Global stocks tumble as auto, banking woes deepen

LONDON (Reuters) - World stocks hit a one-week low and government bonds rose on Monday after General Motors and Chrysler edged closer to bankruptcy as their turnaround plans were rejected and tensions rose in Europe’s banking sector.

The Obama administration’s autos task force rejected multi-billion dollar pleas from the two U.S. automakers for more funds and warned both could be put through bankruptcy to slash debts. The auto industry woes are putting more pressure on Group of 20 leaders as they meet in London this week to discuss measures to tackle the crisis.

In the latest sign of global stress, Spain was forced to bail out regional savings bank Caja Castilla la Mancha, its first banking rescue since the financial crisis began.

"Today's main negative trigger is the GM-Chrysler news. Add to this the Spain bailout and it's clear that the markets are falling," said Giuseppe-Guido Amato, strategist at Lang & Schwarz in Germany. MSCI world equity index .MIWD00000PUS fell 1.8 percent, having risen 4.5 percent last week. The FTSEurofirst 300 index .FTEU3 fell 2.3 percent.

Banking sector concerns intensified also after Germany and Britain acted to shore up lenders.

Germany's government has agreed to take an 8.7 percent stake in stricken Hypo Real Estate HRXG.DE as a prelude to acquiring full control. Britain helped orchestrate the takeover of building society Dunfermline by Nationwide.

U.S. stock futures were down around 2.3 percent, pointing to a weaker start on Wall Street. GM shares fell 18 percent in pre-market trading GM.N.

“The market is at a period of maximum vulnerability, its easy to recover from lows but its hard to see traction for recovery with the macro view not being prepossessing and the earnings outlook remains dire,” said Jeremy Batstone-Carr, analyst at Charles Stanley.

Emerging stocks .MSCIEF lost 4 percent

U.S. crude oil fell 3.2 percent to $50.70 a barrel.

The June bund futures contract rose 34 ticks.

The low-yielding yen, which rises in times of risk aversion, gained 1.4 percent to 96.67 per dollar. The euro was down a third of a percent at $1.3181 while the dollar .DXY rose 0.6 percent against a basket of major currencies.


Investors are looking to this week’s G20 summit to see if the leaders can further bolster confidence in equity markets, which are on track for the biggest monthly gain in nearly 9 years despite Monday’s losses.

The Financial Times newspaper, quoting a draft communique, said the G20 leaders hope to restore global growth by the end of 2010 but much depends on when the United States pulls out of its economic tailspin.

“It is “make or break time’ and politicians and central bankers have to decide to agree or disagree, to find a global policy response or to continue uncoordinated isolated national approaches eventually leading to financial and market protectionism making this crisis even worse,” BNP Paribas said in a note to clients.

Additional reporting by Christoph Steitz and Simon Falush