By Adam Haigh
Nov. 2 (Bloomberg) -- European stocks fell, extending their biggest weekly drop since July, as Royal Bank of Scotland Group Plc said talks with the European Union and the Treasury will include some asset sales “not initially contemplated.”
RBS, the biggest bank controlled by the U.K. government, slumped 5.8 percent. Ryanair Holdings Plc slid 6.4 percent after the Europe’s biggest discount carrier said market conditions “continue to be difficult.”
Europe’s Dow Jones Stoxx 600 Index declined 0.2 percent to 236.44 as of 8:27 a.m. in London. The measure has lost 5.2 percent since this year’s high on Oct. 19 amid speculation that an almost eight-month, 50 percent rebound has outpaced the prospects for earnings and economic growth.
“The market is starting to realize gradually that all the problems are not behind us,” said Philippe Gijsels, a senior structured-equity strategist at Fortis Global Markets in Brussels, told Bloomberg Television. “Sentiment is shifting to a more realistic view and this correction will continue. We are still cautioning investors and at these levels there is time to take some more money off the table.”
The MSCI Asia Pacific Index slumped 1.2 percent today. Standard & Poor’s 500 Index futures expiring in December added 0.6 percent before a report forecast to show that U.S. manufacturing expanded at the fastest pace since 2006.
Chinese Manufacturing
Chinese manufacturing data for October showed the nation’s recovery strengthening and export orders climbing, giving policy makers more room to pare stimulus measures in coming months. Manufacturing expanded at the fastest pace in 18 months, according to a purchasing managers’ index released by HSBC Holdings Plc today and also a government-backed PMI released yesterday. The HSBC index rose to a seasonally adjusted 55.4 from 55 in September, an e-mailed statement showed.
CIT Group Inc., the 101-year-old commercial lender that saw its funding dry up in the credit crunch, filed for bankruptcy in an effort to cut $10 billion in borrowings following a failed debt exchange and U.S. taxpayer bailout. CIT’s Chapter 11 bankruptcy may give bondholders new notes at 70 cents on the dollar plus new common stock, and Chief Executive Officer Jeffrey Peek said clients will be able to get funds.
Common stock owners could be mostly wiped out, and the U.S. Treasury Department said it won’t recoup much, if any, of the $2.33 billion of taxpayer money that went into CIT, the largest firm to go bankrupt after getting a federal bailout.
S&P 500 Premium
Wall Street forecasts for the fastest U.S. earnings increase in two decades are failing to convince investors to pay a premium for the S&P 500 index. Companies in the gauge traded for an average of 15.4 times annual profit this year, or 0.6 times equity analysts’ projection for 2010 earnings growth of 25 percent, according to data compiled by Bloomberg. That’s the lowest so-called PEG ratio since 1995 and half the median of 1.3 since 1961.
RBS sank 5.8 percent to 39.49 pence after saying it’s close to agreement with the Treasury on a plan to insure its risky assets. RBS may insure as much as 280 billion pounds ($458 billion) of assets under the Asset Protection Scheme, compared with its initial agreement to insure 325 billion pounds of assets, a person familiar with the situation said last month. The bank will probably have to sell its insurance operation, and shrink its investment banking unit after receiving 20 billion pounds from the government last year, the person said.
Lloyds, BOE
Lloyds Banking Group Plc slipped 2.7 percent to 84.71 pence. The lender is due to unveil two incentives to persuade existing bondholders to exchange their bonds for riskier investments that could convert into equity, as part of its 25 billion-pound fundraising plan, the Financial Times reported, citing people close to the matter.
The Bank of England may choose to risk doing too much rather than too little this week as Britain starts to fall behind the rest of the world economy.
Governor Mervyn King’s nine-member Monetary Policy Committee will expand its bond-purchase plan by 50 billion pounds to 225 billion pounds on Nov. 5, according to the median forecast of 48 economists in a Bloomberg News survey. That would be the third increase since the program started in March.
Ryanair fell 6.4 percent to 2.76 euros after saying conditions in Ireland, the U.K. and Europe “continue to be difficult.” Fiscal second-quarter net income increased to 250.5 million euros from 185.8 million euros a year earlier, the Dublin-based carrier said today.
The Institute for Supply Management’s manufacturing report is due at 10 a.m. New York time. Forecasts range from 52 to 55, after a reading of 52.6 in September. Fifty is the dividing line between expansion and contraction. Another report, due from the National Association of Realtors at 10 a.m., may show pending home sales in September were unchanged, the first time since January they didn’t increase.
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
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