Stocks in Europe, Asia Drop; Barclays, Macquarie, Vedanta Fall

By Adria Cimino

Sept. 23  -- Stocks in Europe and Asia dropped, led by financial companies and commodity producers, on concern Treasury Secretary Henry Paulson's plan to buy $700 billion of bank assets won't prevent a global recession. U.S. index futures also declined.

Barclays Plc, the U.K.'s third-biggest bank, fell 3.6 percent and Australia's Macquarie Group Ltd. retreated 4.5 percent. Vedanta Resources Plc, India's largest zinc producer, and Rio Tinto Group slid more than 5 percent on lower metals prices. Marks & Spencer Group Plc sank 3.8 percent after Deutsche Bank AG cut its recommendation on shares of the U.K.'s biggest clothing retailer.

Europe's Dow Jones Stoxx 600 Index slipped for a second day, falling 1.8 percent to 267.38 as of 9:58 a.m. in London. The gauge has now erased almost half of an 8.3 percent rally on Sept. 19, when the U.S. government announced plans to stem credit- related losses. The MSCI Asia Pacific Index retreated 0.6 percent today, snapping a two-day advance. Futures on the Standard & Poor's 500 Index decreased 0.2 percent.

``The tough intervention avoided an international crash, but all of the problems aren't resolved,'' said Matthieu Giuliani, a fund manager at Palatine Asset Management in Paris, which oversees about $8.8 billion. ``The economy is fragile. The fundamental problems such as the credit bubble are still there. Confidence hasn't returned to the market.''

The Stoxx 600 is down 27 percent this year on concern more than $500 billion in credit losses and writedowns at financial firms worldwide and the slowing global economy will hurt profits. U.S. stocks dropped yesterday as crude oil jumped and investors speculated the Treasury's plan to buy toxic mortgage assets will fail to prevent a recession.

Earnings Estimates

Earnings for Stoxx 600 companies are expected to fall 3.3 percent this year, according to data compiled by Bloomberg. That compares with analysts' estimates for an 11 percent increase at the start of the year.

A report today showed European manufacturing and service industries contracted at the fastest pace in almost seven years in September as the credit-market seizure intensified and companies scaled back production in response to slowing orders.

Investors should reduce stock holdings in developed markets because a U.S. plan to shore up financial markets won't stop a ``nasty slowdown,'' according to HSBC Holdings Plc strategists led by Richard Cookson.

Bank Shares

Still, the U.S. slowdown may be shorter than expected and private equity investors should start searching for bargains after valuations tumbled this year, said Mark Mobius, executive chairman of Templeton Asset Management Ltd.

Barclays lost 3.6 percent to 359.5 pence. Societe Generale SA, France's third-largest bank by assets, declined 3.2 percent to 62.51 euros. Macquarie, Australia's biggest securities firm, retreated 4.5 percent to A$36.10.

Paulson's proposal to stabilize the banking system may push the national debt to the highest level since 1954, threatening an erosion of foreign appetite for U.S. bonds, according to economists. Paulson may be questioned on the borrowing impact of his plan at a hearing at the Senate Banking Committee today that begins at 9:30 a.m. in Washington.

``The crisis is a deep one,'' said Roland Lescure, who manages the equivalent of $128 billion as chief investment officer of Groupama Asset Management in Paris. ``The measures and their amplitude are important, but all isn't known yet. There is enough uncertainty to create concern.''

British Airways

Two-year Treasury notes rose for a second day. The dollar declined for a second day against the yen and a fifth day against the euro for the longest losing streak since February.

British Airways Plc, whose most lucrative market is trans- Atlantic business travel, sank 6.1 percent to 205.25 pence.

Basic-resources shares declined 4.2 percent as a group in the Stoxx 600 Index as copper, lead, tin and zinc prices fell in London. Vedanta sank 5.4 percent to 1,612 pence. Rio Tinto, the world's third-largest mining company, retreated 5.9 percent to 3,990 pence.

Marks & Spencer was downgraded to ``hold'' from ``buy'' at Deutsche Bank, which said ``low expectations for the second- quarter are justified.'' The stock decreased 3.8 percent to 228.5 pence.

Swiss Reinsurance Co. lost 1.9 percent to 62.2 francs. The world's second-biggest reinsurer said it expects the insured claims of hurricanes Ike and Gustav to cost about $300 million.

Man Group Plc decreased 5.6 percent to 409.25 pence. The world's largest publicly traded hedge-fund manager was rated ``underperform'' in new coverage at Jefferies, which cited the ``prospect of significantly lower profits.''