U.S. Stock Futures Retreat Amid European Negotiations on Rescue

By Rita Nazareth - Oct 24, 2011 8:00 AM GMT+0700

U.S. stock futures fell, following the Standard & Poor’s 500 Index’s longest weekly rally since February, after officials ruled out tapping the European Central Bank’s balance sheet to boost the region’s rescue fund as they worked toward a revamped strategy for the debt crisis.

S&P 500 futures expiring in December dropped 0.4 percent to 1,230.50 at 10 a.m. Tokyo time, paring losses from as much as 0.7 percent after Japan’s exports increased 2.4 percent in September from a year earlier, topping the 1 percent median growth forecast of economists in a Bloomberg survey. The benchmark gauge for U.S. stocks has risen three straight weeks, adding 9.4 percent.

“Ruling out the use of the balance sheet raises the question of how strong the firewall will be,” James Dunigan, who helps oversee $103 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “As long as that’s in question, the sense of a crisis won’t go away.”

European leaders outlined plans to aid banks, heading toward a revamped strategy to contain the Greece-fueled debt crisis. The 13th crisis-management summit in 21 months excluded a forced restructuring of Greece’s debt, sticking with the policy of enticing bondholders to accept “voluntary” losses to help restore the country’s finances. The complete blueprint will be formed Oct. 26.

The S&P 500 ended last week at the highest level since Aug. 3, two days before S&P stripped the U.S. of its AAA credit rating, amid optimism Europe’s leaders will announce a plan to contain the debt crisis and after McDonald’s Corp. joined companies beating profit estimates. The stock index has surged 13 percent since Oct. 3, when it closed within 1 percent of a bear market, or 20 percent plunge, from its high in April.

Quarterly Results

This week, 191 companies in the S&P 500 are scheduled to report quarterly results. Profit for all companies in the index climbed 16 percent during the third quarter, and will increase 18 percent to a record $99.32 a share for all of 2011, according to analyst estimates compiled by Bloomberg. About three quarters of the S&P 500 companies that reported results since Oct. 11 beat analysts’ projections, the data showed.

United Parcel Service Inc. (UPS), the world’s largest provider of package deliveries; Caterpillar Inc., the biggest construction and mining-equipment maker; and Texas Instruments Inc., the largest maker of analog chips, are among companies scheduled to report results this week.

“Companies are making money,” Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion, said in a telephone interview. “It suggests that the economy is growing. If we can ease some of the risks related to the European Union, the market has further room to move higher.”

The S&P 500 rose 9.4 percent this month through Oct. 21, following five months of losses. Gauges of commodity, consumer discretionary and industrial companies, which are most-tied to economic growth, added at least 11 percent. The U.S. economy probably grew in the third quarter at the fastest pace this year, economists said before a report this week.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

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