Stocks, Commodities Fall as U.S. Futures Pare Loss

By Stephen Kirkland and Shiyin Chen - Oct 3, 2011 5:32 PM GMT+0700

Stocks fell and commodities dropped to a 10-month low as Europe’s finance chiefs prepared to weigh the risk of a Greek default. U.S. futures pared losses, while the cost of insuring German government debt rose to a record.

The MSCI All-Country World Index sank 1.2 percent at 6:30 a.m. in New York, after slumping last quarter by the most since 2008. The Stoxx Europe 600 Index slipped 1.7 percent as BNP Paribas SA, France’s biggest bank, lost 5.6 percent. Standard & Poor’s 500 Index futures retreated 0.2 percent after sliding 1.3 percent. The S&P GSCI index of commodities fell 1.1 percent, copper dropped 3.5 percent. The 10-year German bund yield traded five basis points lower, while the 30-year U.S. Treasury yield declined three basis points. Credit-default swaps on German debt climbed five basis points to an all-time high of 117.

European officials prepared to meet in Luxembourg today to consider how to shield banks from the debt crisis and boost the region’s rescue fund after Greece missed a deficit target for 2012. Factory output in the U.S. probably grew at the slowest pace in more than two years in September, economists said before a report from the Institute for Supply Management.

“We might face more risks, particularly in a market that hasn’t had enough of a correction,” said Diane Lin, a fund manager with Sydney-based Pengana Capital Ltd., which manages about $1.1 billion in global assets. “The U.S. is not falling into recession, and we haven’t seen enough evidence yet, but it’s definitely slowing down.”

All 19 industry groups declined in the Stoxx 600 as Commerzbank AG, Germany’s second-largest lender, and Societe Generale SA of France dropped more than 4 percent. BHP Billiton Ltd. and Rio Tinto Group, the world’s largest mining companies, retreated at least 2 percent.

Dexia, Morgan Stanley

Dexia SA slumped 8.8 percent as Moody’s Investors Service placed the credit ratings of the lender’s three main operating entities on review for possible downgrade. Les Echos said finance ministers from Belgium and France are meeting today to discuss financing options for Dexia.

The slide in S&P 500 futures indicated the benchmark U.S. stocks gauge will extend last quarter’s 14 percent loss. Morgan Stanley slipped 1 percent in pre-market New York trading after the owner of the world’s largest retail brokerage plunged 10 percent on Sept. 30. Yahoo! Inc. jumped 6.5 percent as Alibaba Group Holding Ltd. Chairman Jack Ma said he’s “very interested” in buying the U.S. Web portal.

The U.S. ISM factory index probably fell to 50.3 from 50.6 in August, according to the median forecast of 67 economists in a Bloomberg survey. A reading of 50 is the dividing line between contraction and expansion.

Greece, Italy

The yield on the Greek 10-year bond rose nine basis points, driving the difference in yield with benchmark bunds 13 basis points higher. The yield on Italy’s two-year security fell nine basis points and Spain’s declined five basis points as the European Central Bank bought the nations’ bonds, according to four people with knowledge of the transactions. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments rose six basis points to 346.5, approaching the record high of 358.5 set Sept. 23, according to CMA.

The Greek government passed 6.6 billion euros ($8.8 billion) of austerity measures last night to cut the 2012 deficit to 6.8 percent of gross domestic product, missing the 6.5 percent goal previously set with the European Union, International Monetary Fund and European Central Bank. Monetary Fund and ECB, known as the troika. Finance Minister Evangelos Venizelos had earlier said Greece would miss the targets and the troika accepted the new budget. Euro region finance ministers meet again Oct. 13 to decide on a sixth bailout payment.

Fed Buying

The 10-year U.S. Treasury note yield slipped two basis points, while the two-year yield rose almost one basis point. The Federal Reserve plans to buy $2.25 billion to $2.75 billion of Treasuries maturing from February 2036 to August 2041, according to the Fed Bank of New York’s website. Today’s purchases will be the first under a program announced Sept. 21 to buy $400 billion of bonds with maturities of six to 30 years through June, while selling an equal amount of debt maturing in three years or less.

The euro depreciated 0.2 percent to $1.3367, and fell as much as 0.6 percent to the lowest level since Jan. 18. The Dollar Index, which tracks the U.S. currency against those of six trading partners, climbed 0.3 percent. The yen strengthened against all 16 major peers monitored by Bloomberg.

The GSCI index of 24 commodities fell as much as 1.5 percent to the lowest since Dec. 1. Oil in New York slipped 1.2 percent to $78.27 a barrel. Gold jumped 2.1 percent to $1,657.50 an ounce, a third consecutive advance, and silver climbed 3.3 percent.

The MSCI Emerging Markets Index sank 2.6 percent, following its 23 percent plunge in the three months ended Sept. 30. The Hang Seng China Enterprises Index slumped 5.7 percent, the Jakarta Composite Index (JCI) slid 5.9 percent and the SET Index retreated 4.8 percent in Bangkok. OTP Bank Nyrt. led Hungarian stocks lower for a second day on concern local and regional governments may default.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Shiyin Chen in Singapore at schen37@bloomberg.net.

To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net