Stocks Drop in Europe, Asia, Led by UBS; U.S. Futures Decline

By Adria Cimino

March 31 (Bloomberg) -- Stocks fell in Europe and Asia, capping the worst quarter for the MSCI World Index since 2002, as concern deepened that losses in the credit markets will hurt economic and profit growth. U.S. index futures retreated.

UBS AG dropped in Zurich after Merrill Lynch & Co. said the region's biggest bank by assets may have more writedowns, while Marubeni Corp. of Japan fell after saying it will close a unit because of subprime-mortgage losses. Toyota Motor Corp., which gets more than half its operating profit from North America, tumbled the most in two weeks in Tokyo. Vodafone Group Plc declined in London after Morgan Stanley recommended selling shares of the world's biggest mobile-phone company.

The MSCI World Index lost 0.4 percent to 1,430.35 at 12:03 p.m. in London, while futures on the Standard & Poor's 500 Index slipped 0.2 percent. The MSCI World is down 10 percent this quarter as financial firms posted more than $208 billion in losses related to the collapse of the U.S. subprime mortgage market.

``The purge isn't over,'' said Emmanuel Soupre, who heads the Neuflize OBC Asset Management France Opportunities and France Expansion funds, at Neuflize in Paris, which has about $15.6 billion. He spoke in a Bloomberg Television interview. ``It will last many months. We can't really rebound until we know the depth of the crisis. Investments that we can make are limited, especially when it comes to banks.''

Europe's Dow Jones Stoxx 600 Index declined 0.6 percent, extending its retreat this quarter to 16 percent, the worst start to a year since at least 1987. The MSCI Asia Pacific Index sank 1.6 percent and is down 12 percent in the quarter, the sharpest drop in the first three months in 16 years.

About $3.9 trillion in value has been erased from global stock markets this year, according to data compiled by Bloomberg.

UBS, Credit Suisse

UBS dropped 2.9 percent to 28.14 Swiss francs. The Swiss bank may have a further $11 billion in writedowns in the first quarter and report a 2008 loss, Merrill said. The brokerage cut its 2009 earnings-per-share forecast by 6 percent.

Zurich-based UBS may ask shareholders to approve a capital increase of as much as 16 billion Swiss francs ($16.1 billion), the Sonntag newspaper reported, citing people it didn't identify.

Credit Suisse Group, Switzerland's second-biggest bank, retreated 1.8 percent to 49.88 francs. Merrill reduced its 2008 earnings-per-share forecast by 13 percent and its 2009 forecast by 4 percent.

Analysts have slashed profit-growth estimates for European companies. Earnings will rise only 1.9 percent on average for Stoxx 600 members this year, down from 11 percent predicted at the end of 2007, Bloomberg data show.

Recession Concerns

``The markets seem incapable of shaking off concerns about U.S. investment banks and the depth of this current U.S. recession,'' Oliver Stevens, head of dealing at IG Markets in Melbourne, wrote in a note to clients.

JPMorgan Chase & Co., the third-largest U.S. bank, slid 4 cents to $42.67 in Germany.

Marubeni, Japan's No. 5 trading house, plunged 6.6 percent to 726 yen, the second-sharpest decline in the Nikkei 225 Stock Average.

The company said on March 28 it will dissolve its structured finance unit due to subprime losses. The company is also being sued by Lehman Brothers Holdings Inc. to recover 35.2 billion yen ($352 million) from a loan, according to people with knowledge of Lehman's plans. Marubeni denies wrongdoing.

Toyota slid 5.2 percent to 4,970 yen, the steepest drop since Jan. 22.

Vodafone, BA

Vodafone fell 3.1 percent to 152.1 pence after Morgan Stanley downgraded the stock to ``underweight'' from ``overweight'' on concern that a European Commission recommendation to lower so-called mobile termination rates could hurt profit. The brokerage lowered its share-price estimate by 21 percent to 170 pence.

Telecommunications shares fell 1 percent, the most among the 10 industry groups in the MSCI World. The industry has had the worst performance so far this year amid increasing price competition and higher investment costs.

Deutsche Telekom AG, Europe's largest telephone company, tumbled 2.5 percent to 10.45 euros. Morgan Stanley lowered its price forecast by 6.5 percent to 14.5 euros. Telefonica SA, the region's second-largest, sank 1.8 percent to 18.20 euros. The brokerage cut its price forecast by 3.8 percent to 25.5 euros.

``It's an industry that can be the object of unfavorable regulation,'' said Salah Seddik, a fund manager at Richelieu Finance, which oversees $6.3 billion. ``Mobile phones make up a large percentage of profits.''

Tesco Plc, Britain's biggest food retailer, fell 3.4 percent to 377 pence, the most in two weeks, after putting the expansion of its U.S. Fresh & Easy store chain on hold.

British Airways

British Airways Plc slipped 1.3 percent to 237 pence. Europe's third-largest carrier was cut to ``sell'' from ``buy'' at Goldman, Sachs & Co. on concerns about the high price of oil and increased competition.

Friends Provident Plc advanced 3.4 percent to 124.2 pence. The 176-year-old insurer rejected a takeover offer from J.C. Flowers & Co., saying the price ``significantly'' undervalued the company.

ITV Plc lost 6.3 percent to 63.6 pence. The U.K.'s biggest commercial television broadcaster fell the most since its creation four years ago after UBS AG recommended selling the shares on concern of a ``deteriorating'' advertising market. UBS cut its recommendation on the stock to ``sell'' from ``neutral.''

Pernod Ricard SA slid 3.8 percent to 65.53 euros. The world's second-largest liquor company agreed to buy Vin & Sprit AB from Sweden's government for 5.28 billion euros ($8.34 billion) to gain the Absolut vodka brand and take on Diageo Plc's Smirnoff in the U.S.

Lanxess AG added 4 percent to 25.52 euros. The world's second-largest maker of butyl rubber used in tires raised the prices for some of its synthetic rubber grades to compensate for higher raw-material and energy costs.

Valeo SA climbed 4.2 percent to 25.58 euros. Europe's third- largest maker of car parts rose after India's Business Standard said the Hinduja Group may acquire a controlling stake. Valeo spokesman Antoine Balas declined to comment when contacted by Bloomberg.