.29 as of 9:31 a.m. in New York. The benchmark index for U.S. equities has lost 36 percent this year and oil has tumbled more than 50 percent from its peak in July as concern deepened government bailouts to save the global banking system won't avert a recession. The MSCI World Index lost 4.1 percent.

``We are still very cautious on the market,'' said Philippe Gijsels, Brussels-based senior equity strategist at Fortis Global Markets with $62 billion under management. ``You see the slowdown in companies and economies and this is only the beginning. You will see a very nasty shakeout.'' The final bottom in the market ``will come far into 2009 or maybe into 2010'' Gijsels said in a Bloomberg Television interview.

Europe's Dow Jones Stoxx 600 Index declined 3.6 percent. Tenaris SA and Repsol YPF SA declined as Argentina's planned seizure of pension funds stoked concern the nation is headed for its second default in a decade.

Rising Costs

Borrowing costs for developing countries climbed to a five- year high, while Russia's ruble and the Korean won slumped.

The MSCI Asia Pacific Index decreased 5.5 percent. Mitsubishi UFJ Financial Group Inc. lost 8.8 percent after a newspaper said earnings probably dropped by half.

The euro fell on speculation the European Central Bank will cut rates to limit a global economic slowdown. The currency fell to $1.2743 before trading at $1.2842 as of 8:14 a.m. in New York, from $1.3063 late yesterday. It dropped to 127.01 yen, the lowest since April 2004.

Analysts have cut profit forecasts this year as losses and writedowns related to subprime mortgages topped $660 billion in the worst financial crisis since the Great Depression. Earnings for companies in the Stoxx 600 will decline 4.4 percent in 2008, down from 11 percent growth predicted the start of the year, according to estimates compiled by Bloomberg. Analysts also slashed profit forecasts for companies in the S&P 500, now predicted to fall 5 percent in 2008.

Next Leg

The next leg of losses may be fueled by collateralized debt obligations tied to corporate credit. Investors are writing down as much as 90 percent in the $1.2 trillion market following failures of Lehman Brothers Holdings Inc. and Icelandic banks.

``It's still very difficult to work out the impact from the next wave of writedowns,'' said Peter Jarvis, a London-based director of European equities at F&C Asset Management, which has about $200 billion. ``The interbank lending rate has improved marginally but it's nowhere near back to satisfactory levels and until confidence between banks re-emerges, an end to this financial crisis remains maddeningly elusive.''

The London interbank offered rate, or Libor, for three- month loans in dollars slid 29 basis points to 3.54 percent today, falling for the eighth day in a row as central banks offered cash to revive lending. That's still 204 basis points more than the Federal Reserve's target rate for overnight loans of 1.5 percent and up from 120 basis points about a month ago. At the start of the year, the spread was 43 basis points.

Wachovia, SanDisk

Wachovia lost 4.3 percent to $5.83. The company had an adjusted loss of $2.23 a share in the quarter, compared with a 2 cent loss forecast by analysts surveyed by Bloomberg.

SanDisk Corp. fell 29 percent to $10.42. Samsung Electronics Co., the world's second-largest maker of semiconductors, scrapped a $5.85 billion offer to buy SanDisk, saying losses at the U.S. company may worsen as a glut forces chipmakers to cut prices.

Apple Inc. rallied 6.9 percent to $97.84 after soaring iPhone sales lifted profit and Chief Executive Officer Steve Jobs said customers will stay loyal in a recession.

Royal Bank of Scotland, Britain's second-largest bank, slid 9.8 percent to 71.5 pence. Barclays Plc, the U.K.'s second- biggest, dropped 5.8 percent to 230 pence. Prudential Plc, an insurer, slipped 4.1 percent to 334 pence.

Five-Year Low

King said Britain's worst banking crisis since World War I probably will push the economy into a recession, requiring policy makers to act ``promptly'' to prevent inflation from slowing too much.

The U.K. currency fell to $1.6260, the lowest level since September 2003. The yield on the two-year gilt dropped 7 basis points to 3.37 percent.

Bank of England policy makers voted unanimously to lower the benchmark rate by the most since 2001 in an emergency meeting this month, minutes from the meeting showed.

The cost of protecting European corporate bonds from default rose today, 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 20 basis points to 790 after opening at a record 795, according to JPMorgan Chase & Co.

BHP Billiton slid 6.1 percent to 908 pence as it said ``uncertainty'' will persist in China after the economy grew at its slowest pace in five years last quarter.

Anglo American Plc, the world's fourth-biggest diversified mining company, lost 2.9 percent to 1,347 pence.

Cutting Demand

Copper fell for a third straight day in London as a slowdown in world economic growth reduces demand. Copper slipped 4.9 percent to $4,280 a metric ton in London.

Total dropped 5.5 percent to 37.175 euros. Crude for December delivery declined as much as $2.57, or 3.6 percent, to $69.61 a barrel in electronic trading on the New York Mercantile Exchange. It reached a record $147.27 on July 11.

Mitsubishi UFJ fell 8.8 percent to 774 yen. First-half profit at Japan's largest listed bank may fall about 50 percent because of higher costs to dispose of bad loans and writedowns on its shareholdings, the Nikkei newspaper said today.

Tenaris, the world's biggest maker of seamless steel tubes for pipelines which made more than one fifth of its sales last year in South America, lost 6 percent to 8.48 euros. Repsol YPF SA which has more than 30 percent of its assets in Argentina, Brazil and Bolivia, tumbled 14 percent to 15.47 euros.

Emerging Market Bonds

Argentine President Cristina Fernandez de Kirchner proposed taking control of $29 billion of assets held in 10 privately run retirement accounts. The last time the government sought to tap workers' savings was in 2001, before it stopped servicing $95 billion of debt.

The extra yield bondholders demand to buy developing-nation debt rather than U.S. Treasuries rose 5 basis points to 6.94 percentage points, the most since March 2003, according to JPMorgan Chase & Co.

The ruble fell as much as 1 percent to a two-year low, and the won sank 3.3 percent.

ASML Holding NV, Europe's largest maker of semiconductor equipment, fell 5 percent to 11.825 euros.

OC Oerlikon Corp. tumbled 13 percent to 101.5 francs after the world's biggest maker of spinning machines said nine-month sales fell 7.4 percent to 3.77 billion francs ($3.24 billion) as Asian investment in textile equipment waned. This fell short of the 3.83 billion francs from five analysts surveyed by Bloomberg.

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