U.S. Stocks Pare Gains as French Yields Jump

By Rita Nazareth - Nov 10, 2011 10:53 PM GMT+0700

U.S. stocks pared gains, following the biggest drop in the Standard & Poor’s 500 Index since August, as Apple Inc. slumped and French bond yields rose amid concern Europe isn’t doing enough to contain its debt crisis.

Apple Inc., the largest technology company, sank 2.7 percent, driving technology shares lower. Bank of America Corp. (BAC) fell 1 percent, reversing an earlier gain of 2.8 percent. Cisco Systems Inc. (CSCO), the largest maker of networking equipment, jumped 5 percent as profit and sales beat estimates.

The S&P 500 added less than 0.1 percent to 1,229.47 as of 10:51 a.m. New York time, paring an earlier gain of 1.3 percent. The benchmark gauge for American equities slumped 3.7 percent yesterday as one out of 500 stocks in the index gained, the fewest since June 2010. The Dow Jones Industrial Average advanced 29.67 points, or 0.3 percent, to 11,810.61.

“We’re all headline watching,” Mike Ryan, the New York- based chief investment strategist at UBS Wealth Management Americas, said in a telephone interview. His firm oversees $715 billion. “While politics and policy are constructive, I’m not so sure this is the end game. There’s still noise that will come out. I don’t view this as a critical turning point for the markets.”

Equities tumbled yesterday on concern that European leaders may be unable to keep the euro zone intact as Italian yields surged to a record. The decline erased the month-to-date gain in the S&P 500. The measure had the biggest monthly gain in 20 years in October on speculation Europe would contain its crisis.

National Unity

Former vice president of the European Central Bank Lucas Papademos will head a national unity government for Greece, according to the country’s presidency. The ECB bought Italian government bonds today, according to three people familiar with the transactions, who declined to be identified. Italy sold 5 billion euros ($6.8 billion) of one-year bills, the maximum for the auction, and demand rose as the Treasury lured investors with the highest yield in 14 years.

Italy should “look at the International Monetary Fund” for help containing its debt crisis, according to Sean Egan, the president and founding principal of Egan-Jones Ratings Co.

“The miner’s canary is the yield on Italian debt,” Egan said today in a radio interview on “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. “It’s gone north and we are fairly concerned.” The sovereign debt rating for Italy “is on review” and that of France is “probably headed south,” Egan said.

Jobless Claims

Stocks rose earlier as data showed the number of Americans filing applications for unemployment benefits fell to the lowest level in seven months, a sign the recovery may be encouraging companies to limit cuts in headcount. The U.S. trade deficit unexpectedly narrowed in September to the lowest level this year as exports surged to a record high, another report showed. as exports surged to a record high, another report showed.

The rally that drove the S&P 500 up 20 percent since October fizzled after it failed to remain above its 200-day average for a second time. Yesterday, the index slid below its average in the past 200 days. The measure closed above the 200- day level on two straight days at the end of October, following the biggest monthly rally since 1991, and again on Nov. 8.

Equities surged worldwide starting in the first week of October on optimism European leaders would solve the crisis, driving the S&P 500 out of a price range where it had been stuck since the start of August. Price indicators such as the stock index’s average price are captivating investors, said Brian Barish of Cambiar Investors LLC.

“The S&P 500 failed to break the 200-day and Italy’s debt yields really blew out, so you have a panicky reaction in the marketplace,” Barish, who helps oversee about $8 billion as Denver-based president of Cambiar, said in a telephone interview yesterday. In early October, “the market was poised to rally on almost anything, and it did,” he said. The 200-day average is “where it ran out of gas.”

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