U.K. FTSE 100 Slumps Below 4,000; HBOS, Barclays, BHP Lead Drop

By Sarah Jones

Oct. 10 (Bloomberg) -- U.K. stocks tumbled to a five-year low, sending the U.K.'s FTSE 100 Index below 4,000, on deepening concern the global economy will fall into a recession.

HBOS Plc, Barclays Plc and Royal Bank of Scotland Group Plc tumbled at least 15 percent as investors anticipated losses linked to Lehman Brothers Holdings Inc. BHP Billiton Ltd. and Royal Dutch Shell Plc led a retreat by commodity producers after base metals sold off and crude oil fell more than $5 a barrel.

The benchmark FTSE 100 sank 320.37, or 7.4 percent, to 3,993.43 at 12:56 p.m. in London. The index has tumbled 20 percent this week, the steepest decline since the so-called Black Monday stock market crash in October 1987. The FTSE All-Share Index dropped 7.2 percent today and Ireland's ISEQ Index fell 3.1 percent.

``It is one of those days when you just join the dots of depression,'' said Justin Urquhart Stewart, who helps oversee about $3.4 billion as a London-based director of 7 Investment Management. ``You have the underlying issue of the global economy and banks measures that as yet haven't shown any fruit.''

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

HBOS, the U.K.'s largest mortgage lender, fell 18 percent to 125.9 pence after earlier plunging as much as 28 percent. Royal Bank of Scotland, Britain's third-largest bank, fell 18 percent to 79 pence and Barclays, the second-biggest, lost 15 percent to 205 pence.

`Real Concern'

``There is real concern about the auction of the Lehman liabilities,'' said Royal London Asset Management's Robert Talbut. ``Until that takes place, it's difficult to see whether everyone will come out the other side.''

The Lehman auction, which starts at 10:30 a.m. in New York, may force sellers of credit default swaps to make payouts after more than 350 banks and investors have agreed to settle the contracts.

Barclays said it won't take losses on the auction to settle contracts that protected Lehman Brothers bondholders against a default.

BHP, the world's largest mining company, lost 9.8 percent to 934.5 pence as copper tumbled in London. Rio Tinto Group, the third-biggest, fell 12 percent to 2,425 pence. Xstrata Plc declined 14 percent to 1,197 pence.

``It's all sentiment based,'' said 7 Investment Management's Urquhart Stewart. ``Investors are questioning whether they want to be in the market at all.''

Copper Plunges

Copper is headed for the biggest weekly plunge in more than two decades as equities dropped on concern rate cuts by central banks aren't enough to boost world economies. Nickel, zinc and aluminum also fell on the London Metal Exchange.

Shell, Europe's largest oil company, declined 7.2 percent to 1,333 pence as crude oil fell as much as 6.3 percent to $81.13 a barrel in New York.

BP Plc, Europe's second biggest oil company, lost 4.6 percent to 390.75 pence. BG Group Plc dropped 4.5 percent to 786 pence.

Oil is heading for its biggest weekly drop since 2004 on concern the deepening financial crisis will push the global economy into a recession.

To contact the reporter on this story: Sarah Jones in Copenhagen at sjones35@bloomberg.net.