(Adds Wall Street outlook, LIBOR)
By Natsuko Waki
LONDON, June 2 (Reuters) - World stocks began June on a
negative note and sterling hit a one-week low versus the dollar
on Monday after a slump in profits at UK bank Bradford & Bingley
<BB.L> added to concerns about the financial 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 had quit on Sunday,
less than a month after surprising investors with an emergency
cash call. Its shares sank 25 percent on Monday.
"It rekindles concerns over the banking sector, and we're
probably going to see more asset writedowns in the market," said
Chicuong Dang, equity analyst at Richelieu Finance.
The FTSEurofirst 300 index <> fell 1.2 percent while
MSCI main world equity index <.MIWD00000PUS> slipped 0.15
percent on the day. U.S. stock futures were down around half a
percent <SPc1>, indicating a weaker open on Wall Street later.
European banks <.SX7P> fell 1.9 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 at one point.
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.
POUND UNDER PRESSURE
Sterling fell 1.2 percent to $1.9597 <GBP=>, also coming
under pressure after data showed the UK manufacturing sector
stagnating and mortgage approvals tumbling to a record low.
"It's hard to get much of an attraction to sterling at the
moment," said Mitul Kotecha, head of FX research at Calyon.
"We are going to get pieces of bad news like this (B&B), we
know that not just UK banks but generally the financial sector
troubles are not entirely over."
Concerns over the banking sector pushed up the cost of
borrowing three-month sterling funds <LIBOR>, with the premium
of interbank rates over anticipated official rates widening.
The cost of insuring European bank debt against default also
rose after B&B news. The Markit iTraxx Senior Financials Index
<ITFSR5EA=> widened 5 basis points to 69.5 bps.
The June Bund future <FGBLM8> turned positive after B&B news
depressed stocks, trading up 24 ticks on the day.
JGB SELL-OFF
Growing inflation concerns and nervousness about investor
demand for an upcoming auction pushed Japanese government bonds
lower, increasing yields 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 1.3 percent to $125.73 a
barrel. Gold <XAU=> rose on the day to $888.70 an ounce.
Emerging sovereign spreads <11EMJ> tightened 4 basis points
while emerging stocks <.MSCIEF> were up 0.15 percent.
(Additional reporting by Blaise Robinson and Veronica Brown;
editing by Keith Weir)
