By Sarah Jones Oct. 2 (Bloomberg) -- European stocks dropped the most in three months and U.S. index futures retreated after a report showed employers in America cut more jobs than forecast, spurring concern unemployment will stifle an economic recovery. Xstrata Plc and Repsol YPF SA declined as metals and oil prices slid. Renewable Energy Corp. ASA sank 10 percent after the Norwegian solar-energy producer said the “weak” wafer market will hurt earnings. Royal Bank of Scotland Plc and Lloyds Banking Group Plc slumped more than 4 percent as talks continued with the U.K. government about implementation of the 576 billion-pound ($913 billion) Asset Protection Scheme. Europe’s Dow Jones Stoxx 600 Index slid 2.4 percent to 233.01 at 2:06 p.m. in London, extending its second straight weekly drop to 2.5 percent. U.S. payrolls fell by 263,000 workers in September, the Labor Department said today, a bigger decrease than the 175,000 jobs forecast by economists in a Bloomberg survey. The data is “giving fuel to those who think we are in a bit of a fools paradise,” said Robert Talbut, who helps oversee about $331 billion as chief investment officer at Royal London Asset Management. “Risk assets can make further progress and I believe corporate news is going to surprise to the upside. The last couple of days or so have not reversed my view, but have certainly made me a little bit more nervous.” Futures on the Standard & Poor’s 500 Index lost 1.4 percent, indicating the benchmark measure for U.S. equities may extend its 1.4 percent weekly slide, as the U.S. unemployment rate rose to 9.8 percent, the highest since 1983. Whitney, Zoellick Meredith Whitney, whose 2007 prediction that Citigroup Inc. would cut its dividend triggered a plunge in the bank’s stock, said in the Wall Street Journal that the U.S. economic recovery will falter as banks continue to curb lending to small companies. World Bank President Robert Zoellick said the global economy will recover slowly from its worst recession since World War II and the Washington-based lender may require a capital increase to meet developing countries’ financing needs. “We’ve broken the fall of the financial crisis,” Zoellick said today at a news conference in Istanbul. Still, 2009 “will continue to be a difficult year” and “you’ll have a slow recovery,” he said. Europe’s Stoxx 600 has surged 28 percent since March 9 and recorded its biggest quarterly gain since 1999 in the three months through September as the European Central Bank kept interest rates at a record low and the French and German economies unexpectedly exited recessions. The rebound has sent price-earnings valuations on the index this month to the highest levels since 2003. Xstrata, Rio Xstrata led mining shares lower, falling 6.3 percent to 817.5 pence as copper, lead, nickel and zinc retreated on the London Metal Exchange. Rio Tinto Group lost 5 percent to 2,448 pence, while Lonmin Plc slid 6.7 percent to 1,435 pence, extending yesterday’s 8.1 percent slump. Repsol, Spain’s largest oil producer, lost 2 percent to 17.85 euros as crude for November delivery dropped as much as 2.8 percent to $68.86 a barrel on the New York Mercantile Exchange. Total SA, Europe’s third-biggest oil company, fell 1.6 percent to 39.28 euros. Renewable Energy Corp. retreated 10 percent to 42.3 kroner after the maker of solar-energy products said contract adjustments for wafers will have an adverse effect on earnings next year. ‘Weak Market’ “It’s likely that the present weak market will continue in 2010, and it is therefore in REC’s best interest to make additional contractual adjustments related to 2010,” the company said. “Such adjustments will have an adverse effect on Ebitda.” RBS dropped 7.9 percent to 46.54 pence and Lloyds declined 4.8 percent to 94.5 pence. Using the Asset Protection Scheme would cost the two banks more than 26 billion pounds in fees and result in increases in the government’s shareholding, currently 70 percent at RBS and 43 percent at Lloyds. “There is the question of fundraising for Lloyds and RBS in order to partially withdraw from the APS,” said Simon Willis at NCB Securities Ltd. in London who has a “sell” rating on Lloyds and “reduce” on RBS. “After a fantastic third quarter the market is nervous coming to the fourth quarter.” Veolia Environnement SA sank 5.2 percent to 24.50 euros as Arnaud Joan, a Paris-based analyst at Kepler Capital Markets lowered his 2009 earnings outlook for the world’s biggest water utility. Veolia Slips “We heard rumors that Veolia was calling analysts to guide Ebitda lower,” said Marie-Caroline Messager, senior equities manager at Newedge Group in London. “That’s weighing on the shares.” Veolia spokeswoman Marie-Claire Camus said the company hasn’t changed its earnings guidance given on Aug. 6 when first- half results were published. Tesco Plc, J Sainsbury Plc and William Morrison Supermarkets Plc retreated after Citigroup Inc. initiated coverage of the retailers with a “sell” recommendation, which said weakening inflation may hurt profit at the U.K. supermarket chains. Tesco fell 1.5 percent to 388 pence, Sainsbury slipped 0.3 percent to 322 pence and Morrison declined 0.9 percent to 275.3 pence. CIT Group Inc. climbed 8.5 percent to $1.15 in pre-market New York trading. The 101-year-old commercial lender is seeking to cut at least $5.7 billion of debt as part of a plan to avoid collapse and return to profitability after nine quarters of losses. Carlsberg A/S dropped 6.9 percent to 337 kroner after Deutsche Bank AG downgraded the Danish brewer to “sell” from “hold,” saying investors are “overly sanguine” about Russia’s anti-alcohol campaign. To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.

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