European and emerging-market stocks fell for the fifth day, the longest losing streak since January, as an unexpected drop in U.K. retail sales and downgrades of U.S. banks by Standard & Poor’s fanned concern the global economic recovery will falter.

The Dow Jones Stoxx 600 Index of European shares slid 0.4 percent at 11 a.m. in London after a three-month, 36 percent rally that drove price-earnings valuations to the highest levels in five years. The MSCI Emerging Markets Index of 22 developing nations dropped 1 percent. The pound lost as much as 1.3 percent against the dollar after a report showed British retail sales fell in May.

“We could see a pullback in risk appetite in the near term and a more material correction lower in stocks,” said Adam Cole, head of global currency strategy at Royal Bank of Canada Europe Ltd. in London.

Retail sales in the U.K. fell for the first time in three months and Bank of England Governor Mervyn King said the economic recovery may be sluggish as banks ration credit to consumers. Gains in U.S. stocks evaporated yesterday and Asian equities fell today after S&P cut credit ratings on 18 U.S. lenders and said operating conditions for banks will become “less favorable.”

The British retail-sales report helped push Hemel Hempstead, England-based DSG International Plc, the U.K.’s largest electronics goods retailer, down 5.2 percent. Clermont- Ferrand, France-based Michelin & Cie., the world’s second- largest tiremaker, lost 2.8 percent as Chief Executive Officer Michel Rollier said in an interview with RTL radio that the tire industry will not recover until mid-to-late 2010.

Source/Full Story: Bloomberg.com

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