Dec. 12 (Bloomberg) -- European stocks dropped for a second day, trimming their weekly advance, as the U.S. Senate’s rejection of a bailout for American automakers threatened to deepen the global recession.

Daimler AG sank 4.2 percent after senators voted down a bill to provide $14 billion of emergency funds for General Motors Corp. and Chrysler LLC. HBOS Plc slumped 23 percent, leading a retreat among financial shares, as the U.K. bank that is being taken over by Lloyds TSB Group Plc reported a bigger-than-estimated increase in corporate delinquencies.

“The markets are in a very dire situation and are in a very risk-averse situation,” said Robert Drijkoningen, The Hague-based head of the multi-asset group at ING Investment Management, which has $488 billion under management. “The short-term is bleak,” he said on Bloomberg Television.

The Dow Jones Stoxx 600 Index lost 2.7 percent to 198.22, trimming this week’s gain to 4.4 percent. The dollar fell against the euro and the cost of protecting corporate bonds against default soared. Metals and oil slumped.

The Stoxx 600 has slid 46 percent this year as almost $1 trillion in bank losses and writedowns froze credit markets and pushed the U.S., Europe and Japan into the first simultaneous recessions since World War II.

National benchmark indexes fell in all 18 western European markets. The U.K.’s FTSE 100 slid 2.5 percent, while France’s CAC 40 lost 2.8 percent. Germany’s DAX slipped 2.2 percent.

Daimler, BMW

Daimler, the world’s second-biggest maker of luxury cars, sank 4.2 percent to 24.06 euros and Bayerische Motoren Werke AG, the largest, fell 2 percent to 22 euros.

The U.S. is the No. 1 market for BMW and the second-biggest for Daimler’s Mercedes-Benz. Both carmakers have factories there, and while they and other German brands control about 7 percent of the American market, they compete more with each other than with GM and Ford.

The Bush administration would consider using money from a fund intended to rescue U.S. financial markets to prevent the collapse of the nation’s auto companies, White House spokeswoman Dana Perino said today.

A collapse of GM and Chrysler “is worrisome for the U.S. in particular, but we are in a synchronized world so it will have an impact elsewhere,” said Franz Wenzel, Paris-based deputy director for investment strategy at Axa Investment Managers, which oversees $770 billion. “It puts into question any chance of a U.S. recovery that we had expected from mid-2009 onwards.”

Nokian Renkaat

Nokian Renkaat Oyj slumped 13 percent to 7.97 euros. The Nordic region’s biggest tiremaker said fourth-quarter sales have been weaker than expected.

Credit-default swaps, contracts conceived to protect bondholders against default, on the Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 6.5 basis points to 206, according to JPMorgan Chase & Co. prices in London. That’s up from about 50 basis points at the start of this year.

Platinum, used to make catalytic converters for car and truck exhaust systems, tumbled more than 4 percent, extending a nine- month plunge from a record to trade below gold. Crude oil dropped as much as 9.7 percent, trimming yesterday’s 10 percent rally.

HBOS slumped 23 percent to 67.5 pence after saying this year’s charge for bad loans rose to 5 billion pounds ($7.5 billion). Lloyds shares retreated 18 percent to 129.9 pence.

UBS AG, the European bank with the biggest losses from the credit crisis, lost 8.5 percent to 14.41 francs. Credit Agricole SA, France’s largest bank by branches, retreated 7.5 percent to 8.89 euros.

Deutsche Bank AG slumped 4.9 percent to 26.52 euros. The German bank shaken last quarter by a $1.68 billion loss trading for the firm’s account, is reeling again, this time from about $1 billion of bad bets in a unit led by credit trader Boaz Weinstein in New York, people familiar with the matter said.

Michele Allison, a New York-based spokeswoman for Deutsche Bank, declined to comment as did Weinstein when reached on his phone.

To contact the reporter for this story: Adam Haigh in London at ahaigh1@bloomberg.net.

Last Updated: December 12, 2008 13:05 EST