U.S. Stock Futures Decline After Global Credit Crunch Deepens

By Nick Baker

Oct. 6 (Bloomberg) -- U.S. stock-index futures dropped as Hypo Real Estate Holding AG required a rescue by the German government, deepening concern that credit-market losses will worsen a global economic slowdown.

Germany and the nation's banks and insurers agreed on a 50 billion euro ($68 billion) package for commercial property lender Hypo, which reported a 95 percent plunge in second-quarter profit because of debt-related writedowns. BNP Paribas SA, France's biggest lender, will pay 8.25 billion euros to purchase Fortis's Belgium bank after a government bailout failed.

Standard & Poor's 500 Index futures expiring in December fell 18.2 points, or 1.6 percent, to 1,090.1 at 9:25 a.m. in Tokyo. The benchmark index for U.S. stocks tumbled 9.4 percent last week, the steepest slump since the September 2001 terrorist attacks, as concern the U.S. is headed for a recession overshadowed passage of a $700 billion bank bailout.

``It will probably be a rough week for global investors as they realize the credit crisis has a long way to play out,'' said Frederic Dickson, who helps oversee $25 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. ``U.S. action was an absolutely essential first step, and global intervention is needed.''

U.S. gross domestic product will drop the next two quarters, with unemployment reaching 8 percent by the end of 2009, New York-based Goldman Sachs Group Inc. said in a research note Oct. 3. Financial futures are pricing in an 84 percent chance the Federal Reserve will cut the target rate for overnight loans between banks by 0.5 percentage point by its Oct. 29 meeting.

Value Erased

About $20 trillion in value has been erased from stocks worldwide in the past year. The MSCI World Index of 23 developed countries lost 28 percent this year, the worst annual performance on record dating back to 1970. Investors in the U.S. face their first annual loss in six years after the S&P 500 dropped 30 percent from its October 2007 record.

The S&P 500, down 25 percent in 2008, still trades for 20.9 times profit from the past four quarters. Only four of 48 developed and emerging nations tracked by MSCI Inc. -- Switzerland, Jordan, Colombia and Morocco -- have a higher price- earnings ratio, according to data compiled by Bloomberg.

Profits among S&P 500 companies are forecast to slip 5.6 percent in the three months ended Sept. 30, the fifth straight quarterly decline, matching a streak ended in March 2002.

Financial shares in the S&P 500 declined the most this year, losing 35 percent, according to Bloomberg data. The bankruptcy of Lehman Brothers Holdings Inc. and government seizures of American International Group Inc., Fannie Mae and Freddie Mac extended financial companies' 21 percent drop in 2007, the biggest annual retreat since 1990.

To contact the reporter on this story: Nick Baker in New York at nbaker7@bloomberg.net.