Global Stocks Decline on Economy Concerns; Treasuries Rally

Oct. 27 (Bloomberg) -- Stocks tumbled, extending the MSCI World Index's biggest monthly drop on record, as concern grew that government efforts to stabilize financial markets won't avert a global recession. Treasuries rose as investors sought the safety of government bonds.

U.S. shares slid, deepening the market's worst monthly slump in 70 years. Europe's Dow Jones Stoxx 600 Index declined 3 percent as German business confidence decreased more than forecast this month. Hong Kong's Hang Seng Index sank as much as 15 percent, the most since the 1989 Tiananmen Square crackdown, after money-market rates rose.

``We've gone from financial worries to economic worries,'' said Roland Lescure, who manages the equivalent of $128 billion as chief investment officer of Groupama Asset Management in Paris. ``We're looking for direction for the economy. The problem is stock market declines lead to more declines. It's linked to forced selling.''

The Standard & Poor's 500 Index dropped 0.9 percent to 868.8 at 9:30 a.m. in New York. The MSCI World Index lost 3.2 percent. The MSCI Asia Pacific Index sank 6.3 percent, extending a three-day, 13 percent retreat.

UBS AG, Switzerland's largest bank, and Deutsche Bank AG, Germany's biggest, retreated more than 6 percent. Daimler AG slipped 9.7 percent after Frankfurter Allgemeine Sonntagszeitung reported the carmaker may halt production for five weeks.

Money Markets

Asian money-market rates rose amid speculation the global credit crisis is worsening even after governments and central banks pledged to spend trillions of dollars worldwide to revive lending.

The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars fell 1 basis point to 3.51 percent, according to the British Bankers' Association. The overnight rate also declined 1 basis point, to 1.27 percent, BBA data showed today.

Caterpillar Inc. and Intel Corp., which generate more than 60 percent of sales outside the U.S., sank. Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. slid in Asia.

Emerging-market stocks tumbled for a fifth day as the International Monetary Fund agreed to lend Ukraine $16.5 billion. Hungary's BUX Index lost 10 percent after the IMF said it will give the country ``a substantial financing package.'' Belarus last week asked the IMF for at least $2 billion after its banks lost access to financing.

Customers rushed to withdraw money from Gulf Bank KSC, Kuwait's second-biggest bank, after clients defaulted on currency contracts and the central bank was forced to guarantee deposits.

`Very Negative'

``We are very negative on the emerging-market asset class,'' said Florence Barjou, a Paris-based manager at Societe Generale SA's Lyxor Asset Management SA, which oversees $100 billion. ``Now people are really realizing that the slowdown is going to be very global and that it will have an effect on current-account surpluses.''

Iceland's Kaupthing Bank hf today was the first European borrower to default in Japan's samurai bond market after the state-controlled bank missed its last chance to make a 450 million yen ($4.8 million) coupon payment.

The yield on the 10-year Treasury note dropped 4 basis points to 3.63 percent, according to BGCantor Market Data. U.S. government securities extended last week's rally on concern that the slowing global economy will reduce corporate 8profits, leading traders to raise bets for interest-rate cuts.

The yen climbed to 92.80 per dollar, near a 13-year high, as the Group of Seven industrialized nations' concern over the currency's ``excessive volatility'' failed to keep investors from selling higher-yielding assets. Japan's Prime Minister Taro Aso said he'd draft measures to help counter the financial crisis.

Valuations

The S&P 500 has plunged 26 percent in October, headed toward the steepest monthly loss since 1938. The MSCI World is down 29 percent and a close at this level would mean the biggest monthly decline since records began in 1970.

The MSCI World is trading at 10.6 times earnings of the companies in the index, near its cheapest since at least 1995 when Bloomberg started following the data. The MSCI Emerging Markets Index is valued at 6.9 times earnings. The S&P 500 trades at 18.9 times profit.

The Stoxx 600 is down 25 percent in October and is valued at 8 times earnings. The benchmark index for Europe lost 24 in October 1987.

More than $12 trillion has been erased from the market value of equities so far this month, accounting for about one- third of the total value wiped off stocks this year, as $680 billion of writedowns and losses by banks triggered a freeze in credit markets.

UBS lost 6.1 percent to 14.69 francs, and Deutsche Bank sank 15 percent to 25.59 euros.

Postbank, RBS

Deutsche Postbank AG slid 23 percent to 14.42 euros. Germany's biggest consumer bank by clients reported a third- quarter loss related to the collapse of Lehman Brothers Holdings Inc. and writedowns from the financial crisis.

Royal Bank of Scotland Group Plc slumped 2.3 percent to 59.4 pence. The company may need to write down the value of assets by between 4 billion pounds ($6.3 billion) and 5 billion pounds in the second half of the year, the Financial Times reported, citing analysts it didn't identify.

The bank doesn't comment on speculation, said a spokesman who declined to be identified by name when contacted by Bloomberg News.

Swedbank AB tumbled 10 percent to 53.50 kronor. The largest bank in the Baltics said it will raise 12.4 billion kronor ($1.6 billion) in a rights offering. The operation will lift its core Tier 1 ratio to 9.2 percent, the bank said.

Daimler

Daimler fell 9.7 percent to 20.24 euros. The world's second-largest maker of luxury cars will halt production for five weeks as demand slows, Frankfurter Allgemeine Sonntagszeitung said. Daimler spokesman Florian Martens wasn't immediately available for a statement.

German business confidence declined to the lowest level in more than five years in October as the deepening financial crisis dimmed the outlook for economic growth. The Munich-based Ifo Institute said its business climate index fell to 90.2, compared with 91 forecast in a Bloomberg survey of economists.

``The economic downturn is of an amplitude that was underestimated,'' said Christophe Donay, chief strategist at Pictet & Cie. in Geneva. ``The economy will weigh on companies' sales.''

The Commerce Department will probably report on Oct. 30 that the U.S. economy shrank last quarter for the second time in a year as consumers and companies pulled back. A report today may show purchases of new homes fell last month to a 17-year low, according to economist in a Bloomberg survey.

Caterpillar, Intel

Caterpillar, the world's largest maker of bulldozers and excavators, declined 2.2 percent to $32.56. Intel, the biggest chipmaker, retreated 2.5 percent to $13.93.

Mizuho Financial lost 15 percent to 230,000 yen. Sumitomo Mitsui, Japan's third-largest bank, slid 11 percent to 385,000 yen.

Deutsche Post AG plunged 16 percent to 8.08 euros. Europe's biggest mail carrier cut its forecast for 2008 profit by 17 percent because of the slowing global economy.

Volkswagen AG climbed 80 percent to 379.59 euros. Porsche SE plans to raise its holding in the company to 75 percent next year.

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