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. HSBC Holdings Plc slashed its growth estimate for countries using the euro currency as tighter lending standards dampen expansion.
Standard & Poor's 500 Index futures expiring in December fell 18.70 points, or 1.7 percent, to 1,089.60 at 1:46 p.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.
Housing Slump
The euro declined to $1.3627 at 12:35 p.m. in Tokyo from $1.3772 late in New York on Oct. 3. It earlier reached $1.3610, the lowest since Sept. 5, 2007.
Governments from Dublin to Moscow are racing to shore up Europe's faltering financial institutions as the global banking crisis widens. European leaders meeting in Paris this weekend pledged to bail out their own nations' banks, while stopping short of a regional rescue effort.
Germany's financial industry agreed to double a credit line for Hypo Real Estate to 30 billion euros, Torsten Albig, a spokesman for Finance Minister Peer Steinbrueck, said in an e- mailed statement.
BNP Paribas will buy 75 percent of Fortis Bank Belgium from the government for 8.25 billion euros in stock, and purchase the Belgian insurance operations, Prime Minister Yves Leterme said.
Subprime Casualty
Fortis became a casualty of the global financial turmoil after pouring 24.2 billion euros into the acquisition of ABN Amro Holding NV assets last year just as the U.S. subprime-mortgage market collapsed and credit markets froze.
HSBC's chief European economist Janet Henry slashed her 2009 growth estimate for the so-called Eurozone to 0.4 percent from 0.9 percent.
``Further tightening of lending standards appears inevitable and the latest bout of turmoil has hit business confidence making the growth outlook even more depressed for the coming year,'' she wrote in an Oct. 3 report.
A government report this week may show the number of Americans purchasing previously owned homes fell 1.1 percent in August, according to the median estimate of economists in a Bloomberg News survey.
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, 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.
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