By Natsuko Waki LONDON (Reuters) - World stocks kicked off June on a negative tone and sterling hit a one-week low versus the dollar on Monday after UK bank Bradford & Bingley announced a slump in profits, fuelling fresh concerns about the banking sector. Government bonds remained under pressure in major economies, with a sell-off sending some Japanese government borrowing rates to 10-month highs. A fall in oil prices -- now down nearly $10 a barrel from May record peaks -- gave support to Asian stocks. In an unscheduled trading update, the largest UK buy-to-let mortgage lender reported a near 50 percent year-on-year slump in profits for the first four months of 2008, scaled back a planned rights issue and announced a cash injection from a U.S. private equity firm. Bradford & Bingley's chief executive quit on Sunday, less than a month after surprising investors with an emergency cash call. After the news, its shares fell 28 percent after trading was temporarily suspended. "Obviously the one thing that is taking the wind out of the market is the profits warning that B&B have come up with," said Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers. "It's the profit scenario as much as anything else. Obviously it does raise nerves as to rights issues across the sector." The FTSEurofirst 300 index fell 1 percent while MSCI main world equity index slipped 0.1 percent on the day. European banks fell 1.7 percent to a fresh two-month low with UK banks such as HBOS and Alliance & Leicester falling between 7 and 10 percent. European banks and cash strapped firms are expected to ask investors for a record $100 billion this year in the form of big rights issues. Banks have the biggest deals in the pipeline as they attempt to rebuild capital positions that have been hit by credit-related writedowns. The cost of insuring European bank debt against default rose after Bradford & Bingley news. The Markit iTraxx Senior Financials 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 the problem so any news like that will continue to push sterling down," said Geoff Kendrick, currency strategist at Westpac. Emerging sovereign spreads tightened 4 basis points while emerging 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 investor demand for an upcoming auction pushed Japanese government bonds lower, pushing yields up across the board. The two-year yield rose 2.5 basis points to a 10-month high of 0.930 percent, fully reflecting expectations for a quarter-point rate hike from 0.5 percent in the months ahead as well 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 trades they had put on during the worst phase of the credit crisis after strong U.S. data and higher euro zone inflation figures. U.S. light crude fell 0.6 percent to $126.57 a barrel. Gold inched lower on the day to $883.75 an ounce. | 
