U.S. Stock Futures Fall, Led by Shares of Commodity Producers

By Michael Patterson and Eric Martin

Nov. 20 (Bloomberg) -- U.S. stock futures dropped after first-time jobless claims climbed to the highest level since 1992 and falling commodities dragged down raw-materials companies, heightening concern the recession will worsen.

Chevron Corp., the second-biggest U.S. oil company, slid 1 percent and Schlumberger Ltd. retreated 1.9 percent as crude declined for a fifth day in New York. Freeport-McMoRan Copper & Gold Inc., the world's largest publicly traded copper producer, decreased 1.2 percent as the metal sank to a three-year low. General Motors Corp. lost 10 percent on speculation time is running out for Congress to save the biggest U.S. automaker.

Futures on the S&P 500 expiring in December declined 1.7 percent to 799.1 at 8:34 a.m. in New York. Dow Jones Industrial Average futures lost 1.4 percent to 7,915 and Nasdaq-100 Index futures decreased 1.4 percent to 1,076.75. Europe's Dow Jones Stoxx 600 Index dropped 3.1 percent, while the MSCI Asia Pacific Index retreated 5.2 percent.

``There is a quite understandable concern about the slowdown in the economy and the fact that we are going to be seeing deflation in most countries by the second quarter of next year,'' Andrew Milligan, the Edinburgh-based head of global strategy at Standard Life Investments, which oversees more than $150 billion, said in an interview on Bloomberg Television.

S&P 500 futures pared a decline of as much as 2.2 percent after Saudi Prince Alwaleed bin Talal announced plans to increase his stake in Citigroup Inc., boosting the bank's shares by 3.9 percent. A drop in three-month interbank lending rates in dollars and the Swiss central bank's reduction of its benchmark interest rate by 1 percentage point also spurred a rally from the lows of the day.

Economy Watch

The S&P 500 and Dow average slid to their lowest levels since March 2003 yesterday after the government said consumer prices excluding food and fuel costs fell for the first time since 1982 last month. The report highlighted the risk that deflation may exacerbate the economic slump by making debts harder to pay off and lenders reluctant to extend credit.

Reports today may show an index of U.S. leading economic indicators fell and manufacturing in the Philadelphia region shrank. Signs of a deepening recession may intensify pressure on President-elect Barack Obama and Democrats in Congress to pass another economic stimulus package.

Treasury two-year note yields fell to a record low, thirty- year yields dropped to the lowest level since regular sales started in 1977 and five-year rates slid to the least since 1954. The Federal Reserve will probably cut interest rates to zero percent over the next two months to staunch deflation, JPMorgan Chase & Co. wrote in a note to investors yesterday.

Treasury Secretary Henry Paulson has abandoned a plan to use the Troubled Asset Relief Program to buy mortgage assets from banks, helping send U.S. financial shares lower and credit default risk to a record high.

`Frightening Situation'

``Changing the terms of the TARP as suddenly as he did undermined investor confidence,'' said Richard Schlanger, a bond fund manager in Boston at Pioneer Investments, which oversees $44 billion. ``It's a frightening situation.''

Chevron dropped 79 cents to $69.82 and Schlumberger, the world's largest oilfield-services provider, declined 91 cents to $46.39 in Germany.

Crude oil dropped as much as 3.1 percent to $51.95 a barrel as the slumping world economy increased concern that demand for fuels will slow. U.S. fuel use during the past four weeks averaged 19.1 million barrels a day, down 7 percent from a year ago, an Energy Department report showed yesterday.

Freeport Drops

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net; Eric Martin in New York at emartin21@bloomberg.net.