July 8 (Bloomberg) -- European stocks fell, sending the Dow Jones Stoxx 600 Index to the lowest in three years, as concern deepened that financial firms will need more capital and automakers forecast slumping sales.

Credit Suisse Group AG and Deutsche Bank AG led a retreat by banks after analysts said the two largest U.S. mortgage finance companies may have to raise a combined $75 billion. Bank of Ireland Plc tumbled after the lender said slowing economic growth is ``adversely impacting'' earnings. Carmakers sank as PSA Peugeot Citroen SA warned of a ``greater slowdown'' in demand in Europe and Fiat SpA said it will close four plants.

The Stoxx 600 dropped 1.8 percent to 278.06 at 3:54 p.m. in London, extending its 2008 decline to 24 percent. The U.K.'s FTSE 100 Index slid as much as 2.8 percent, extending its retreat from last year's high to 20 percent, the common definition of a bear market.

``Investors are nervous,'' said Chicuong Dang, an analyst at Richelieu Finance in Paris, which has $6.2 billion under management. ``The market is falling on fears of bad news from banks, of new writedowns and need for recapitalization.''

Financial stocks from UBS AG and HBOS Plc to Fannie Mae and Freddie Mac have led declines that erased more than $11 trillion from equity markets worldwide this year as credit-related losses topped $400 billion, forcing banks to raise more than $320 billion in capital and threatening to push the U.S. into recession.

`Earnings Always Fall'

``In a recession, earnings always fall,'' said Joost van Leenders, Amsterdam-based investment specialist for asset allocation at Fortis Investments, which oversees $342 billion. ``There is more to come in earnings and the stock market than is currently foreseen.''

National indexes dropped in all 18 western European markets today. Germany's DAX lost 1.9 percent while France's CAC 40 slipped 2.1 percent.

Profit for Stoxx 600 companies will drop 2 percent this year, according to data compiled by Bloomberg. That's down from 11 percent growth predicted at the start of 2008.

Alcoa Inc., the world's third-largest aluminum company, kicks off the second-quarter reporting season in the U.S. today. Analysts estimate earnings at companies in the S&P 500 declined 11 percent on average in the quarter, Bloomberg data show.

Sales of services and manufactured goods in the U.K. fell in the second quarter, posing ``serious risks'' the economy will tumble into a recession, the British Chambers of Commerce said.

Bank Shares

Credit Suisse, Switzerland's second-largest bank, fell 2.9 percent to 42.28 francs. Deutsche Bank, Germany's largest bank, slipped 2.4 percent to 53.27 euros.

Analysts at Lehman Brothers Holdings Inc. said yesterday that a change in accounting rules may force Fannie Mae and Freddie Mac to raise $46 billion and $29 billion respectively.

Bank of Ireland tumbled 8.1 percent to 4.65 euros after the Dublin-based lender said slowing economic growth in Ireland and the global shortage of credit are ``adversely impacting'' earnings.

``The slowdown in the overall level of activity and volume growth is most pronounced in our retail businesses in Ireland,'' the bank said.

Separately, the Daily Telegraph reported Bank of Ireland is reducing its commercial lending, telling some U.K. customers it won't be taking new business for the next three months.

Bradford & Bingley

Bradford & Bingley Plc, the biggest lender to U.K. landlords, plunged 14 percent to 36.25 pence on concern that new capital won't resolve its funding and mortgage risks.

Chairman Rod Kent, backed by underwriters Citigroup and UBS and investors including Standard Life Plc, plans to raise 400 million pounds this month by selling shares. Bradford & Bingley traded this week below the 55 pence price of the rights offering.

Peugeot dropped 1.8 percent to 31.38 euros. Europe's second-largest carmaker said western European sales fell 3.5 percent to 1.23 million vehicles in the first half.

The company said it ``anticipates that Western European markets will undergo an even greater slowdown'' in the second half, with demand falling about 4 percent for the year.

Fiat fell 3.8 percent to 9.93 euros. Italy's biggest carmaker said it will close four of its six auto plants in the country for three weeks between September and November because of slumping sales.

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

Last Updated: July 8, 2008 10:59 EDT