June 18 (Bloomberg) -- European stocks fell for a second day this week on speculation the worst of the financial-market slump isn't over as the slowing economy and more writedowns drag on profits.

J Sainsbury Plc declined the most in a month after cuts in consumer spending hurt the supermarket chain's sales. Segro Plc dropped as Credit Suisse Group AG downgraded the owner of business parks and recommended selling U.K. real-estate shares. Carnival Corp., the world's largest cruise-line company, sank to the lowest in five years. UBS AG retreated after JPMorgan Chase & Co. said the bank will post more writedowns.

Europe's Dow Jones Stoxx 600 Index lost 1.6 percent to 301.59 at 4:30 p.m. in London, extending this year's decline to 17 percent. The Stoxx 50 Index slipped 1.3 percent and the Euro Stoxx 50, a measure for the euro region, sank 1.4 percent.

``Earnings momentum is going to be bad,'' said Didier Le Menestrel, president of Financiere de l'Echiquier, which oversees $6.7 billion in Paris. ``The slowdown is under way. It's a return to the 1970s with the oil shock and inflation.''

The Stoxx 600 has fallen 17 percent this year as record oil prices, rising inflation and credit-related losses approaching $400 billion threaten to push the U.S. into recession. Analysts now estimate earnings for companies in the Stoxx 600 will fall 0.7 percent this year, down from 11 percent growth forecast at the start of the year, according to data compiled by Bloomberg.

Global writedowns and losses from the credit crisis may reach $1.3 trillion, said John Paulson, founder of hedge fund Paulson & Co.

Worst Not Over

The worst of the stock and credit-market declines that began last year is yet to come, Bob Janjuah, a credit strategist at Royal Bank of Scotland Group Plc, wrote in a note.

Stock investors are the most pessimistic in a decade as the outlook for earnings and economic growth deteriorates and fund managers favor holding more cash, a Merrill Lynch & Co. survey showed. European equities are now the least preferred among five regions worldwide, the survey of 204 fund managers showed.

National benchmark indexes fell in all of the 18 western European markets except Iceland. The U.K.'s FTSE 100 slid 1.8 percent. Germany's DAX slipped 1.1 percent and France's CAC 40 retreated 1.5 percent.

Sainsbury lost 3.7 percent to 323.5 pence. The third- largest U.K. supermarket chain said sales growth slowed in the first quarter as higher living expenses in Britain cut into consumer spending on food and clothes.

Property Market

Speculation that the slowdown in the U.K. economy will deepen weighed on property companies and homebuilders.

Segro, Britain's largest owner of business parks, lost 5 percent to 398.25 pence. Land Securities Group Plc, the U.K.'s largest real-estate investment trust, declined 2.4 percent to 1,336 pence.

Credit Suisse lowered both stocks to ``neutral'' from ``outperform'' as it downgraded the U.K. industry to ``underweight'' from ``overweight.''

Redrow dropped 14 percent to 143.5 pence, and Bellway Plc, a U.K. homebuilder aimed at first-time buyers, slipped 9.7 percent to 476.75 pence. UBS AG reduced its price estimate for Redrow 19 percent to 169 pence, and for Bellway 14 percent to 500 pence.

U.K. homebuilders have underperformed the FTSE 350 Index in the past month. Housing starts this year will reach the lowest level since 1945, the Construction Products Association, which represents 85 percent of the country's building-materials companies, said in a report yesterday.

It's the beginning of a slump that may last three years, Goldman Sachs Group Inc. wrote in a note yesterday.

Carnival fell 2.9 percent to 1,726 pence. Enterprise Inns Plc slipped 5.3 percent to 419.5 pence.

Weakening Economy

ABN Amro Holding NV lowered its recommendation on Carnival to ``hold'' from ``buy,'' citing higher fuel costs and lower revenue yields as a result of the slowing economy.

Oil prices have nearly doubled over the past year, reaching a record $139.89 a barrel on June 16. Higher oil prices boost fuel costs and make vacations and travel more expensive.

Enterprise Inns, Britain's second-biggest pub landlord, was downgraded to ``hold'' from ``buy'' at ABN. The brokerage cut its 2009 and 2010 earnings estimates for European leisure stocks by 16 percent.

A weakening economy will have a ``more severe'' effect on the industry than ABN had previously expected, Simon Larkin and Nick Thomas, ABN analysts, wrote in an e-mailed note today. ``We find it hard to believe that demand from the business or leisure consumer will not reduce over the next 12 months.''

UBS, Europe's biggest bank by assets, fell 3.5 percent to 24.9 Swiss francs. JPMorgan said the bank will post another 5 billion francs ($4.8 billion) in writedowns in 2008 and widened its estimate for the Swiss company's loss this year to 4.55 francs a share, from 3.33 francs.

Goldman Sachs yesterday predicted banks will have to raise $65 billion in new capital to cover losses.

Writedowns

Morgan Stanley, the second-biggest U.S. securities firm, said today profit dropped 57 percent in the second quarter, in line with analysts' estimates, on declines in trading and investment banking. Fixed-income revenue decreased 85 percent to $414 million, after losses of $436 million on mortgage-related trades and $519 million from leveraged loans and related hedges.

Stora Enso Oyj slumped 8.1 percent to 6.50 euros. Europe's largest papermaker said second-quarter operating profit will total about half the 223 million euros ($345 million) achieved a year earlier on rising raw-material costs and falling sawmill earnings.

UPM-Kymmene Oyj dropped 5.5 percent to 10.90 euros after Europe's second-biggest papermaker said full-year operating profit will fall as fiber costs rise and sawmill earnings decline.

Cutting Estimates

Airlines declined after Morgan Stanley analysts cut price estimates, saying rising fuel prices will hurt earnings.

Air France-KLM Group, Europe's biggest airline, lost 2.4 percent to 16.12 euros. British Airways Plc, the third largest, fell 4.6 percent to 227 pence. Air Berlin Plc sank 6.4 percent to 5.09 euros.

Hennes & Mauritz AB climbed 6.7 percent to 341.5 kronor. Europe's second-largest clothes retailer said profit in the quarter ended May 31 rose 14 percent to 3.94 billion kronor ($650 million) as faster inflation kept shoppers away.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

Last Updated: June 18, 2008 11:35 EDT