Stocks fell around the world for the first time in four days as investors speculated the highest valuations for equities in three years would decline after the Federal Reserve cut its forecast for the U.S. economy and former Fed Chairman Alan Greenspan said banks are still in peril. The pound, gilts and the FTSE 100 Index dropped as Standard & Poor’s cut the U.K.’s ratings outlook. The MSCI World Index lost 0.6 percent at 12:30 p.m. in London. The Dow Jones Stoxx 600 Index of European shares retreated from a four-month high, sliding 1.4 percent, while futures on the S&P 500 slipped 0.6 percent. The pound slid 0.7 percent against the dollar and the euro after S&P lowered its outlook on the U.K.’s AAA rating to “negative” from “stable” for the first time. The MSCI’s gauge of 23 developed countries rallied 38 percent since March 9 and traded at 17.8 times the earnings of its 1,677 companies yesterday, the most expensive since March 2006. Investors said that may be too high after Greenspan warned U.S. banks will need to raise “large” amounts of money and “we still have a very serious potential mortgage crisis.” “Greenspan’s comments are eminently sensible,” said Gary Jenkins, head of credit research at Evolution Securities in London. “To restore confidence in the capital markets we need to restore confidence in the banking system.” Pound, Gilts Fall The pound fell to $1.5641 against the dollar from $1.5755 yesterday, trimming its weekly advance to 3 percent, while the FTSE 100 tumbled 2 percent. The U.K.’s AAA outlook was lowered because of the nation’s increasing debt, S&P said in a statement. The government’s budget deficit this year will reach 175 billion pounds ($273 billion), or 12.4 percent of gross domestic product, Chancellor of the Exchequer Alistair Darling said on April 22. The difference in yield between U.K. 10-year gilts and equivalent German securities widened nine basis points to 24 basis points following the statement. The Markit iBoxx Sterling Non-Financials index of bonds sold by U.K. companies fell as much as 0.9 percent, the most since April 2, to a one-week low of 94.24. Credit-default swaps tied to British government bonds rose 5 basis points to 78.5, prices from Frankfurt-based Deutsche Bank AG show, signaling a drop in perceptions of credit quality. Britain would become the fifth western European Union nation to lose its rating because of the economic slump, following Ireland, Greece, Portugal and Spain. The U.K. plans to sell a record 220 billion pounds of bonds in the fiscal year through March 2010 as the recession cuts revenue and forces the government to raise spending. ‘A Bit Late’ “Didn’t they see the budget when it came out? They are a bit late, aren’t they?” said Ian Williams, London-based chief executive officer of Charteris Portfolio Managers, which managed the best performing gilt fund this year. “This won’t change the way I invest. I don’t think in the real world it will affect the ability of the U.K. government to pay coupons on gilts. Unlike the euro zone, they can print money.” The U.K. sold all 5 billion pounds of five-year bonds the government offered at an auction today. Five-year gilts pared their declines following the auction, with the yield on the note rising seven basis points to 2.63 percent after earlier jumping as much as 13 basis points. Dollar, Fed The dollar slid to an eight-week low against the yen and the weakest level in almost five months versus the euro after the minutes of the Fed’s April 28-29 meeting, released yesterday, showed policy makers saw “significant downside risks” to the economy with the global financial system still “vulnerable to further shocks.” Fed policy makers in April projected a fourth-quarter U.S. contraction of 1.3 percent to 2 percent from a year earlier, with a jobless rate as high as 9.6 percent. Both are more pessimistic than forecasts in January. For 2010, Fed officials in April foresaw economic growth of 2 percent to 3 percent, compared with 2.5 percent to 3.3 percent in January. Treasuries rose, with the yield on the 10-year note falling to 3.17 percent before the government announces next week’s auctions of two-year, five-year and seven-year notes. Jersey City, New Jersey-based Wrightson ICAP LLC estimates the Treasury will sell $104 billion to help fund President Barack Obama’s economic rescue plan. The London interbank offered rate, or Libor, for three- month loans in dollars fell six basis points to 0.66 percent today, the most since March 19. Stock Valuations Valuations on Europe’s Stoxx 600 rose to 24.2 times earnings, the highest since 2004 as credit markets recovered. The MSCI Asia Pacific Index traded yesterday at 42.9 times profit, the most expensive since 2003, after a two-month, 42 percent surge. British Land Co. fell 5.8 percent to 390 pence. The largest office developer in London posted an annual loss of 3.88 billion pounds as property values slumped. The builder was projected to have a loss of 2.96 billion pounds, according to the median estimate of five analysts in a Bloomberg survey. Futures on the S&P 500 slid 0.7 percent to 894, suggesting the benchmark index for American equities will trim its 34 percent advance since March 9. U.S. stocks are at the start of a bull market that may spur an 88 percent gain in the S&P 500 in the next two or three years, Laszlo Birinyi said. ‘Bull Market’ “We’re confident we are in a bull market,” Birinyi, the founder of Westport, Connecticut-based research and money- management firm Birinyi Associates Inc., said in an interview with Bloomberg Television yesterday. The MSCI Emerging Markets Index fell for the first time in five days, dropping 1.2 percent to 747.37 after reaching a seven-month high yesterday. Crude oil for July delivery dropped as much as 2.4 percent to $60.56 a barrel on the New York Mercantile Exchange. Copper for delivery in three months fell as much as 3.6 percent to $4,474 a metric ton on the London Metal Exchange. Gold for immediate delivery rose as much as 0.6 percent to $943.83 an ounce, the highest compared with intraday prices since March 26.

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