Nov. 3 (Bloomberg) -- Stocks in Europe declined to a one- month low after UBS AG reported a wider-than-estimated loss and Royal Bank of Scotland Group Plc said it will receive a second bailout from the U.K. government.

UBS sank the most in two months as Switzerland’s largest bank posted its fourth consecutive quarterly loss. RBS retreated 7 percent after the Treasury said it will inject 25.5 billion pounds ($42 billion) of capital into the lender, increasing the government’s stake to 84.4 percent. Bayerische Motoren Werke AG tumbled 6.3 percent after profit plunged.

The Dow Jones Stoxx 600 Index lost 1.2 percent to 234.9, the lowest close since Oct. 2. The gauge has slipped 5.8 percent from this year’s high on Oct. 19 amid speculation the eight- month rebound has outpaced the prospects for earnings and economic growth. The measure is still up 49 percent since March.

“The basis for the correction seems to rest on three legs,” said Bill O’Neill, a London-based strategist at Merrill Lynch Global Wealth Management, which has $1.1 trillion in assets. “Worries over prospects for holders of equity in banks, concern that interest-rate hikes are imminent, and paradoxically that recovery in 2010 will be crippled by a U.S. consumer unwilling or unable to open his or her wallet.”

‘Fragile’ Banks

The collapse of the U.S. property market in 2007 triggered $1.66 trillion of writedowns and credit losses at banks and other financial institutions and sent the global economy into its first recession since World War II, according to data compiled by Bloomberg. The banking industry “remains fragile” and further losses at financial institutions may total 400 billion euros ($585 billion) through next year, the European Commission said today.

Governments and central banks are preparing to remove stimulus measures after spending a total of $12 trillion, by International Monetary Fund estimates, to help end the recession.

Australia raised its benchmark interest rate by a quarter percentage point today, becoming the first nation to increase borrowing costs twice this year. China’s banking regulator plans to review debt levels at some real-estate developers on concern the companies’ borrowings are fueling excessive gains in property prices, according to a person familiar with the matter.

The Bank of England should cap its bond-purchase plan at 200 billion pounds this week in a signal that it will stop buying assets in the next quarter, former policy maker DeAnne Julius said. The U.K. central bank will expand the program to 225 billion pounds from the current 175 billion pounds on Nov. 5, according to the median estimate of 48 economists in a Bloomberg News survey.

‘All-In Wager’

European stocks pared their losses after Warren Buffett’s Berkshire Hathaway Inc. agreed to buy railroad Burlington Northern Santa Fe Corp. in a deal the billionaire investor described as “an all-in wager on the economic future of the United States.”

Separately, orders placed with U.S. factories rose in September for the fifth time in six months, according to data from the Commerce Department.

National benchmarks fell in all 18 western markets, except Iceland. France’s CAC 40 lost 1.5 percent. Germany’s DAX dropped 1.4 percent and the U.K.’s FTSE 100 slipped 1.3 percent.

UBS retreated 5.8 percent to 16.35 Swiss francs, the steepest drop since Sept. 1, as it reported a net loss of 564 million francs ($548 million), wider than the 337 million-franc median estimate of 12 analysts surveyed by Bloomberg.

RBS Retreats

RBS sank 7 percent to 35.93 pence. The 25.5 billion-pound capital injection into the biggest government-controlled lender takes the total bailout cost to 45.5 billion pounds, the costliest for any bank worldwide. RBS will sell its insurance division and some branches after negotiations with the European Commission and put 282 billion pounds of loans and securities into the government’s Asset Protection Scheme.

Lloyds Banking Group Plc added 2.7 percent to 87.33 pence. The U.K.’s largest mortgage lender will raise 21 billion pounds in Britain’s biggest rights offering to avoid the Treasury’s asset-insurance plan, which would have given the government a majority stake.

Allied Irish Banks Plc and Bank of Ireland Plc, which have received 7 billion euros from the Irish government, plunged 14 percent to 1.45 euros and 12 percent to 1.41 euros respectively on concern the Lloyds rights offer may make it harder for other lenders to raise capital.

‘Soak Up’ Cash

“That’s going to soak up a lot of cash, not just for Irish banks, but for European banks,” said Oliver Gilvarry, head of research at Dolmen Securities in Dublin, adding that concern over conditions that the European Union may impose on government aid for Irish banks is also “weighing” on the stock.

Danske Bank A/S dropped 3.7 percent to 117.50 kroner. Denmark’s biggest bank said it’s too early to conclude loan losses in Ireland and the Baltics have peaked after third- quarter profit declined almost 50 percent.

BMW plummeted 6.3 percent to 31.50 euros, dragging an index of automakers to the biggest decline among the 19 industry groups on the Stoxx 600. The world’s largest maker of luxury cars reported a 74 percent drop in third-quarter profit as the recession sapped demand for higher-priced models.

Delta Lloyd NV fell 3.2 percent to 15.49 euros in its first day of trading after Aviva Plc raised 1.02 billion euros selling shares of its Dutch unit during the worst slump for European insurers in eight months.

Aviva, the U.K.’s second-biggest insurer by market value, slipped 2.5 percent to 379.3 pence.

Glaxo, Swiss Re

GlaxoSmithKline Plc declined 1.5 percent to 1,228.5 pence after the U.K.’s biggest drugmaker was downgraded to “underperform” from “neutral” at BofA Merrill Lynch Global Research, which cited the stock’s outperformance compared with other health-care companies in the past year.

Swiss Reinsurance Co. advanced 6.4 percent to 45.1 francs. The world’s second-largest reinsurer reported an unexpected third-quarter profit after more than 3.16 billion francs of investment gains.

Metro AG, Germany’s largest retailer, rose 4.2 percent to 39.09 euros after posting third-quarter operating earnings that beat some analysts’ estimates and saying a cost-cutting program has started to pay off.

Fresenius Medical Care AG surged 4.6 percent to 34.24 euros, the biggest gain in seven months, after a third-quarter increase in the profit margin prompted the world’s largest provider of kidney dialysis to boost its forecast for the year.

Parent company Fresenius SE advanced 4.7 percent to 35.12 euros after reporting higher third-quarter earnings.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

Last Updated: November 3, 2009 12:59 EST