more pain on the way., page-2

Aug. 16 (Bloomberg) -- Stocks in Europe and Asia tumbled and U.S. index futures dropped as concern deepened a global credit crunch will sap earnings and erode economic growth. Bonds gained worldwide and the yen rallied against the dollar.

Deutsche Bank AG, Germany's largest bank, and BNP Paribas SA of France paced declines in Europe. BHP Billiton Ltd. and Rio Tinto Group led mining shares lower as metals prices fell. Rams Home Loans Group Ltd. plunged in Australia after saying it failed to refinance debt, while Macquarie Bank Ltd. led a drop in Asian financial stocks.

``We're in the eye of the cyclone,'' said Salah Seddik, who helps oversee about $5 billion at Richelieu Finance in Paris. ``There's now the question of what will happen with economic growth. It's too early to come back to the stock market.''

The Morgan Stanley Capital International World Index fell 1.3 percent to 1,474.54, while Standard & Poor's 500 Index futures sank 19.7 to 1,394.7 at 12:29 p.m. in London. The MSCI World has declined 11 percent since reaching a 2007 high on July 19. The last time the measure dropped more than 10 percent in a so-called correction was in May and June of 2006, when expectations for higher interest rates rattled investor confidence.

Emerging-market shares and currencies also dropped, with South Korea's Kospi index tumbling the most in five years. The Turkish lira declined more than 4 percent against the dollar, the most since June 2006. Indonesia's rupiah, South Korea's won and South Africa's rand also retreated against the U.S. currency.

The yen rose to a five-month high against the dollar and the euro as the slump in stocks and credit-market turmoil prompted traders to slash so-called carry trades, funded by loans in the Japanese currency.

`Jitters'

Treasuries advanced, pushing two-year yields to the lowest in 22 months. The risk of owning European corporate bonds increased, according to traders of credit-default swaps.

``We don't know yet what could be the medium-term impact of the jitters in the credit market,'' said Karim Bertoni, who helps manage about $24 billion at Banque Syz & Co. in Geneva. ``Will the effect first hit the banks but then also spill over to the economy? The banks would lend less, the credit conditions would be harsher, and all this will reduce the growth rate.''