By Natsuko Waki
LONDON, June 2 (Reuters) - World stocks kicked off June on a
negative tone and sterling hit a one-week low versus the dollar
on Monday after UK bank Bradford & Bingley <BB.L> announced a
slump in profits, fuelling fresh concerns about the banking
sector.
Government bonds remained under pressure in major economies,
with a sell-off sending some Japanese government borrowing rates
to 10-month highs. A fall in oil prices -- now down nearly $10 a
barrel from May record peaks -- gave support to Asian stocks.
In an unscheduled trading update, the largest UK buy-to-let
mortgage lender reported a near 50 percent year-on-year slump in
profits for the first four months of 2008, scaled back a planned
rights issue and announced a cash injection from a U.S. private
equity firm.
Bradford & Bingley's chief executive quit on Sunday, less
than a month after surprising investors with an emergency cash
call. After the news, its shares fell 28 percent after trading
was temporarily suspended.
"Obviously the one thing that is taking the wind out of the
market is the profits warning that B&B have come up with," said
Keith Bowman, equity analyst at Hargreaves Lansdown
Stockbrokers.
"It's the profit scenario as much as anything else.
Obviously it does raise nerves as to rights issues across the
sector."
The FTSEurofirst 300 index <> fell 1 percent while
MSCI main world equity index <.MIWD00000PUS> slipped 0.1 percent
on the day.
European banks <.SX7P> fell 1.7 percent to a fresh two-month
low with UK banks such as HBOS <HBOS.L> and Alliance & Leicester
<ALLL.L> falling between 7 and 10 percent.
European banks and cash strapped firms are expected to ask
investors for a record $100 billion this year in the form of big
rights issues. Banks have the biggest deals in the pipeline as
they attempt to rebuild capital positions that have been hit by
credit-related writedowns.
The cost of insuring European bank debt against default rose
after Bradford & Bingley news. The Markit iTraxx Senior
Financials Index <ITFSR5EA=> widened 5 basis points to 69.5 bps.
Sterling fell 0.7 percent to $1.9627 <GBP=>.
"That (the financial sector) is the root cause of the
problem so any news like that will continue to push sterling
down," said Geoff Kendrick, currency strategist at Westpac.
Emerging sovereign spreads <11EMJ> tightened 4 basis points
while emerging stocks <.MSCIEF> were up 0.4 percent.
The June Bund future <FGBLM8> turned positive after Bradford
& Bingley news depressed stocks, trading up 25 ticks on the day.
JGB SELL-OFF
Growing inflation concerns and nervousness about investor
demand for an upcoming auction pushed Japanese government bonds
lower, pushing yields up across the board.
The two-year yield <JP2YTN=JBTC> rose 2.5 basis points to a
10-month high of 0.930 percent, fully reflecting expectations
for a quarter-point rate hike from 0.5 percent in the months
ahead as well as the possibility of another.
Government bond yields in the euro zone, Japan and the U.S.
hit 2008 highs last week as investors unwound safe-haven trades
they had put on during the worst phase of the credit crisis
after strong U.S. data and higher euro zone inflation figures.
U.S. light crude <CLc1> fell 0.6 percent to $126.57 a
barrel. Gold <XAU=> inched lower on the day to $883.75 an ounce.
(Additional reporting by Michael Taylor and Toni Vorobyova)
