NEW YORK (Reuters) - Mattel Inc., the largest U.S. toy company, recalled millions more Chinese-made toys on Tuesday due to hazards from small, powerful magnets and lead paint, and warned it may recall additional products as it steps up testing on thousands of toys.
Mattel's second recall this month came as it launched a national advertising campaign to assure consumers it is on top of product safety. The latest recall raised the prospects of legal liability for the California-based company.
Mattel stock fell as much as 6 percent on the day.
Consumer safety officials and Mattel executives both pledged to increase manufacturing and testing standards to ensure children's safety.
"There is absolutely no excuse for lead to be found in toys entering this country," said Nancy Nord, acting chairwoman of the U.S. Consumer Product Safety Commission (CPSC).
"It is totally unacceptable and it needs to stop. This agency is going to take whatever action it needs to take to address that problem aggressively," she added.
The new recall involves 18.2 million magnetic toys globally, including 9.5 million in the United States, with magnets or magnetic parts that can be dislodged.
The CPSC said it had received hundreds of reports of magnets coming loose. It said it had previously received reports of three children swallowing more than one magnet and suffering intestinal blockage that required surgery. When more than one magnet is swallowed, the magnets can attract each other and cause the blockage, which can be fatal.
The U.S. recall includes 7.3 million Polly Pocket dolls and accessories with magnets, 1 million Doggie Day Care magnetic toys, 683,000 Barbie and Tanner magnetic toys, and 345,000 Batman and One Piece play sets.
About 253,000 Pixar Sarge die-cast toy cars with lead paint were also recalled. Lead has been linked to health problems in children, including brain damage.
Earlier this month, Mattel's Fisher-Price unit recalled about 1.5 million preschool toys made by China-based contract manufacturer Lida Toy Co. because the paint on the toys might contain excessive amounts of lead. That recall included products based on popular characters from "Sesame Street" and "Dora the Explorer."
Mattel Chief Executive Robert Eckert declined in an interview to say what the financial impact from the latest recalls would be. He said, though, that a large portion of the recall was accounted for in a $30 million charge Mattel would take after the Fisher-Price recall.
"There could be additional recalls," Eckert told reporters. "We are testing at a very high level here. No system is perfect. What's important is that parents understand what we're doing to fix those issues."
Meanwhile, Mattel recalled millions of its Chinese-made toys across Europe on Tuesday, including Barbie and Batman.
A Mattel spokesman in Belgium said the company had issued a "voluntary recall" of products across the 27-member bloc. He could not say how many products in total would have to be returned across the whole of the EU.
There has been concern worldwide about the safety of goods imported from China. The U.S. stepped up its inspection of Chinese goods after a chemical additive in pet food caused the death of some animals earlier this year.
In June, RC2 Corp. recalled Chinese-made wooden Thomas & Friends toy trains sold in the U.S. because some of them contained lead paint.
With more than 80 percent of toys on U.S. store shelves manufactured in China -- according to the Toy Industry Association -- retailers are worried consumers will stay away from Chinese-made products.
Analysts said Mattel's brand name has been hurt.
"The real issue longer term is how this affects the Fisher-Price brand equity," said Oppenheimer analyst Linda Bolton Weiser. "Even though everything's made in China, it's still specific products and brands that have been recalled."
Wedbush Morgan Securities analyst Sean McGowan said Mattel is known to take safety more seriously than its peers.
The recall involves "a tiny, tiny percentage of the toy market" and of Mattel's products, McGowan said, adding that toy recalls usually only affect consumer buying of the products in question, not companies' entire lines.
Mattel's largest previous recall came in 1998, when it withdrew 10 million Power Wheels vehicles made by Fisher-Price.
The company has said it is expanding its testing programs to ensure that painted toys from third-party manufacturers are safe before they are sent to stores.
The independent watchdog group Consumers Union is calling for third-party testing for toys similar to what independent tester Underwriters Laboratories does for small electronics.
"Certainly, consumers have lost confidence," said Don Mays, senior director for Consumers Union's product safety planning and technical administration. "People have said they cannot trust products from China, and they will not buy products from China."
Mattel risks lawsuits and has a public relations problem on its hands, legal and public relations experts said.
"Mattel has a spectacular reputation that they risk now in a very dramatic way," said Howard Rubenstein, founder of public relations firm Rubenstein Associates Inc. "It is a mighty blow."
Mattel ran full-page ads in Tuesday's Wall Street Journal, New York Times and USA Today, featuring three children playing together and a letter from CEO Eckert addressed to "Fellow Parents."
"Nothing is more important than the safety of our children," Eckert said.
News of the second recall came soon after an owner of the Chinese toy factory at the center of the first recall was reported to have committed suicide.
Mattel shares closed down 2.4 percent, or 57 cents, to $23.00 on the New York Stock Exchange after falling as low as $22.10.
(For more details on the toys being recalled, please see here on the CPSC Web site)
(See here for "Shop Talk" -- Reuters' retail and consumer blog)
Additional reporting by Jessica Wohl and Regan Doherty in Chicago, Julie Vorman in Washington, Justin Grant in New York and Darren Ennis in Brussels, editing by John Wallace/Jeffrey Benkoe