Nov. 21 (Bloomberg) -- European stocks fell, extending the Dow Jones Stoxx 600 Index's 2008 decline to 50 percent, after Goldman Sachs Group Inc. said the U.S. is in a deeper recession than it previously forecast and concern grew about the health of Citigroup Inc.

Vodafone Group Plc, the largest mobile-phone company, dropped 7.7 percent and Royal Ahold NV, owner of the U.S. Stop & Shop chain, lost 3.3 percent after Goldman said American unemployment will reach 9 percent by the fourth quarter of 2009. An index of European bank stocks fell to the lowest level since 1996 after Citigroup Chief Executive Officer Vikram Pandit said he has no plan to break up the U.S. lender, sending the shares down as much as 24 percent in New York.

``I would not expect to see a sustained rally in European markets in the short-term,'' said Peter Jarvis, a London-based director of European equities at F&C Asset Management, which had about $150 billion under management as of Sept. 30. ``The market needs a significant catalyst that suggests the economy is improving, and there's nothing on the cards.''

Europe's Stoxx 600 fell 2.5 percent to 182.13, the lowest level since April 2003. More than $33 trillion has been erased from the value of global equities this year after credit losses and writedowns topped $965 billion and countries from the U.K. to Germany and the U.S. fell into recession.

European stocks may retreat until the second half of next year as investors favor high-yielding bonds in the face of a prolonged contraction in corporate earnings, Exane BNP Paribas strategists said today.

Manufacturing Contracts

Europe's manufacturing and service industries contracted in November at the fastest pace in at least a decade, putting pressure on the European Central Bank to step up the pace of interest rate cuts. Royal Bank of Scotland Group Plc's composite index dropped to 39.7, the lowest since the survey began in 1998, from 43.6 in October. Economists forecast a decline to 42.8, according to a Bloomberg survey.

National benchmark indexes slipped in 15 of the 18 western European markets. The U.K.'s FTSE 100 lost 2.4 percent. Germany's DAX slid 2.2 percent. France's CAC 40 sank 3.3 percent.

Vodafone dropped 7.7 percent to 112.5 pence and Ahold declined 3.3 percent to 8.419 euros.

Goldman economists, led by Jan Hatzius, wrote in a research note today that U.S. gross domestic product is declining at a 5 percent annual rate in the current quarter and will drop 3 percent and 1 percent in the next two quarters.

European bank shares erased gains of as much as 3.8 percent after Citigroup's Pandit spoke to employees on a worldwide conference call today. Pandit said he didn't plan to sell the Smith Barney brokerage unit or to disassemble the company, said two people who listened to the call and declined to be identified because it wasn't open to the public.

ING, Deutsche Bank

ING Groep NV, the biggest Dutch financial-services company, lost 6.8 percent to 5.33 euros. Deutsche Bank AG, Germany's biggest bank, dropped 2.9 percent to 18.80 euros.

The Standard & Poor's 500 Index tumbled 6.7 percent yesterday to the lowest level in 11 years after U.S. lawmakers postponed until December a vote on whether to give General Motors Corp., Ford Motor Co. and Chrysler LLC a $25 billion bailout. Automakers such as GM could use court protection to reduce debt and reject unfavorable contracts.

President-Elect Barack Obama's transition team is exploring a swift, prepackaged bankruptcy for automakers as a possible solution to the industry's crisis, according to a person familiar with the matter.

Gains in mining shares limited the market's decline today after metals prices rose.

BHP Billiton Ltd., the world's largest mining company, rallied 6 percent to 797.5 pence. Rio Tinto Group, the third- biggest, added 2.6 percent to 2,075. Vedanta Resources Plc, the Indian mining company controlled by billionaire Anil Agarwal, climbed 16 percent to 450 pence.

The Stoxx 600 closed today at 8.1 times reported earnings, below the four-year average of 14 times, according to data compiled by Bloomberg. The S&P 500 is valued at 16 times earnings, the lowest since 1995. The MSCI World Index of 23 developed countries trades at 11 times profit.

To contact the reporters on this story: Sarah Thompson in London at sthompson17@bloomberg.net; Michael Patterson in London at mpatterson10@bloomberg.net.

Last Updated: November 21, 2008 13:16 EST