Jan. 13 (Bloomberg) -- European stocks fell for a fifth day after Alcoa Inc. posted a wider-than-estimated loss and home sales in the U.K. dropped to the lowest on record, deepening concern earnings will deteriorate.

Rio Tinto Group retreated 3.2 percent after the company suspended a copper mine expansion and Alcoa, the largest U.S. aluminum producer, reported its first quarterly net loss in six years. Barclays Plc slid 10 percent, leading declines among U.K. banks as the Royal Institution of Chartered Surveyors said home sales sank to the lowest since 1978. France Telecom SA slipped 1.6 percent after UBS AG recommended selling the shares.

The Dow Jones Stoxx 600 Index fell 1.4 percent to 201.66, having lost 5.3 percent in the past five days as U.S. companies from Alcoa to Intel Corp. and Wal-Mart Stores Inc. spurred concern the profit outlook is worsening, while unemployment in the U.S. climbed to the highest in almost 16 years.

“People are refocusing back on disappointing economic and corporate news and risk aversion has risen again,” said Robert Talbut, who helps manage about $31 billion of assets as chief investment officer at Royal London Asset Management. “Earnings news is going to be disappointing.”

The Stoxx 600 has tumbled 45 percent since the start of last year as about $1 trillion in losses at financial companies eroded profits and the U.S., Europe and Japan fell into simultaneous recessions.

National benchmark indexes decreased in 16 of the 18 western European markets. France’s CAC 40 lost 1.5 percent and Germany’s DAX retreated 1.8 percent. The U.K.’s FTSE 100 slipped 0.6 percent as Royal Bank of Scotland Group Plc tumbled.

Currencies

Concern that equity losses will deepen pushed stock-market volatility in Europe higher for a second day. The pound fell for a third day against the dollar after reports by lobby groups including the British Chambers of Commerce showed the U.K. economy slumped the most in at least two decades during the fourth quarter.

“Underlying data has deteriorated and there is still big uncertainty of the magnitude of the recession we are in,” said Sonja Schemmann, who oversees about $700 million at Schroders Plc in London.

Barclays, Britain’s fourth-largest bank, sank 10 percent to 165.9 pence. Royal Bank of Scotland, the biggest government- controlled bank in the U.K., tumbled 7.1 percent to 51.1 pence.

The RICS report still suggested that the property bust may have started to bottom out. The index for house prices, which is the percentage difference between the surveyors reporting higher prices and those reporting price declines, rose to minus 73 last month. That’s the highest since February.

Rio Tinto

Rio Tinto retreated 3.2 percent to 1,555 pence. The company has delayed work on a $371 million program to automate iron ore trains in Western Australia and suspended a copper mine expansion because of the global recession.

Alcoa reported a fourth-quarter net loss of $1.19 billion because of “historic” price declines and said demand for aluminum may continue to weaken in 2009. The company unofficially kicked off the earnings season in the U.S. as the first Dow Jones Industrial Average company to report results.

Profits for companies in the Standard & Poor’s 500 Index probably fell 20 percent in the fourth quarter of 2008, according to analysts’ estimates compiled by Bloomberg. That would mark the sixth straight period of declining earnings, the longest stretch on record.

France Telecom dropped 1.6 percent to 19.34 euros after Europe’s third-largest telephone company was lowered to “sell” from “neutral” at UBS, citing increased foreign exchange “risks.”

Taylor Wimpey

Taylor Wimpey Plc sank 24 percent to 19 pence. The U.K. builder that’s in survival talks with creditors sold 35 percent fewer homes last year and will make further writedowns of its land amid the U.K.’s worst housing slump for 30 years.

Fortis, the financial-services firm whose breakup is suspended pending a shareholder vote, rallied 18 percent to 1.51 euros on speculation investors will reject the government- brokered sale to BNP Paribas SA.

Concern that stock losses will deepen remains elevated even after falling from record levels. The benchmark for European options, the VStoxx Index, rose 4.3 percent to 46.21, bringing its two-day gain to 12 percent, the largest since November.

While stock-market volatility climbed, declines in measures of borrowing costs today suggested that governments efforts to slash interest rates and lend unprecedented amounts of cash directly to banks are helping thaw credit markets.

Credit Markets

The London interbank offered rate, or Libor, that banks say they charge each other for such loans slid seven basis points to 1.09 percent, the lowest level since June 2003, according to British Bankers’ Association data. The difference between how much the U.S. Treasury and banks pay for three-month loans, the so-called TED spread, dropped below 100 basis points for the first time in five months.

Federal Reserve Chairman Ben S. Bernanke warned that a fiscal stimulus won’t be enough to spur an economic recovery and that the government may need to buy or guarantee banks’ tainted assets to revive growth.

“Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system,” Bernanke said in a speech today at the London School of Economics. “More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets.”

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.

Last Updated: January 13, 2009 12:05 EST