U.S. Stock-Index Futures Drop on Korean Tension, Europe Concern

By Jonathan Burgos and Adam Haigh
May 25 (Bloomberg) -- U.S. stock-index futures sank after a report that North Korean leader Kim Jong Il last week ordered his military to prepare for combat and amid mounting concern Europe’s debt crisis will endanger the global recovery.
Morgan Stanley retreated 3.7 percent in German trading, leading a decline among bank shares. Microsoft Corp. lost 2.6 percent after the world’s largest software maker’s Chief Executive Officer Steve Ballmer said he is less optimistic about China as a market.
Standard & Poor’s 500 Index futures expiring next month dropped 2.6 percent to 1,043.6 as of 10:33 a.m. in London. The U.S. equities benchmark has slumped 12 percent from a 19-month high on April 23 amid concern mounting budget deficits in some European countries and China’s steps to curb asset bubbles will derail global growth. Dow Jones Industrial Average futures lost
2.2 percent to 9,827 today and Nasdaq-100 Index futures retreated 2.2 percent to 1,772.
“The troubles that we have are big enough to keep this downtrend going for quite some time,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels. “Everybody realizes this is going to put severe stress on economic growth. Tension between South and North Korea is another additional negative that is spooking markets some more.”

North Korea

Asian and European shares retreated as the North Korea Intellectuals Solidarity group reported on its website that the North’s military was placed on alert last week. The U.S.
yesterday announced plans to conduct joint anti-submarine exercises with South Korea after the March 26 sinking of one of the South’s warships cost 46 lives.
Concerns over the health of European finances deepened after four Spanish savings banks submitted a proposal to the nation’s central bank to merge their businesses. The Bank of Spain is stepping up efforts to buttress or combine the weakest of Spain’s “cajas,” or mutually owned banks.
The International Monetary Fund said in a report yesterday that Spain’s banking industry “remains under pressure” as consolidation has been too slow.
The worsening European debt crisis “may limit the pace of the global recovery,” Adam Posen, a member of the Bank of England’s Monetary Policy Committee said in a speech yesterday.

Home Prices, Confidence

The S&P/Case-Shiller index of property values in 20 cities, due at 9 a.m. New York time, rose 2.5 percent in March from a year earlier, the best performance since 2006, according to the median forecast of economists surveyed by Bloomberg News. The Conference Board’s consumer sentiment index for May, due at 10 a.m., may climb to 58.5, the highest level since September 2008.
Morgan Stanley declined 3.7 percent to $24.79 in German trading. Goldman Sachs Group Inc. slid 2.8 percent to $132.87.
Microsoft lost 2.6 percent to $25.57. The software maker is less optimistic about China as a market than India or Indonesia because of the country’s lack of progress in stamping out software piracy, Chief Executive Officer Steve Ballmer said.
Neurocrine Biosciences Inc. surged 41 percent to $3.84. The drug company said a clinical study on its experimental drug elagolix showed positive results in treating patients with endometriosis.