U.S. Stock Futures Drop on Economy Concern; GE, Citigroup Fall

By Michael Patterson

Oct. 1 (Bloomberg) -- U.S. stock-index futures fell, signaling the Standard & Poor's 500 Index may extend the worst monthly drop in six years, as investors speculated a $700 billion bank-rescue plan won't stave off a recession.

General Electric Co. dropped 2.1 percent before an industry report that may show manufacturing contracted at a faster pace in September. Bank of America Corp. declined 2.1 percent as people familiar with the matter said regulators probably will resist calls to suspend the fair-value accounting rules that some members of Congress blame for worsening the credit crisis.

S&P 500 futures expiring in December lost 13.3, or 1.1 percent, to 1,155.7 at 8:19 a.m. in New York. Dow Jones Industrial Average futures slipped 0.9 percent to 10,762. Nasdaq-100 Index futures fell 1.2 percent to 1,586. Most European stocks and Asian shares advanced, while Treasuries climbed.

``More important than the bailout plan will be next year's economy,'' Marc Faber, managing director of Marc Faber Ltd. and publisher of the Gloom, Boom & Doom Report, said in a Bloomberg Television interview. ``I would rather sell on strength.''

The S&P 500 jumped the most in six years yesterday as expectations grew that lawmakers will salvage the rescue package to buy bad loans from banks. The U.S. equity benchmark closed at 1,166.36, near the same level just before the House of Representatives voted down the bill on Sept. 29. The Senate set a vote for tonight on legislation that includes an increase in bank-deposit-insurance limits and tax breaks.

``I am more than willing to go short the market again because ultimately we need to wrestle with the real issues of this crisis and I don't think that's being done with this package,'' Steen Jakobsen, chief investment officer at Saxo Bank AS in London, said in a Bloomberg Television interview.

Economy Watch

Even with yesterday's advance, the S&P 500 had its worst month since 2002 in September, declining 9.1 percent, and tumbled 8.9 percent for the third quarter.

GE, the second-biggest U.S. company by market value, lost 2.1 percent to $24.97 in trading before the open of U.S. exchanges. Caterpillar Inc., the largest producer of construction equipment, fell 0.6 percent to $59.24 in Germany.

The Institute for Supply Management's factory index dropped to 49.5 from 49.9 in August, according to the median estimate of economists in a Bloomberg News survey. A reading of 50 is the dividing line between expansion and contraction. The Tempe, Arizona-based ISM's report is due at 10 a.m. New York time.

Companies in the U.S. cut an estimated 8,000 jobs in September, less than forecast, a private report based on payroll data showed today. The drop followed a revised 37,000 decrease in August that was larger than previously estimated, ADP Employer Services said.

`Clarifications'

Bank of America, the second-largest U.S. bank by market value, lost 2.1 percent to $34.25. Citigroup Inc., the fourth- biggest, slipped 0.5 percent to $20.40.

The SEC and Financial Accounting Standards Board issued ``clarifications'' on how banks should interpret existing rules requiring them to review assets each quarter and report losses if values decline. A moratorium isn't being considered, said the people, who declined to be identified because the plan hasn't been completed.

SEC spokesman John Nester declined to comment. FASB spokesman Neal McGarity didn't return a phone call seeking comment.

The Senate agreed to vote on the banking legislation along with the measure temporarily raising the limit on federal deposit insurance to $250,000 from $100,000. Also linked to the legislation is a two-year extension of tax breaks that will save individuals and corporations about $149 billion over the next decade.

Trichet Endorses Bailout

European Central Bank President Jean-Claude Trichet said in a Bloomberg Television interview that U.S. lawmakers must pass a rescue package ``for the sake of global finance.'' He added that a pan-European approach to the banking crisis is unlikely, saying ``we are not a fully-fledged federation with a federal budget.''

Europe's Dow Jones Stoxx 600 Index gained 0.7 percent, while the MSCI Asia Pacific Index added 1.8 percent. The yield on the two-year Treasury note fell 4 basis points, or 0.04 percentage point, to 1.92 percent.

To contact the reporter for this story: Michael Patterson in London at mpatterson10@bloomberg.net.