Global Stocks, U.S. Futures Slump as Rio, E.ON Fall; Yen Gains

By Sarah Thompson

Oct. 10 (Bloomberg) -- Stocks tumbled, driving the MSCI World Index to its worst week in more than three decades, on concern the deepening credit crisis will spur the failure of more financial companies and send the global economy into recession. The yen rallied as investors shunned higher-yielding assets.

Barclays Plc, Rio Tinto Group and E.ON AG fell more than 9 percent in Europe. Japan's Nikkei 225 Stock Average slumped 11 percent, the second-biggest drop on record. The yen rose to 99.39 per dollar, up 6 percent this week, the most in a decade. Gold jumped to the highest in nearly 11 weeks as investors sought bullion as a haven.

The MSCI World lost 3.2 percent to 927.19 at 9:20 a.m. in London, extending this week's drop to 19 percent, the most on record dating back to 1970. Standard & Poor's 500 Index futures slid 1.5 percent. Europe's Dow Jones Stoxx 600 Index slumped 5.9 percent, and the MSCI Asia Pacific sank 6.4 percent. ``We have reached the panic stage,'' said Espen Furnes, an Oslo-based fund manager at Storebrand Asset Management, which has the equivalent of $48 billion. ``This is worse than 1987 because then it was largely confined to the stockmarket, with limited effects on the underlying economy. Fundamentals don't count anymore.''

More than $4 trillion has been erased from global equities this week even as central banks from London and Frankfurt to Washington and Hong Kong were forced to cut interest rates after the yearlong credit-market seizure stoked concern banks will run short of money.

Next Victims

The Dow Jones Industrial Average fell below 9,000 for the first time since 2003 yesterday as higher borrowing costs and slower consumer spending spurred concern carmakers, insurers and energy companies will be the next victims of the credit crisis.

``A very dangerous mixed has taken place in the money and credit markets and hedge funds are clearly withdrawing flows from equities,'' said Francisco Salvador, director at Venture Finanzas SA in Madrid. ``We are waiting for some rational order to be restored, and very abrupt sell-offs are always followed by abrupt rebounds, but meanwhile we'll see panic.''

The MSCI World is valued at 11.12 times the reported earnings of companies in the index, the cheapest since at least 1995. Europe's Stoxx 600 was valued at 9.30 times profit today, the lowest since Bloomberg began compiling the data in January 2002. The S&P 500 traded at 17.39 times earnings, the cheapest since September 2007.

Russian stock exchanges delayed the opening of trading today and Indonesia extended a two-day halt. Iceland yesterday suspended equity trading today until Oct. 13 after the government seized Kaupthing hf, the country's biggest bank.

`Seized Up'

Asian money-market rates climbed as injections of more than $32 billion by Japan and Australia and a round of global interest-rate cuts failed to unlock credit. The three-month interbank offered rate in Tokyo, known as Tibor, was fixed at 0.878 percent, the highest since March 1998.

``The wheels of commerce have effectively seized up,'' said Kate Schapiro, who oversees $250 million in equities at Sentinel Asset Management in San Francisco. ``Trapped by the fear of losing everything, we're seeing one-sided selling.''

Crude oil tumbled more than $4 a barrel and headed for its biggest weekly decline since December 2004. Copper slumped in London, set for its worst week in more than two decades.

The cost of default protection on corporate bonds soared to records on concern the credit crisis will trigger more failures.

Credit-default swaps on Europe's benchmark Markit iTraxx Crossover index soared 57 basis points to 730, according to JPMorgan Chase & Co. Credit-market indexes in Australia and Japan also rose after the CDX North America Investment Grade index surged in New York late yesterday.

Bankruptcy Protection

New City Residence Investment Corp. filed for bankruptcy protection, becoming Japan's first real-estate investment trust failure. Yamato Life Insurance Co. also filed for court protection from creditors in the nation's first bankruptcy in the industry in seven years.

Barclays, the U.K. bank, slipped 13 percent to 209.5 pence. Rio Tinto, the world's third-biggest mining company, lost 11 percent to 2,440 pence. E.ON, the German utility company, sank 9.3 percent to 25.62 euros.

Morgan Stanley dropped 6.6 percent to $11.72 in Germany after Moody's Investors Service said it may cut the bank's credit rating on concern the financial crisis threatens earnings and investor confidence.

Mitsubishi UFJ Financial Group Inc., Japan's biggest bank, lost 6.7 percent to 724 yen. The company is in talks to buy a stake in Morgan Stanley.

Nobel Biocare Holding AG fell 30 percent to 2.26 francs. Before today, the company expected sales to rise in the ``low single-digits'' while profitability on earnings before interest and taxation was supposed to remain at 2007 levels at a constant exchange rate.

Chief Executive Officer Domenico Scala, the former Syngenta AG executive brought in to replace Heliane Canepa in July 2007, said Aug. 11 there were ``encouraging initial signs'' of recovery and that the worst might be over in the U.S. market.

To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.