Aug. 16 (Bloomberg) -- European stocks sank as concern deepened a global credit crunch will sap earnings and erode economic growth.

Deutsche Bank AG, Germany's largest bank, and BNP Paribas SA of France paced declines. BHP Billiton Ltd. and Rio Tinto Group led mining shares lower as metals prices fell.

``Don't jump in now,'' said Andy Lynch, who helps oversee about $11 billion at Schroder Investment Management in London. ``Keep your powder dry. Things will probably get cheaper.''

The Dow Jones Stoxx 600 Index lost 3 percent to 354.40 at 3:51 p.m. in London as all 18 industry groups dropped. The Stoxx 50 retreated 2.6 percent, and the Euro Stoxx 50, a measure for the euro region, slid 2.2 percent.

The Stoxx 600 has declined 11 percent since reaching a 6 1/2-year high on June 1. The last time the measure dropped more than 10 percent in a so-called correction was in May and June of 2006, when expectations of higher interest rates rattled investor confidence.

National indexes sank in all of the 18 western European markets. The U.K.'s FTSE 100 lost 3.3 percent. France's CAC 40 slid 2.7 percent and Germany's DAX fell 1.8 percent.

Asian stocks had their biggest two-day drop in a year and U.S. stocks fell. Emerging-market shares and currencies also slid. The Turkish lira declined to a five-month low per dollar, and South Africa's rand also retreated against the U.S. currency.

The yen rose to its highest since 2006 against the dollar and its highest since March against the euro as the slump in stocks and credit-market turmoil prompted traders to slash so- called carry trades, funded by loans in the Japanese currency.

`Jitters'

Treasuries advanced, pushing two-year yields to the lowest in 22 months. The risk of owning European corporate bonds increased, according to traders of credit-default swaps.

``We don't know yet what could be the medium-term impact of the jitters in the credit market,'' said Karim Bertoni, who helps manage about $24 billion at Banque Syz & Co. in Geneva. ``Will the effect first hit the banks but then also spill over to the economy? The banks would lend less, the credit conditions would be harsher, and all this will reduce the growth rate.''

Deutsche Bank sank 1.3 percent to 92.24 euros. BNP, France's biggest bank, fell 2.5 percent to 75.12 euros. International Personal Finance Plc, a U.K. provider of unsecured cash loans in six overseas countries, plunged 6.8 percent to 177 pence.

Metals Fall

BHP, the world's biggest mining company, decreased 6.5 percent to 1,193 pence and Rio, the third largest, declined 6.4 percent to 2,948 pence.

Copper tumbled more than 5 percent in New York after the government said U.S. housing starts in July fell to a 10-year low. Lead, nickel, tin and zinc dropped on the London Metal Exchange.

U.S. Treasury Secretary Henry Paulson said financial turmoil will ``extract a penalty'' on U.S. growth rates, though the world's biggest economy is strong enough to weather problems without falling into recession, the Wall Street Journal reported, citing an interview.

William Poole, president of the St. Louis Federal Reserve Bank, said yesterday the subprime mortgage rout doesn't threaten U.S. economic growth, and only a ``calamity'' would justify an interest-rate cut now.

Saint-Gobain, Lanxess

Cie. de Saint-Gobain SA slid 2.4 percent to 78.51 euros. JPMorgan, Chase & Co. cut its recommendation on shares of Europe's biggest supplier of building materials to ``neutral'' from ``overweight.''

Lanxess AG retreated 5 percent to 34.42 euros. The German maker of chemicals for rubber products and leather tanning posted a second-quarter loss after it wrote down the value of its Lustran Polymers unit.

Ciba Specialty Chemicals AG dropped 8.3 percent to 63.35 euros. The world's largest maker of colors for plastics said selling prices dropped and costs for oil-based raw materials rose.

Smith & Nephew Plc sank 4.5 percent to 562 pence. The company is recalling some hip-replacement products in the U.K. after regulators found improperly labeled implants that have required patients to have additional treatment.

Akzo Nobel

Akzo Nobel NV fell 6.2 percent to 53.48 euros on concern the company might not get its money from Schering-Plough Corp. for the Organon drugs unit.

``We have no issue delivering cash to Akzo at the closing,'' Schering-Plough spokesman Steve Galpin said today by telephone. ``Schering-Plough has a committed bridge loan for the 11 billion- euro purchase price and has just successfully completed a $4 billion equity offering.''

Hermes International SCA, the maker of Birkin handbags, gained as much as 4.2 percent on speculation LVMH Moet Hennessy Louis Vuitton SA, the world's largest luxury-goods maker, will make an offer.

``The stock is spiking on rumors that LVMH would bid for the company,'' said Marie-Caroline Messager, senior equities manager at Fimat in Paris.

A spokeswoman at Hermes, who declined to be identified, said the company had no comment to make about the speculation. No-one was immediately available for comment at LVMH.

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

Last Updated: August 16, 2007 11:14 EDT