While you were sleeping: BusinessWire overnight wrap

Tuesday 20th January 2009

Stocks in Europe fell as Royal Bank of Scotland tumbled, leading banks lower, on concern the British government will nationalise the lender facing a record loss for a UK company.

RBS slumped 67% after announcing it may post a loss of as much as 28 billion pounds this year. The government has offered to exchange its preference shares in the bank for ordinary shares, which could lift its holding to 70% from 58%.

The Dow Jones Stoxx 600 Index fell 1.7% to 189.72. Irish banks slumped amid concern about the nationalisation of Anglo Irish Bank last week. Allied Irish Bank, which is to receive 2 billion euros in exchange for giving the government a 25% stake, fell 59% and Bank of Ireland fell 55% after Brian Goggin announced he will retire as chief executive.

The UK government announced a 50 billion pound fund to buy high-quality assets from banks to help free up the flow of credit and will allow lenders to insure themselves against losses on their weakest assets.

It also gave Bank of England approval to increase money supply if necessary. Finance Minister Alistair Darling said figures on Friday will show the UK has sunk into its first recession since 1992.

The FTSE 100 fell 0.9% to 4108.47.

The European Commission said the euro-zone economy will shrink this year for the first time since the euro currency was introduced. The regional economy will contact 1.9% in 2009, a turnaround from the commission's prediction in November of 0.1% growth for the year.

European Central Bank President Jean-Claude Trichet said the outlook for the region's economy is "substantially" worse than it expected a month ago.

"The year 2009 will be very difficult," Trichet said in a speech in Paris.

Germany's DAX 30 fell 1.2% to 4316.14. Postbank declined 13% and Deutsche Bank fell 11%. BASF declined 4.6% and Adidas dropped 4.2%.

In France, the CAC 40 fell 0.9% to 2989.69, led by a 10% decline for Societe Generale. Air France-KLM Group fell about 8% after Bloomberg reported that Europe's biggest airline had contacted analysts to warn it would post a third-quarter loss of 200 million euros to 220 million euros before interest and tax.

Markets in the US were closed for the Martin Luther King Day holiday.

Spain's AAA credit rating was cut one notch by Standard & Poor's to AA+ as the Southern European country's recession widened its budget deficit. S&P said the rating out look is 'stable.' It is the second rating cut for a euro-zone nation in the past week, after S&P cut Greece's credit rating one level to A-. It lowered the outlook on Ireland's rating to 'negative' from 'stable.'

The euro and the pound dropped versus the US dollar on concern about the weakness of European banks and the region's fragile economy.

The euro fell 1.3% to $1.3125 and the pound slid almost 2% to $1.4473. The dollar weakened to 90.61 yen and the euro fell to 118.93 yen.

Oil fell after Russia and Ukraine signed a 10-year natural gas deal which will allow the resumption of supplies to Europe and after Israel announced a ceasefire in the Gaza Strip.

Crude oil for February delivery fell as low as US$33.89 a barrel in electronic trading on the New York Mercantile Exchange and was recently down US$2.01 at US$34.50. Floor trading on the New York Mercantile Exchange was closed for the public holiday.

Goldman Sachs Group has predicted a rebound in oil prices after reaching as low as US$30 a barrel.

Gold for February delivery fell 0.2% to US$838.40 in electronic trading on the New York Mercantile Exchange. Copper rose US$90 to US$3,445 a ton.

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