French Stocks Drop; Alstom, Vallourec, Dexia Pace the Declines

French stocks retreated after Morgan Stanley said the outlook for credit markets has worsened.

Alstom SA, Vallourec SA and Dexia SA fell.

The CAC 40 Index tumbled 85.16, or 1.5 percent, to 5,598.06 at 10:02 a.m. in Paris. The SBF 120 Index also sank 1.5 percent.

Alstom lost 4.9 percent to 154.26 euros even after the world's second-largest train maker said fiscal first-half profit jumped 49 percent.

``The market is locking in profits,'' said Clemence Bounaix, an analyst at Richelieu Finance in Paris, which oversees $5 billion. ``The company has a good dynamic but we think it's already priced in.''

Alstom shares are up 50 percent this year.

Vallourec, a maker of steel tubes to carry oil and gas, dropped 4 percent to 185.55 euros. Dexia, the world's biggest lender to local governments, slipped 2.4 percent to 18.37 euros.

Morgan Stanley became the latest U.S. securities firm to announce subprime market losses. The company said it lost $3.7 billion in the two months through Oct. 31, cutting its fourth- quarter earnings by $2.5 billion.

Colm Kelleher, Morgan Stanley's chief financial officer, said he now expects credit markets to take three to four quarters to recover instead of the one or two he predicted in September.

The following stocks rose or fell in Paris. Stock symbols are in parentheses.

European Aeronautic, Defence & Space Co. (EAD FP) climbed 1.37 euros, or 6.4 percent, to 22.85, the best performance on the CAC 40 today. The parent of Airbus SAS reported a nine-month loss of 705 million euros on the cost of delays to the A400M military transport plane. Analysts had predicted a loss of 1.15 billion euros.
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