European Stocks Slump on Dubai; LSE, Saint-Gobain Lead Retreat

By Adria Cimino

Nov. 26 (Bloomberg) -- European stocks slumped the most in almost two months amid concern Dubai’s proposal to delay debt payments may trigger the biggest sovereign default since Argentina in 2001. Asian shares fell.

London Stock Exchange Group Plc, whose largest shareholder is Borse Dubai Ltd., dropped the most in three months. Cie. de Saint-Gobain SA, Europe’s biggest supplier of building materials, slipped 3.4 percent after Goldman Sachs Group Inc. recommended selling the shares. Bank of China Ltd., which this week said it’s studying options for replenishing capital, lost 2.9 percent in Hong Kong.

Europe’s Dow Jones Stoxx 600 Index retreated 2.2 percent to 242.56 at 9:40 a.m. in London, the steepest intraday drop since Oct. 2. The measure plunged 44 percent in the six months after Lehman Brothers Holdings Inc.’s bankruptcy in September 2008 froze credit markets and worsened the first global recession since World War II.

“The specter of financing difficulties is resurging,” said Alexandre Iatrides, a fund manager at KBL Richelieu in Paris, which oversees about $3 billion. The news from Dubai “is resurfacing worries that we had put aside. This could be the new Lehman.”

The cost of protecting government notes from Qatar to Saudi Arabia rose the most since June yesterday as Dubai World, with $59 billion of liabilities, sought a “standstill” agreement from creditors. The sheikhdom, ruled by Sheikh Mohammed Bin Rashid Al Maktoum, borrowed $80 billion in a four-year construction boom that reduced its reliance on falling oil supplies and created the region’s tourism and financial hub.

Asian Stocks

The MSCI Asia Pacific Index slid 0.6 percent as China’s Shanghai Composite Index sank 3.6 percent.

Bank of China, the nation’s third-biggest lender by market value, lost 2.9 percent to HK$4.35. China’s five largest banks have submitted preliminary plans for boosting capital to the country’s banking regulator, people familiar with the matter said this week.

The U.S. market is closed today for the Thanksgiving holiday. Futures on the Standard & Poor’s 500 Index expiring next month fell 0.9 percent.

The Stoxx 600 has rallied 54 percent since March 9, pushing its valuation to more than 57 times the reported earnings of its companies, the highest level in six years.

“The market is fully priced and won’t climb much higher,” said Guillaume Chaloin, a fund manager at Meeschaert Asset Management in Paris, which oversees $3 billion. “No one is inclined to be aggressive on stocks today.”

LSE Drops

LSE, Europe’s biggest exchange by value of listed companies, sank 4.6 percent to 777 pence, heading for the steepest decline since August. Borse Dubai is LSE’s largest shareholder, according to Bloomberg data.

Saint-Gobain declined 3.9 percent to 36.78 euros. Goldman Sachs cut its recommendation on the shares to “sell” from “neutral,” saying “there is limited scope for earnings driven outperformance.”

Porsche Automobil Holding SE tumbled 6.6 percent to 45.84 euros as UniCredit SpA and Equinet downgraded the shares. The maker of the 911 sports car was cut to “hold” from “buy” at UniCredit and to “reduce” from “buy” at Equinet.

Legal & General Group Plc sank 4 percent to 81.4 pence. The U.K.’s second-biggest insurer by assets was cut to “sell” from “hold” at Citigroup Inc., which cited “business model challenges.”

DSG International Plc gained 2.5 percent to 37.47 pence. The U.K.’s largest consumer-electronics retailer reported a smaller first-half loss as sales were boosted by refurbished stores and rising consumer confidence at home and in the Nordic countries.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.