By Natsuko Waki
LONDON (Reuters) - World stocks kicked off June on anegative tone and sterling hit a one-week low versus the dollaron Monday after UK bank Bradford & Bingley announced a slump inprofits, fuelling fresh concerns about the banking sector.
Government bonds remained under pressure in majoreconomies, with a sell-off sending some Japanese governmentborrowing rates to 10-month highs. A fall in oil prices -- nowdown nearly $10 a barrel from May record peaks -- gave supportto Asian stocks.
In an unscheduled trading update, the largest UK buy-to-letmortgage lender reported a near 50 percent year-on-year slumpin profits for the first four months of 2008, scaled back aplanned rights issue and announced a cash injection from a U.S.private equity firm.
Bradford & Bingley's chief executive quit on Sunday, lessthan a month after surprising investors with an emergency cashcall. After the news, its shares fell 28 percent after tradingwas temporarily suspended.
"Obviously the one thing that is taking the wind out of themarket is the profits warning that B&B have come up with," saidKeith Bowman, equity analyst at Hargreaves LansdownStockbrokers.
"It's the profit scenario as much as anything else.Obviously it does raise nerves as to rights issues across thesector."
The FTSEurofirst 300 index fell 1 percent while MSCI mainworld equity index slipped 0.1 percent on the day.
European banks fell 1.7 percent to a fresh two-month lowwith UK banks such as HBOS and Alliance & Leicester fallingbetween 7 and 10 percent.
European banks and cash strapped firms are expected to askinvestors for a record $100 billion (50 billion pounds) thisyear in the form of big rights issues. Banks have the biggestdeals in the pipeline as they attempt to rebuild capitalpositions that have been hit by credit-related writedowns.
The cost of insuring European bank debt against defaultrose after Bradford & Bingley news. The Markit iTraxx SeniorFinancials Index widened 5 basis points to 69.5 bps.
Sterling fell 0.7 percent to $1.9627.
"That (the financial sector) is the root cause of theproblem so any news like that will continue to push sterlingdown," said Geoff Kendrick, currency strategist at Westpac.
Emerging sovereign spreads tightened 4 basis points whileemerging stocks were up 0.4 percent.
The June Bund future turned positive after Bradford &Bingley news depressed stocks, trading up 25 ticks on the day.
JGB SELL-OFF
Growing inflation concerns and nervousness about investordemand for an upcoming auction pushed Japanese government bondslower, pushing yields up across the board.
The two-year yield rose 2.5 basis points to a 10-month highof 0.930 percent, fully reflecting expectations for aquarter-point rate hike from 0.5 percent in the months ahead aswell as the possibility of another.
Government bond yields in the euro zone, Japan and the U.S.hit 2008 highs last week as investors unwound safe-haven tradesthey had put on during the worst phase of the credit crisisafter strong U.S. data and higher euro zone inflation figures.
U.S. light crude fell 0.6 percent to $126.57 a barrel. Goldinched lower on the day to $883.75 an ounce.
(Additional reporting by Michael Taylor and Toni Vorobyova)
