May 13 (Bloomberg) -- U.S. and European stocks fell as American retail sales unexpectedly decreased in April, the Bank of England said the U.K. economy faces a slow recovery and companies from ING Groep NV to Applied Materials Inc. posted losses. Treasuries rose, while copper tumbled for a fifth day.

Walt Disney Co., Fortune Brands Inc. and Best Buy Co. slid after the government said purchases at U.S. stores dropped 0.4 percent last month. ING, the largest Dutch financial-services company, retreated 10 percent on a third-straight quarterly loss. A measure of U.S. banks declined 6.5 percent. Applied Materials, a maker of chip-production machines, sank 4.3 percent amid slower demand for computer displays and solar panels.

The Standard & Poor’s 500 Index slumped for a third day, its longest streak of declines since the beginning of March. The gauge lost 2.7 percent to 883.92 at 4:05 p.m. in New York. The Dow Jones Industrial Average dropped 184.22 points, or 2.2 percent, to 8,284.89. Sixteen stocks fell for each rising on the New York Stock Exchange, the broadest sell-off in three weeks.

“The market had gotten ahead of itself in thinking we were coming out of this recession aggressively,” said Peter Jankovskis, who helps manage $1.2 billion at OakBrook Investments in Lisle, Illinois. “We’re not going to be retesting the low of March 9 by any stretch of the imagination, but some retracement of the gains since that time is certainly in order.”

Rally Halted

The S&P 500’s 4.9 percent loss over the past three days wiped out most of a rally last week that was driven by speculation the banking industry is improving following the government’s stress tests and a report that showed a slowing pace of job cuts. The index is down 2.1 percent in 2009 as concern stocks had gotten too expensive halted a 31 percent rebound from a 12-year low March 9.

The index was valued at almost 15 times reported earnings of its companies at the start of trading, near the highest level since October.

Europe’s Dow Jones Stoxx 600 Index slid 2.7 percent, while Asia’s regional benchmark added 0.3 percent.

The two-month rally in global equities does not herald the start of a bull market because price swings are too violent, according to Bank of America Corp. So-called realized volatility on the S&P 500 over the past month is about 31, compared with readings of about 20 during eight prior bull-to-bear market transitions since 1928, according to the brokerage.

“Going back to the Great Depression, we have never seen a long-term bull market begin with volatility as high as current levels,” Benjamin Bowler, London-based head of global equity derivative research, wrote in a report dated yesterday.

Retail Slump

Disney, the world’s largest theme-park operator, retreated 3 percent to $23.60. Fortune Brands, maker of Jim Beam bourbon and Titleist golf balls, slid 5 percent to $36.09. Best Buy tumbled 5 percent to $35.20. A gauge of 28 retailers in the S&P 500 sank 3.3 percent as all but one declined.

The 0.4 percent decrease in retail sales followed a revised 1.3 percent drop in March that was larger than previously estimated. Excluding auto dealers, sales fell 0.5 percent. Fewer jobs, falling home values and the biggest loss of household wealth on record may limit consumers’ ability to spend for years, analysts said.

Macy’s Slides

Macy’s Inc. slid 6.7 percent to $11.52. The second-biggest U.S. department-store chain posted a wider loss in the first quarter after marking down merchandise amid shrinking sales.

The KBW Bank Index dropped 6.5 percent, led by Fifth Third Bancorp, Marshall & Ilsley Corp. and Huntington Bancshares Inc. Citigroup Inc., the bank rescued by $45 billion in U.S. taxpayer funds, retreated 6.8 percent to $3.41. Bank of America slumped 10 percent to $11.01.

ING plunged 10 percent to 7 euros following a worse-than- estimated quarterly loss from equity writedowns, higher loan- loss provisions and reorganization costs.

MasterCard Inc. sank 4.2 percent to $170.76. The world’s second-largest electronic payments network reiterated that annual revenue growth for 2009 will fall below its long-term target of 12 percent to 15 percent.

“We’re having a little bit more difficulty seeing clear winners” among financials, said Nicholas Sargen, who oversees about $30 billion as chief investment officer at Fort Washington Investment Advisors in Cincinnati. “This isn’t going to be your traditional V-shaped recovery,” he told Bloomberg Television.

Housing Slump

Real estate brokers and homebuilders slumped after foreclosure filings in the U.S. rose to a record for the second month in April. One in 374 households received a default or auction notice or had property seized last month, the highest rate since data service RealtyTrac Inc. began the reports in 2005.

The S&P 500 Real Estate Index sank 6.6 percent, the steepest drop among 24 industries. Centex Corp. and Lennar Corp. fell more than 7.3 percent, helping drag a gauge of homebuilders to a 5.7 percent loss.

Land Securities Group Plc dropped 13 percent to 468 pence in London. The U.K.’s largest real estate investment trust reported a record annual loss as the value of properties from Birmingham’s Bullring mall to Cardinal Place in London slumped.

Applied Materials decreased 4.3 percent to $10.99. The company reported a second straight loss and said it expects to lose money again this quarter.

Earnings per share shrank 37 percent on average for the 435 companies in the S&P 500 that reported first-quarter results since April 7, according to data compiled by Bloomberg. The quarter is poised to be the seventh consecutive period of declining profits, the longest streak on record.

AAA Concern

The U.S.’s AAA debt rating may be cut because the government can’t control spending, David Walker, chief of the Peter G. Peterson Foundation and former U.S. comptroller general, wrote in the Financial Times newspaper.

Treasuries rose, sending yields on the benchmark 10-year note down 0.08 percentage point to 3.1 percent.

Copper decreased 3.2 percent in New York and the Reuters/Jefferies CRB Index of 19 commodities slipped 1.1 percent as cotton, sugar and hogs declined.

Alcoa Inc., the largest U.S. aluminum producer, tumbled 8.8 percent to $8.63. China, the world’s largest aluminum producer, may have restarted as much as 1.4 million metric tons of capacity in April, according to an analyst at Aluminum Corp. of China Ltd. Alcoa said earlier this week that there is still “significant oversupply” of the metal.

International Business Machines Corp., the world’s biggest computer-services provider, slid 1.6 percent to $102.26 even after saying it’s “ahead of pace” to meet its 2010 earnings forecast of $10 to $11 a share, as long-term contracts shield it from the recession.

Dr Pepper Snapple Rallies

Dr Pepper Snapple Group Inc. gained 3.8 percent to $22.07. The beverage maker spun off by Cadbury Plc last year posted first-quarter profit that beat analysts’ estimates and raised its 2009 forecast after increasing prices and cutting expenses.

For the first time since the Bloomberg Professional Global Confidence Survey began in 2007, investors are forecasting the S&P 500 will climb after earnings at companies from Wells Fargo & Co. to Ford Motor Co. sparked optimism that the worst of the financial crisis is over.

They estimate that Brazil’s Bovespa and Mexico’s Bolsa will advance during the next six months and became less convinced that France’s CAC 40, Germany’s DAX, the IBEX 35 in Spain and the U.K.’s FTSE 100 will drop.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

Last Updated: May 13, 2009 16:39 EDT