Stocks, Euro Retreat as Treasuries Halt Slump

By Andrew Rummer - Oct 13, 2011 8:31 PM GMT+0700

Stocks fell, halting the strongest rally over seven days in the U.S. since March 2009 and pulling European shares down from a two-month high, and the euro weakened as the European Central Bank said forcing investors to take losses in bailouts is a risk to financial stability. Base metals slid and Treasuries snapped a six-day drop.

The Standard & Poor’s 500 slipped 0.5 percent at 9:30 a.m. in New York as JPMorgan Chase & Co. (JPM) dropped after reporting a decline in earnings. The Stoxx Europe 600 Index lost 0.9 percent, after closing yesterday at the highest level since Aug. 4. The euro depreciated versus 13 of 16 major peers and the cost of insuring against default on European government bonds rose. Lead, nickel and copper led commodities lower.

The ECB said the involvement of the private sector in euro- area bailouts through forced investor losses would have “direct negative effects” on banks. JPMorgan Chase, the second-largest U.S. bank, reported an approximately 33 percent profit decline excluding a $1.9 billion accounting benefit as earnings from investment banking and trading slumped.

“Any disagreements on how we come out of this crisis will generate pressure on markets and specifically on the financial sector,” said Luis Benguerel, a trader at Interbrokers in Barcelona, Spain. “We are coming from a solid rally in recent days on the hopes that the debt crisis may be nearing a resolution. Anything that may divert that process will generate renewed instability.”

Seven-Day Rally

The S&P 500 retreated today after rebounding from a 13- month low last week, surging 9.8 percent over seven sessions as growing confidence in Europe’s efforts to fight its debt crisis and improving U.S. economic data alleviated concern the U.S. economy would relapse into a recession.

More than two stocks declined for every one that gained in the Stoxx 600. Carrefour SA (CA) sank 4.9 percent as the world’s second-largest retailer lowered its 2011 profit forecast for the second time in three months. Anglo American Plc led a retreat in mining companies, sliding 4.1 percent.

Applications for unemployment insurance payments decreased 1,000 in the week ended Oct. 8 to 404,000, Labor Department figures showed. Economists forecast 405,000 claims, according to the median estimate in a Bloomberg News survey. The U.S. trade deficit was little changed at $45.6 billion in August, compared with a median projection of $45.8 billion in a Bloomberg News survey of economists, according to data from the Commerce Department in Washington.

‘Massively Vulnerable’

“The market over the next few days may be due for a bit of a correction as we’ve had many days of gains,” Mohammed Apabhai, head of Asia trading at Citigroup Inc., said in a Bloomberg Television interview in Hong Kong. “If things do go wrong, markets remain massively vulnerable, but we’re not expecting that. Of course everything hinges on what comes out of Europe.”

U.S. 10-year Treasuries rose, snapping a six-day decline, pushing the yield down three basis points to 2.18 percent. German bunds advanced for the first time in seven days, driving the 10-year yield down three basis points to 2.16 percent.

Minutes from the Federal Reserve’s Sept. 20-21 meeting, released yesterday, showed policy makers saw “considerable uncertainty” that U.S. growth will pick up. Most participants favored giving additional information on the central bank’s goals and how they influence decisions, and most “saw advantages” in tying the Fed’s near-zero interest rates to more-specific developments in the economy.

Italian 10-year bonds fell for a fifth day as the yield rose eight basis points to 5.82 percent, the highest since August, as the nation sold debt maturing in 2016 and 2015. The yield climbed nine basis points to 5.81 percent.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed 6.9 basis points to 327.3. An increase signals worsening perceptions of credit quality.

Berlusconi Confidence Vote

Italian Prime Minister Silvio Berlusconi called for a confidence vote in Parliament to prove he has enough support to rule after failing to muster a majority on a legislative ballot this week. While the vote has yet to be scheduled, Berlusconi’s allies have indicated it may be tomorrow.

The euro declined 0.4 percent to $1.3731 and lost 0.9 percent to 105.56 yen. The Japanese currency rose 0.5 percent to 76.87 per dollar, strengthening versus 14 of 16 major counterparts.

Copper Drops

Copper dropped 2.3 percent to $7,349.50 a metric ton in London and oil in New York fell 1.3 percent to $84.44 a barrel. Raw sugar jumped 3.8 percent to 27.01 cents a pound as Thailand, the world’s second-biggest exporter of sugar, said floods may last until the end of the month.

The MSCI Emerging Markets Index advanced 0.7 percent, extending a six-day, 11 percent advance, the longest since April 6. The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong rose 3.7 percent, taking a rebound from its Oct. 4 low to 21 percent.

The Shanghai Composite Index gained 0.8 percent after China’s State Council said it will provide financial support and preferential tax policies for small companies. Poland’s WIG20 Index lost 0.8 percent, led by a 2.8 percent decline in KGHM Polska Miedz SA, the country’s only copper producer. The Micex Index retreated 0.2 percent in Moscow.

To contact the reporter on this story: Andrew Rummer in London at arummer@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net