U.K. Stocks Drop for Second Day; Cairn, Vedanta, Aviva Decline

By Sarah Jones

Oct. 27 (Bloomberg) -- U.K. stocks dropped for a second day, led by commodity producers and financial companies, as concern deepened that the global economy is slipping into a recession.

Cairn Energy Plc lost 7.6 percent as oil fell below $63 a barrel and after Credit Suisse Group AG downgraded the shares. Vedanta Resources Plc slipped 6 percent as copper dropped. HSBC Holdings Plc led a selloff in banks, falling 8.8 percent. Standard Chartered Plc sank 6.9 after Citigroup Inc. said the bank's capital position was ``too weak.'' Insurer Aviva Plc dropped 12 percent, also on concern about the company's capital.

The FTSE 100 Index sank 157.21, or 4.1 percent, to 3,726.15 at 11:38 a.m. in London as all but 10 stocks fell, bringing its loss for the month so far to 24 percent.

``This is a market in search of a floor,'' said Manoj Ladwa, senior trader at ETX Capital in London. ``Many investors thought we'd found one at about 4,000 but we've plunged well below that level now, driven by fears of a global recession.''

The FTSE All-Share Index sank 4 percent, while Ireland's ISEQ Index decreased 4.6 percent.

Cairn Energy slid 7.6 percent to 1,161 pence. Credit Suisse downgraded the U.K. oil and gas explorer in India to ``underperform'' from ``neutral.''

Royal Dutch Shell Plc, Europe's largest oil company, declined 4.1 percent to 1,411 pence. BP Plc, Europe's second- largest oil company by market value, dropped 5.3 percent to 416.75 pence.

Vedanta, HSBC

Crude oil for December delivery fell as much as 4.4 percent to $61.30 on the New York Mercantile Exchange on concerns that OPEC's production cut may fail to arrest a slump in prices.

Vedanta Resources, India's largest copper producer, dropped 5.9 percent to 565 pence. Antofagasta Plc, owner of copper mines in Chile, lost 5 percent to 262.75 pence. BHP Billiton Ltd., the world's largest mining company, fell 6.7 percent to 810 pence.

Copper and zinc tumbled by the exchange-imposed daily limit for a fourth day in Shanghai, while copper fell to the lowest in three years in London amid sales of industrial metals, oil and gold as the threat of a recession in U.S. and European economies curbs demand.

HSBC, Europe's largest bank, fell 8.8 percent to 635 pence amid concerns over a slowdown in Asia after Hong Kong's Hang Seng Index sank as much as 15 percent.

Standard Chartered Plc sank 6.9 percent to 706 pence after the U.K.'s third-biggest bank had its price estimate slashed by 42 percent to 750 pence at Citigroup Inc., which said that the bank's capital position was ``too weak'' as global markets continue to deteriorate.

Aviva

Aviva fell 29.75 pence to 217.5 pence before the U.K.'S biggest insurer by premiums reports third-quarter sales tomorrow. ``This decline is part of general market concerns that center around capital,'' said Tony Silverman, a London-based analyst at S&P Equity Research.

Aviva's 1.9 billion pounds of surplus capital ``looks fragile'' compared with its 25.6 billion pounds of corporate bond assets and commercial loans, Silverman wrote in a note to clients last week. JPMorgan Chase & Co. cut its price forecast for the insurer by 37 percent to 440 pence today, citing lower earnings due to weaker equity markets.

The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.

BG Group Plc (BG/ LN) lost 72 pence, or 10 percent, to 645. The third-largest U.K. oil and natural-gas producer will pay about A$5 billion ($3.1 billion) for the whole of Queensland Gas Co., the Australian Financial Review reported, without citing anyone.

Eurasian Natural Resources Corp. (ENRC LN) lost 27 pence, or 8.2 percent, to 302 after Merrill Lynch & Co. downgraded the world's third-largest ferrochrome producer to ``neutral'' from ``underperform.''

GKN Plc (GKN LN) sank 34.5 pence, or 30 percent, to 82.75. The U.K. maker of car parts and aircraft components expects full- year profit before tax to be about 20 percent lower than 2007 after experiencing a ``significant'' further deterioration in demand in global automotive markets.

Persimmon Plc (PSN LN) increased 7.5 pence, or 3.5 percent, to 224.75. The U.K.'s biggest homebuilder by market value said it will book 600 million pounds ($938.9 million) in land writedowns after house prices fell during the U.K.'s worst housing slump in 25 years. The provision represents about 19 percent of the company's land stock value as of the end of June.

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