European Stocks, U.S. Index Futures Fall; Rio Tinto, Axa Drop

By Sarah Jones

Nov. 25 (Bloomberg) -- European stocks dropped, led by commodity producers and insurers, after BHP Billiton Ltd. withdrew its bid for Rio Tinto Group and Axa SA cut its profit forecast. U.S. index futures retreated before a report that will probably show a recession is deepening, while Asian shares gained.

Rio Tinto plunged 31 percent after BHP withdrew its $66 billion takeover offer, citing the financial market turmoil. Axa slumped 11 percent after Europe's largest insurer by market value said its targets are becoming ``obsolete.'' Royal Philips Electronics NV slipped 2.8 percent after Royal Bank of Scotland Group Plc recommended selling the consumer-electronics maker on the outlook for earnings.

Europe's Dow Jones Stoxx 600 Index declined 1.5 percent to 194.55 at 8:05 a.m. in London. The gauge has fallen 47 percent this year after credit losses and writedowns approached $1 trillion and countries from the U.K. to Germany and the U.S. slipped into recession.

BHP's withdrawal ``is a reflection of the prevailing conditions,'' said Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers in London. ``The world is a different place to where we were when this first started,'' he told Bloomberg Television.

Futures on the Standard & Poor's 500 Index slipped 0.5 percent. Gross domestic product in the U.S. shrank at a 0.5 percent annual rate from July to September, more than the government's earlier estimate of 0.3 percent, according to economists surveyed by Bloomberg News.

The Commerce Department report will be released at 8:30 a.m. in Washington.

Citigroup Rescue

European stocks rose the most in six weeks yesterday and U.S. equities posted the biggest two-day rally since 1987 after the government guaranteed $306 billion of troubled Citigroup Inc. assets and lawmakers pledged to pass another economic stimulus package. Asian equities today jumped, led by financials and commodity producers, as trading resumed in Japan following yesterday's holiday.

Rio Tinto tumbled 31 percent to 1,681 pence after BHP, the world's biggest mining company, withdrew its bid, citing the turmoil in global markets.

``The BHP Billiton board today decided it no longer believes that completion of the offer for Rio Tinto would be in the best interests of BHP Billiton shareholders,'' Don Argus, chairman of Melbourne-based BHP said in a statement to the Australian stock exchange. ``We have concerns about the continued deterioration of the near term global economic conditions.''

Cutting Forecasts

Axa fell 11 percent to 11.925 euros after the insurer cut its earnings forecast and said its 2012 targets have become ``increasingly obsolete'' amid the financial crisis and global economic slowdown.

The Paris-based insurer said it expects its 2008 underlying profit to be between 3.6 billion euros ($4.62 billion) and 4.0 billion euros because of variable annuities costs and reduced commissions on assets.

Swiss Reinsurance Co. fell 2.3 percent to 43 euros. The world's second largest reinsurer was downgraded to ``underweight'' from ``overweight'' at JPMorgan Chase & Co., which cited the ``risk of rating agency downgrade.''

The brokerage lowered its price estimate on the stock to 55 Swiss francs from 66.

Philips retreated 2.8 percent to 13.255 euros after Europe's biggest television maker and the world's largest producer of patient-monitoring systems was downgraded to ``sell'' from ``buy'' at RBS.

Analysts slashed their 2009 earnings per share estimate to 47 cents from 1.11 euros, citing slowing economic growth and it's impact on ``traditionally resilient'' industries like health care.

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