Stocks Worldwide Tumble Most Since 1997, Bonds Rise on Bailouts

Sept. 29 (Bloomberg) — Stocks around the world fell the most since October 1997, the euro and the pound sank and bonds rose as governments raced to prop up banks infected by growing U.S. mortgage losses.

The Standard & Poor’s 500 Index fell 3.8 percent after Wachovia Corp. required a takeover by Citigroup Inc. and lawmakers predicted a close vote on the Bush administration’s $700 billion bank bailout. The British pound dropped the most against the dollar in 15 years after European governments stepped in to save Bradford & Bingley Plc, Fortis and Hypo Real Estate Holding AG. Commodities fell. The cost of borrowing in euros for three months soared to a record as banks hoarded cash.

“People are wondering if $700 billion will be enough,” said Diane Garnick, who helps oversee $500 billion as an investment strategist at Invesco Plc in New York. “If you’re not comfortable being in this type of market, then you shouldn’t be making investment decisions now.”

The MSCI All-Country World Index of 48 nations lost as much as 4.5 percent, the steepest plunge since the Asian financial crisis 11 years ago. The S&P 500 retreated 46.58 points to 1,166.43 at 12:35 p.m. in New York. Europe’s Dow Jones Stoxx 600 Index sank 5.5 percent to 251.43, the lowest since January 2005. The MSCI Asia Pacific Index fell 2.1 percent.

The Irish Overall Index slumped 13 percent, the most in its 25-year history. The U.K.’s FTSE 100 Index has lost 15 percent in September, the steepest monthly drop since the October 1987 stock-market crash. India’s Sensitive index tumbled 3.8 percent, Russia’s Micex Index fell 5.5 percent and Brazil’s Bovespa slumped 7.1 percent.

Yields Fall, Libor

Treasuries rallied as investors sought the relative safety of government debt. The yield on 10-year Treasury notes fell 0.19 percentage point to 3.67 percent. The cost of borrowing in euros for three months rose to a record after government-led bailouts of banks heightened concern that more in Europe will fail, prompting financial institutions to hoard cash. The London interbank offered rate, or Libor, that banks charge each other for such loans climbed to 5.22 percent, the British Bankers’ Association said.

The $700 billion package to shore up banks hammered out by Treasury Secretary Henry Paulson and congressional leaders over the weekend failed to calm investors. The crisis that began with bad home loans to subprime borrowers in the U.S. is threatening to push the global economy into a recession as consumers lose confidence and banks cut back on lending.

`Pretty Considerable Pressure’

“The system is still under pretty considerable pressure,” Jeffrey Palma, head of global equity strategy at UBS AG, said in a Bloomberg Television interview. “Until those uncertainties are really resolved a little bit, people aren’t willing to suggest the worst is behind us.”

The U.S. House of Representatives began debating Paulson’s plan to revive financial markets. About 100 of the 235 House Democrats agreed to back the plan, and Republican support is needed for passage, said Representative Rahm Emanuel, the Democratic caucus chairman.

The MSCI All-Country World Index has retreated 12 percent in September, the biggest monthly loss since Russia defaulted on its debt in August 1998. This month, the U.S. seized the two largest mortgage-finance companies, Fannie Mae and Freddie Mac; Lehman Brothers Holdings Inc. filed for bankruptcy; Merrill Lynch & Co. agreed to sell itself to Bank of America Corp.; American International Group Inc. was taken over by the Treasury; and Washington Mutual Inc. was seized by regulators in the biggest U.S. bank failure in history.

Canada Best, China Worst

Canada’s S&P/TSX Composite Index has fallen 16 percent in 2008, giving it the best performance among the 23 nations MSCI considers developed markets. Ireland’s benchmark index has plunged 53 percent, the steepest loss. Among 25 emerging markets, the 2.1 percent gain in Morocco’s Madex Free Float Index counts as the best performance, while the 58 percent drop in China’s CSI 300 Index is the worst.

Financial institutions worldwide have reported more than $550 billion of credit losses and asset writedowns since the beginning of 2007, according to data compiled by Bloomberg.

“This credit crisis is pretty deep and it’s pretty deep throughout the financial industry,” Jason Pride, who helps oversee about $6.5 billion as director of research at Haverford Trust Co. in Radnor, Pennsylvania, told Bloomberg Television.

Wachovia declined 91 percent to 93 cents before trading was halted by the New York Stock Exchange. Citigroup will absorb as much as $42 billion of losses on Wachovia’s $312 billion pool of loans. The Federal Deposit Insurance Corp. will take on losses beyond that amount in exchange for $12 billion in preferred stock and warrants.

National City, Sovereign

Citigroup rose 1.4 percent to $20.44. The bank halved its dividend and said it will raise $10 billion in capital.

Financial shares in the S&P 500 retreated 5.1 percent. National City Corp. plunged as much as 66 percent to $1.25, the lowest intraday level since April 1982. Sovereign Bancorp Inc. fell as much as 57 percent to an almost 16-year low of $3.60.

Morgan Stanley slumped 8.2 percent to $22.71. It agreed to sell a 21 percent stake to Japan’s Mitsubishi UFJ Financial Group Inc. for $9 billion, seeking to shore up investor confidence after borrowing costs climbed and its stock fell by half.

European governments stepped in to rescue Fortis, Bradford & Bingley and Hypo Real Estate as tremors from the U.S. credit crisis were felt around the world. The U.K. Treasury seized Bradford & Bingley, Britain’s biggest lender to landlords, while governments in Belgium, the Netherlands and Luxembourg threw an 11.2 billion-euro ($16.3 billion) lifeline to Fortis. Germany guaranteed a loan to Hypo.

Crude oil fell as much as 8.4 percent to $97.95 a barrel in New York. Copper and corn also helped lead commodities lower, sending the S&P Goldman Sachs Commodity Index to a 6.3 percent decline.

Energy and materials shares in the MSCI All-Country World Index retreated more than 7 percent as a group.

Apple Inc., the computer maker whose shares surpassed $200 last year, dropped the most in eight month after a Morgan Stanley analyst said price cuts will curb profit growth. Apple fell as much as 18 percent to $105.77, the lowest price since May 2007.

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