Oct. 27 (Bloomberg) -- European stocks fell for the fifth day, extending the Dow Jones Stoxx 600 Index's worst month on record, as concern grew that government efforts to stabilize financial markets won't avert a global recession.

Deutsche Bank AG, Germany's biggest, and Societe Generale SA of France retreated more than 10 percent. Deutsche Postbank AG slid 24 percent after the consumer bank reported a third-quarter loss related to the collapse of Lehman Brothers Holdings Inc. Royal DSM NV sank 15 percent and Lonza Group AG slumped 18 percent after the chemical companies said the global economic crisis will cut profit growth.

The Stoxx 600 declined 1.9 percent to 195.04. Reports showed German business confidence decreased more than forecast this month and U.K. house prices fell by the most in at least seven years in October and may keep declining as the economy deteriorates.

``The markets are very nervous,'' said Chicuong Dang, an equity analyst at KBL Richelieu Gestion in Paris, which has about $5 billion under management. ``There is the specter of the economic slowdown that would hurt earnings.''

More than $12 trillion has been erased from the market value of equities so far this month, accounting for about one-third of the total value wiped off stocks this year, as $680 billion of writedowns and losses by banks triggered a freeze in credit markets.

The International Monetary Fund agreed to lend Ukraine $16.5 billion and said it will give Hungary ``a substantial financing package'' as the turmoil in the global credit market and recession concern spread.

IMF Aid

Belarus last week asked the IMF for at least $2 billion after its banks lost access to financing. Iceland will receive about $2.1 billion in aid from the Washington-based fund, according to a deal struck on Oct. 24.

Iceland's Kaupthing Bank hf today was the first European borrower to default in Japan's samurai bond market after the state-controlled bank missed its last chance to make a 450 million yen ($4.8 million) coupon payment.

U.S. Treasuries rose as investors sought the safety of government bonds.

National benchmark indexes declined in all of the 18 western European markets except Greece. France's CAC 40 slumped 4 percent, and the U.K.'s FTSE 100 lost 0.8 percent. Germany's DAX slid 0.2 percent. Volkswagen AG shares surged 147 percent today, helping to limit the German benchmark's drop.

Rate Outlook

Stocks pared some losses after a report showed sales of new houses in the U.S. unexpectedly rose and European Central Bank President Jean-Claude Trichet signaled he may cut borrowing costs as early as next week.

Trichet said the bank may cut interest rates at its Nov. 6 meeting, depending on the inflation outlook.

Deutsche Bank sank 15 percent to 25.69 euros. Societe Generale, France's third-biggest bank by assets, lost 16 percent to 38 euros.

Postbank slid 24 percent to 14.25 euros. Germany's biggest consumer bank by clients reported a third-quarter loss related to the collapse of Lehman Brothers and writedowns from the financial crisis.

Swedbank AB tumbled 13 percent to 52 kronor. The largest bank in the Baltics said it will raise 12.4 billion kronor ($1.6 billion) in a rights offering. The operation will lift its core Tier 1 ratio to 9.2 percent, the bank said.

Valuations

The Stoxx 600 is down 23.83 percent in October and is valued at 8.1 times earnings of companies in the index, the cheapest since at least January 2002. If the gauge ends October at this level, it will be the worst monthly performance since Bloomberg began tracking the index in 1987, surpassing the 23.80 percent decline in October 1987.

The MSCI World Index is trading at 10.7 times earnings of the companies in the index, near its lowest since at least 1995 when Bloomberg started following the data. The MSCI Emerging Markets Index is valued at 6.9 times earnings. The Standard & Poor's 500 Index for U.S. equities trades at 18.9 times profit.

DSM, the world's biggest maker of vitamins, slid 15 percent to 21.73 euros and Swiss drug-ingredient maker Lonza fell 18 percent to 93.3 francs after saying the global economic crisis will cut profit growth.

Lonza faces slower operating profit growth next year, Chief Executive Officer Stefan Borgas said. DSM today lowered its forecast for earnings before interest and tax, a month after raising it.

Chemical makers tumbled 6.9 percent, the biggest drop among the 19 industries in the Stoxx 600.

Five-Year Low

German business confidence declined to the lowest level in more than five years in October as the deepening financial crisis dimmed the outlook for economic growth. The Munich-based Ifo Institute said its business climate index fell to 90.2, compared with 91 forecast in a Bloomberg survey of economists.

``The economic downturn is of an amplitude that was underestimated,'' said Christophe Donay, chief strategist at Pictet & Cie. in Geneva. ``The economy will weigh on companies' sales.''

Deutsche Post AG plunged 17 percent to 7.995 euros. Europe's biggest mail carrier cut its forecast for 2008 profit by 17 percent because of the slowing global economy.

Daimler AG fell 9.2 percent to 20.355 euros. The world's second-largest maker of luxury cars will halt production for five weeks as demand slows, Frankfurter Allgemeine Sonntagszeitung said. Daimler spokesman Florian Martens wasn't immediately available for a statement.

Volkswagen soared 147 percent to 520 euros as Porsche SE's plan to achieve a 75 percent stake in the carmaker prompted short-sellers to purchase from a shrinking pool of stock to close their positions.

`Panic Buying'

Investors including hedge funds may hold 8.67 billion euros in borrowed stock that they must buy and return, according to Bloomberg calculations based on Data Explorers research firm estimates.

``This is panic buying,'' said Jens Schattner, an analyst at Sal. Oppenheim in Frankfurt who upgraded Volkswagen's common shares to ``neutral'' from ``reduce'' today. ``Until all these short positions are closed, we'll see Volkswagen shares rise.''

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

Last Updated: October 27, 2008 13:30 EDT