Stocks in Europe, Asia Fall on AIG Debt Rating Cuts

Stocks fell in Europe and Asia and U.S. index futures declined after the downgrade of American International Group Inc.'s credit rating increased turmoil in global debt markets.

UBS AG, which took more than $43 billion of subprime- related writedowns, lost 9.2 percent, and Mitsubishi UFJ Financial Group Inc. slumped 7.7 percent on speculation that the seizure in financial markets will worsen and hurt the global economy. Rio Tinto Group sank 3.6 percent and BG Group Plc declined 3.7 percent as commodity prices retreated.

The MSCI World Index lost 1.3 percent to 1,221.07 at 12:13 p.m. in London, bringing this year's decline to 23 percent. More than $16 trillion has been erased from global equities this year as the biggest surge in mortgage defaults in at least three decades sparked $514 billion in credit losses and writedowns.

Stocks extended declines after the British Bankers' Association said the cost of borrowing in dollars overnight more than doubled to 6.44 percent, its biggest jump. The London interbank offered rate, or Libor, increased 333 basis points from yesterday, the BBA said today.

Europe's Dow Jones Stoxx 600 Index declined 2.4 percent. The MSCI Asia Pacific Index decreased 3.9 percent as trading resumed in Japan, China, Hong Kong and South Korea after markets were shut for public holidays yesterday. Futures on the Standard & Poor's 500 Index slipped 1 percent.

UBS, the largest Swiss bank, lost 9.2 percent 18.26 francs. Natixis SA, France's fourth-biggest bank, slumped 9.7 percent to 2.69 euros.

Barclays Plc, the U.K.'s third-largest bank, retreated 5 percent to 300.25 pence. The bank said today it's in talks to buy assets from bankrupt Lehman Brothers Holdings Inc. two days after abandoning plans to acquire the entire securities firm.

Mitsubishi UFJ fell 7.7 percent to 792 yen, while Sumitomo Mitsui Financial Group Inc. declined 9.8 percent to 619,000 yen.

AIG's credit ratings were downgraded by S&P and Moody's, threatening efforts to raise emergency funds to keep the company afloat. S&P lowered AIG's long-term counterparty rating three grades to A- from AA-, citing a ``combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses.''

Washington Mutual Inc. fell 5 cents to $1.95. The biggest U.S. savings and loan had its credit rating cut to junk by S&P because of the deteriorating housing market.

Stocks slid yesterday in the U.S., pushing the Standard & Poor's 500 Index to the steepest drop since the September 2001 terrorist attacks, as Lehman's bankruptcy increased speculation that credit-related losses will worsen.,
9/16/2008 5:20:49 AM