Aisa & Europe Down, But Not Out into the Abyss

Thankfully overseas markets are not getting blown up !

March 3 (Bloomberg) — European stocks fell to the lowest level since 1996 on concern profits are deteriorating and banks will need more capital. U.S. futures fluctuated between gains and losses after the Standard & Poor’s 500 Index traded at the cheapest level relative to earnings in two decades.

Bayer AG, Germany’s biggest drugmaker, slid for the ninth straight day after lowering its forecast for 2009 as the deepening global recession erodes demand for plastics. Barclays Plc dropped 6.6 percent, leading financial shares lower a day after U.K. banks posted their biggest slump in two decades.

“We advise clients to be extremely cautious,” said Philippe Gijsels, a Brussels-based senior structured-product strategist at Fortis Global Markets. “The crisis in the financial sector is clearly not over,” he said in a Bloomberg Television interview.

The Dow Jones Stoxx 600 Index slipped 1.1 percent at 11:36 a.m. in London after earlier sliding as much as 1.4 percent to 162.02, a level not seen since November 1996. The regional gauge has lost 18 percent in 2009 and posted its biggest drop of the year yesterday after Warren Buffett said the U.S. economy is in a “shambles” and HSBC Holdings Plc announced a rights offering.

Futures on the S&P 500 added 0.2 percent to 707 after earlier climbing 1.5 percent and falling as much as 0.3 percent. The gauge closed at the lowest level since 1996 yesterday.

The S&P 500 traded for 12.2 times company profits from the past 10 years as of yesterday’s close, the cheapest since 1986, according to data compiled by Yale University professor Robert Shiller. He uses a decade of earnings to smooth out short-term fluctuations.

Asian Shares

The MSCI Asia Pacific Index slipped 0.4 percent today, trimming an earlier drop of as much as 1.7 percent, as Japan’s Finance Minister Kaoru Yosano said the government can’t ignore “excessive declines” in the nation’s stock market.

The deepening global recession, a third government rescue for Citigroup and dividend cuts at companies from General Electric Co. to JPMorgan Chase & Co. have sent the MSCI World Index of 23 developed countries to a 23 percent drop this year, the worst start since the gauge was created in 1970.

The MSCI World is valued at 10.5 times the earnings of its 1,680 companies, less than half this decade’s average ratio of 21.6, data compiled by Bloomberg show.

Bayer lost 3.2 percent to 35.54 euros. The drugmaker reported fourth-quarter net income of 106 million euros ($134 million), missing the 190 million-euro estimate of analysts surveyed by Bloomberg.

Barclays, CRH

Barclays retreated 6.6 percent to 81.9 pence, extending its three-day slump to 29 percent. The U.K.’s FTSE 350 Banks Index slipped 2.6 percent after yesterday posting the biggest drop since at least 1985.

CRH Plc slid 3.6 percent to 14.84 euros. The world’s second- biggest maker and distributor of building materials plans to raise 1.24 billion euros to take advantage of cheaper asset values as a slowdown in construction spreads from the U.S. to Eastern Europe. CRH will sell 152.1 million new shares at 8.40 euros apiece, the supplier of asphalt, concrete products and crushed rock said.

Citigroup Inc. added 8.3 percent to $1.30 in pre-market New York trading following a two-day, 51 percent plunge. Bank of America Corp. rose 5.8 percent to $3.84. The shares slumped 32 percent in the past two sessions.

Distressed Assets

U.S. President Barack Obama’s administration may create investment funds to purchase loans and other distressed assets, the Wall Street Journal reported, citing people familiar with the matter. Managers of the funds would have to invest some of their own capital, along with government money, and would share in any profit or loss, the report said. No decision has been made on the final structure of this financing partnership, it said.