Stocks Rally With French Bonds After Debt Sale; Euro Weakens, Gas Declines

By Stephen Kirkland and Lynn Thomasson - Jan 17, 2012 4:42 AM GMT+0700
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The euro slipped 0.3 percent against the yen at 11:40 a.m. in London after touching an 11-year low. Photographer: Simon Dawson/Bloomberg

Stocks rallied and French bonds rose after borrowing costs fell at the first bills sale since Standard & Poor’s downgraded the country and as Europe’s central bank bought Italian and Spanish debt. The euro weakened, Portuguese notes slid and natural gas tumbled.

Two-year French yields fell four basis points to 0.67 percent. The Stoxx Europe 600 Index added 0.8 percent and S&P 500 futures climbed 0.2 percent. U.S. equity and bond markets are closed today for the Martin Luther King Jr. holiday. The euro slipped 0.3 percent against the yen at 4 p.m. New York time, after touching an 11-year low earlier. Portugal’s 10-year yield jumped 195 basis points to 14.41 percent. Natural gas sank 4.5 percent, reaching a two-year low. The Bovespa stock index jumped 1.4 percent as Brazil’s economy showed strength.

“The bill auctions have been carried out without a problem, which is helpful for market sentiment toward the euro area,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The reaction to the S&P downgrade has been somewhat muted. The move wasn’t a surprise and was well-flagged for a number of the issuers.”

France sold 1.895 billion euros ($2.4 billion) of one-year notes at a yield of 0.406 percent, versus 0.454 percent at an auction of similar-maturity securities on Jan. 9. It also sold 8.59 billion euros in bills. S&P warned on Jan. 13 that Europe’s efforts to fight its crisis are falling short as it lowered ratings on nine euro-area countries, cutting Portugal, Spain and Italy by two steps and France and Austria by one level.

After European markets closed today, S&P cut the rating of the European Financial Stability Facility, the euro-region bailout fund, to AA+ from AAA. S&P said on Dec. 6 that the loss of an AAA rating by any one of the EFSF’s guarantor nations may lead to the facility being downgraded.

Carnival Tumbles

Fiat SpA and Daimler AG led European automakers higher, rising more than 3.6 percent. Carnival Corp. tumbled 16 percent in London, the biggest drop since October 2000, after saying the grounding of the Costa Concordia off Italy’s Tuscan Coast that killed at least five people will cost the company as much as $95 million, or between 11 cents and 12 cents a share, in fiscal 2012.

Investors will be watching fourth-quarter earnings this week. Wells Fargo & Co., Citigroup Inc. and Microsoft Corp. are among the U.S. companies due to report results. S&P 500 companies, which beat estimates in the previous 11 quarters, are forecast to report a 4.6 percent increase in per-share profit during the September-December period, according to projections compiled by Bloomberg.

Euro Falls

The euro fell as much as 0.5 percent to 97.04 yen today, the least since 2000. The euro slipped 0.1 percent to $1.2666, after dropping 0.4 percent to $1.2626. The South Korean won and the Thailand baht weakened before a report that may show China’s economy expanded at the slowest pace in almost two years.

The European Central Bank bought Italian and Spanish government bonds, according to three people with knowledge of the deals.

The yield on France’s 10-year bond dropped four basis points to 3.03 percent. Spain’s 10-year yield fell four basis points to 5.19 percent, after advancing 10 basis points. The yield on Italy’s 10-year bonds dropped two basis points after climbing 22 basis points. Ten-year German bund yields were little changed at 1.77 percent.

Natural gas fell as much as 4.9 percent to $2.54 per million British thermal units, the lowest price for a most- active contract since September 2009, amid speculation that milder-than-average weather in the U.S. will curb heating demand.

Oil Rallies

Oil in New York rebounded 1 percent to $99.69 a barrel, the first increase in four days. Iran said a disruption to crude supplies through the Strait of Hormuz would cause a shock to markets that “no country” could manage. Iran has threatened to shut the strait, a transit route for about a fifth of global oil trade, in response to international sanctions on its exports.

Gold advanced 0.8 percent as S&P’s ratings downgrades in Europe spurred demand for the metal as a protection of wealth. Copper gained 1.1 percent.

Canadian stocks rose, with the S&P/TSX Composite Index climbing 0.2 percent, led by raw-materials producers as gold gained. The Bovespa stock index jumped 1.4 percent, the most since Jan. 3, as stocks linked to domestic demand rallied after a report showed Brazil’s economy expanded more than forecast in November.

The MSCI Emerging Markets Index declined 0.1 percent. The Shanghai Composite Index dropped 1.7 percent. Data released tomorrow may show China’s economy grew at the slowest pace in 10 quarters. South Korea’s Kospi Index slipped 0.9 percent.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net

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