Aug. 14 (Bloomberg) -- European stocks fell, led by financial-services companies after UBS AG said profit growth may slow and bank shares declined in the U.S. and Asia.

UBS dropped the most in five months after Europe's largest bank said earnings in the second half may fall if ``turbulent'' market conditions continue. Deutsche Bank AG and Credit Suisse Group paced losses by banks. William Morrison Supermarkets Plc slipped after the food retailer withdrew sliced cold meats from two Scottish stores as health officials investigate a fatal outbreak of e.coli.

The Dow Jones Stoxx 600 Index sank 1.3 percent to 365.99 at 4:07 p.m. in London as all the 18 industry groups dropped. The Stoxx 50 lost 1.4 percent, and the Euro Stoxx 50, a measure for the euro region, retreated 1.6 percent.

``Confidence isn't there, so people aren't rushing out to buy stocks,'' said Salah Seddik, who helps oversee about $5 billion at Richelieu Finance in Paris. ``We haven't yet finished with the subprime questions. We still don't know the extent of losses.''

U.S. stocks declined after Wal-Mart Stores Inc. and Home Depot Inc., the two largest U.S. retailers, said the housing slump, turmoil in the credit markets, and higher energy prices will depress earnings for the year.

Australia's Rams Home Loans Group Ltd. said today the shakeout in global debt markets may reduce profit. Ratings company DBRS said 17 Canadian asset-backed commercial paper issuers, including Coventree Inc., are seeking back-up financing from banks after failing to sell their short-term debt.

Yen Strengthens

``It's always been the worry that the subprime issue may spill over into companies' profits,'' said Lawrence Peterman, investment director at Eden Financial in London. ``Such uncertainty is still holding the market back.''

The yen rose to near the strongest in four months against the euro as concern over credit-market losses prompted investors to shun higher-yielding assets funded by loans in Japan. European Central Bank President Jean-Claude Trichet called on investors to keep their composure amid a period of ``market nervousness,'' after central banks pumped billions of dollars of emergency funds into the banking system.

National benchmarks fell in all 18 western European markets except Greece. France's CAC 40 decreased 1 percent, and Germany's DAX dropped 0.5 percent. The U.K.'s FTSE 100 slid 0.4 percent after losing as much as 0.9 percent.

`Very Volatile'

U.K. stocks pared earlier losses after a report showed the nation's inflation rate unexpectedly dropped last month to settle below the Bank of England's target, weakening the case for further interest-rate increases.

The economic data ``does offer a silver lining,'' said Andreas Nigg, who helps oversee $32 billion at Vontobel Asset Management in Zurich. ``Inflation is peaking in the U.K.''

UBS declined 3.3 percent to 63.9 francs, the biggest drop since March 14. The Swiss bank said credit market turmoil has made forecasting difficult and may cause ``very weak trading results.''

``Markets are currently very volatile, and forecasting is even more difficult than usual,'' the company said in a statement. ``If the current turbulent conditions prevail throughout the quarter, UBS will probably see a very weak trading result in the investment bank, offset by predictable earnings from wealth and asset management.''

Banking Stocks

Credit Suisse, Switzerland's second-largest bank, decreased 2.2 percent to 80.8 francs. Deutsche Bank, Germany's biggest bank, sank 2.1 percent to 95.09 euros.

Banco Santander SA fell 1.2 percent to 13.58 euros. Spain's largest bank has 2.2 billion euros ($3 billion) in high-risk loans in the U.S. at its Drive Financial unit, Spanish newspaper Abc reported, citing the lender's annual report.

International Personal Finance, which offers small, unsecured cash loans, slumped 5.4 percent to 188.5 pence and Cattles Plc, a provider of credit to low-income households in the U.K., sank 1.6 percent to 353.75 pence.

Morrison lost 2.2 percent to 260.25 pence. The supermarket group said today in a statement meat was removed from stores in the town of Paisley. One person died, and two others have been hospitalized, the company said.

Aegon NV fell 1.3 percent to 13.13 euros after the second- largest Dutch insurer agreed to buy two life insurance units from Merrill Lynch & Co. The deal allows Aegon's San Francisco-based Transamerica Corp. to offer the retirement savings products through Merrill's financial adviser network, said Pat Baird, the president and chief executive officer of Aegon's U.S. unit.

K+S, Grafton

Hochtief AG declined 0.8 percent to 69.82 euros. Germany's biggest construction company said second-quarter profit dropped after it failed to budget fully for increases in cement and steel costs.

K+S AG fell 6.2 percent to 106 euros. The world's third- largest producer of potash used in fertilizers said second- quarter net income increased to 42.2 million euros from 39 million euros. Sales increased 11 percent to 779 million euros. Analysts had estimated profit of 44.5 million euros on revenue of 769 million euros.

Grafton Group jumped 4.5 percent to 9.93 euros. Ireland's biggest builders' merchant said full-year earnings may rise by as much as 12 percent, underpinned by growth in the U.K.

Royal KPN NV added 4.6 percent to 11.32 euros. The largest Dutch phone company said it's not in talks to buy Bouygues SA's Bouygues Telecom because it's already in the process of acquiring Getronics NV.

Scottish & Newcastle Plc, the biggest U.K. brewer, increased on speculation Carlsberg A/S may bid for the company, adding 2.5 percent to 586.5 pence.

``The market's sell-off of late has prompted speculation that Carlsberg could pounce sooner rather than later with a 700 pence-a-share bid,'' said Lee Humphreys, head of European sales trading at E*Trade Securities in London.

Carlsberg's spokesman Jens Peter Skaarup said: ``We don't comment on rumors.'' Scottish & Newcastle wasn't immediately available for comment.

To contact the reporters on this story: Sarah Thompson in London at sthompson17@bloomberg.net

Last Updated: August 14, 2007 11:16 EDT