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U.K. Stocks Drop the Most in Six Months as Bank Shares Plunge

May 14 (Bloomberg) -- U.K. stocks tumbled by the most in almost six months, led by a selloff in banks and mining companies, amid mounting investor concern that Europe’s debt crisis will hamper economic growth.

Barclays Plc sank 6.1 percent as Credit Suisse Group AG said in a report that new regulations may cost lenders as much as 244 billion euros ($306 billion). Xstrata Plc dropped 7.9 percent as copper, aluminum and zinc retreated on the London Metal Exchange.

The benchmark FTSE 100 Index plunged 170.88 points, or 3.1 percent, to 5,262.85 in London, the biggest retreat since November. The FTSE All-Share Index fell 3 percent and Ireland’s ISEQ Index dropped 3.7 percent as banks declined in Dublin.

“Traders are becoming increasingly concerned that the sovereign debt issue still hasn’t been laid to rest and more countries may start to struggle in the coming months,” said London-based Anthony Grech, head of research at IG Index. “Compounding this is a fear that banks could come under fire in the U.S. from regulators.”

The FTSE 100 has still gained 2.7 percent this week, recovering some of last week’s 7.8 percent selloff, after the European Union unveiled a near $1 trillion financial aid package aimed at preventing the sovereign-debt crisis from spreading.

Barclays, Lloyds

Barclays sank 6.1 percent to 308.9 pence, while Lloyds Banking Group Plc declined 4.7 percent to 57.68 pence. Royal Bank of Scotland Group Plc slid 3.9 percent to 47.26 pence.

Credit Suisse forecasts earnings in the industry may be curbed 37 percent because of regulatory changes.

“Given the increase in regulatory proposals in recent months we believe that it is helpful for investors ahead of next month’s G20 summit to track the impact,” London-based Credit Suisse analyst Jagdeep Kalsi wrote in a report today.

Separately, New York Attorney General Andrew Cuomo has subpoenaed eight banks including Goldman Sachs Group Inc. and Morgan Stanley to see whether they misled credit-rating services about mortgage-backed securities, according to a person familiar with the investigation.

Xstrata, the world’s fourth-largest copper producer, dropped 7.9 percent to 1,009.5 pence. BHP Billiton Ltd., the biggest mining company, fell 4.5 percent to 1,914 pence. Rio Tinto Group, the third-largest, lost 5.5 percent to 3,210 pence.

Base metals fell in London, paring a weekly advance, on a stronger dollar and amid concern about the risk to economic growth from European sovereign debt. Three-month delivery copper slumped as much as 3.9 percent to $6,881 a metric ton on the LME. Nickel, lead, tin and zinc also retreated.

BP Leak

BP Plc fell 3.2 percent to 530.20 pence as crude oil fell to a three-month low. The energy company is trying to insert a tube into a leaking pipe at a well off Louisiana, advancing a plan to divert much of the crude into a ship on the surface.

Wolseley Plc surged 5 percent to 1,688 pence, the only stock to climb in the FTSE 100. The largest supplier of heating and plumbing products said it sees full-year trading profit above 347 million pounds ($505 million), topping analysts’ forecasts.

Shares of Kewill Plc surged 23 percent to 123 pence, the best performing stock on the broader FTSE All-Share Index. The British logistics company today said it received an indicative offer from a company for 130 pence a share.

Global stocks stories: {TOP STK <GO>} FTSE 100 market map: {UKX <Index> IMAP <GO>} FTSE 100 Valuations: {UKX <Index> UKX <Index> GRE W <GO>} Feature stories on stocks: {TNI STK GREET <GO>}

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.

To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net.

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