U.K. Stocks Decline as Earnings Worries Overshadow Rate Cut

By Sarah Thompson

Nov. 6 (Bloomberg) -- U.K. stocks fell for a second day, as concern the global economic crisis will further dampen corporate growth overshadowed a shock 1.5 percentage point cut in the cost of borrowing by the Bank of England.

BP Plc, Europe's second-largest oil company, and Rio Tinto Group dropped at least 3.5 percent as oil and metals prices retreated.

The FTSE 100 Index lost 158.16, or 3.5 percent, to 4,372.57 at 1.07 p.m. in London. The FTSE All-Share Index decreased 3.3 percent and Ireland's ISEQ Index dropped 1.5 percent.

``The interest rate cut is a big step in the right direction although the U.K. was clearly behind the curve compared to the U.S.,'' said Simon Carter, who manages about $3 billion at Aegon Asset Management in Edinburgh. ``The economy has only recently begun to slow sharply. This will take a protracted time to stabilize and in time improve.''

The Bank of England unexpectedly cut the benchmark interest rate by 1.5 percentage points to the lowest since 1955 as policy makers tried to limit damage caused by the worst banking crisis in almost a century.

The nine-member Monetary Policy Committee, led by Governor Mervyn King, reduced the bank rate to 3 percent, the biggest single step in more than a decade. The move was predicted by none of the 60 economists in a Bloomberg News survey.

``This is a much bigger cut than expected,'' Mic Mills, senior trader at ETX Capital in London, said. ``In fact, it's being seen as a bit of a panic move.''

Crude Declines

Separately, The European Central Bank lowered interest rates for the second time in less than a month to counter the euro region's worst economic slump in 15 years. Policy makers cut the benchmark lending rate by half a percentage point to 3.25 percent, as predicted by all but one of 55 economists in a Bloomberg News survey.

BP dropped 3.2 percent to 506.5 pence. Royal Dutch Shell Plc, Europe's second-largest oil company, decreased 3.6 percent to 1,710 pence.

Crude oil fell for a second day on signs that demand for fuel will be eroded as the global economy slumps.

Rio, the world's third-biggest mining company, retreated 9.3 percent to 2,675 pence. BHP Billiton Ltd., the largest, lost 8.8 percent to 1,040 pence.

Copper declined in London for a second day, to near a three- year low, as global stockpiles rose to the highest since 2004, adding to evidence a deteriorating global economy is reducing demand for the industrial metal.

Separately, Rio and BHP may be forced to cut prices by 15 percent next year, ending six years of gains, because of slowing demand from steel mills in Asia.

``Iron ore prices are obviously going to be softer going forward,'' Paul Adams, head of research at D.J. Carmicheal & Co., said by phone from Perth. ``Compared to a year ago, the Chinese steel mills now have the upper hand in negotiations.''

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

U.K. companies:

3i Group (III LN) plunged 46 pence, or 7.8 percent, to 545.5. Europe's biggest publicly traded private equity firm posted its first drop in the value of its assets in five years as stock market declines erode the value of its investments.

International Power Plc (IPR LN) added 4.5 pence, or 1.8 percent, to 260.75. The U.K. utility that produces electricity in 20 countries said 2008 will be another year of growth.

Man Group Plc (EMG LN) slumped 138.25 pence, or 35 percent, to 254. The largest publicly traded hedge-fund manager said fiscal first-half profit declined 25 percent after ``extreme moves'' in markets reduced assets under management.

Millennium & Copthorne Hotels Plc (MLC LN) decreased 3.5 pence, or 1.6 percent, to 221.5. The company, which runs more than 110 properties worldwide, said third-quarter profit fell 31 percent after a global travel slump cut into bookings in Asia.

Randgold Resources Ltd. (RRS LN) decreased 125 pence, or 5.9 percent, to 1,993. The company that owns two gold mines in Mali posted a third-quarter loss as its hedging contracts matured.

Vedanta Resources Plc (VED LN) slid 90.5 pence, or 10 percent, to 817.5. The largest copper producer in India said fiscal first-half profit dropped 25 percent after zinc prices declined and costs increased.

To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.netSarah Thompson in London at sthompson17@bloomberg.net.