Worries over US hit Euro stocks

EUROPEAN stocks sank the most in fourth months, extending an 11-month low, amid concern the US recovery is faltering and the world’s largest economy may lose its top credit rating.

Societe Generale, France’s second-largest bank, tumbled 9% after the company reported second-quarter results that missed analysts’ estimates. Cairn Energy fell 5.1 after abandoning an oil well off Greenland.

UPM-Kymmene Oyj slumped 9.3%, its biggest decline in eight years.

The benchmark Stoxx Europe 600 Index retreated 2% to 251.95 at the 4:30pm close in London, the biggest drop since March 15. The gauge has declined 13% from this year’s high on February 17 as the yield on Italian and Spanish bonds surged to records amid speculation the debt crisis won’t be contained.

National benchmark indices fell in all 18 western European markets yesterday. Ireland’s ISEQ Index retreated 2.5%. Britain’s FTSE 100 lost 2.3%, France’s CAC 40 slid 2.1% and Germany’s DAX plunged 2.3%.

“The market sentiment at the moment is on apocalypse level,” said Peter Buergler, a trader at Luzerner Kantonalbank in Lucerne, Switzerland. “With budget cuts in the US, opinions are resurfacing that the US could possibly slide into a recession. The loss of its AAA rating would send the markets even more into a descent.”

Moody’s Investors Service said the outlook for the US debt grade is negative after President Barack Obama signed into law a plan to lift the nation’s borrowing limit and cut spending following months of wrangling between Democratic and Republican lawmakers. Moody’s and Fitch Ratings affirmed their AAA credit ratings for the US, while warning that downgrades were possible if politicians fail to enact debt-reduction measures and the economy weakens.

The US economy is “balanced on the edge,” said Harvard University professor Martin Feldstein, who joined four members of a nine-person panel that dates recessions in seeing rising odds of another downturn.

The economy now faces a 50% chance of sliding into a new recession, Feldstein, a member of the Business Cycle Dating Committee of the National Bureau of Economic Research, said in an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene.

“Nothing has given us much growth,” he said.

The Stoxx 600 became “oversold” for the first time in almost five months yesterday as the 14-day Relative Strength Index, which tracks momentum by comparing closing prices with daily trading ranges, fell to 26.25.