U.S. Stocks Pare Losses on Bets Europe Nearing Debt Pact

By Rita Nazareth and Julia Leite - Jun 29, 2012 4:12 AM GMT+0700

U.S. stocks pared losses in the final hour of trading amid speculation European leaders were nearing an agreement to halt contagion from the debt crisis.

After the market close, European Union President Herman Van Rompuysaid leaders agreed to spend 120 billion euros ($149 billion) to stimulate growth. JPMorgan Chase & Co. (JPM) tumbled 2.5 percent after the New York Times said trading losses from credit derivatives may total as much as $9 billion, exceeding the firm’s initial estimate. Health-care (S5HLTH) stocks in the Standard & Poor’s 500 Index fell 0.3 percent as the Supreme Court upheld the core of President Barack Obama’s industry overhaul.

The S&P 500 dropped 0.2 percent to 1,329.04 at 4 p.m. New York time, paring a loss of as much as 1.4 percent. The Dow Jones Industrial Average slid 24.75 points, or 0.2 percent, to 12,602.26. Volume for exchange-listed stocks in the U.S. was 6.8 billion shares, about in line with the three-month average.

European leaders began a two-day summit in Brussels today intended to chart a path out of their financial crisis. Stocks pared losses as German Chancellor Angela Merkel canceled a press briefing and her spokesman said talks on a growth accord were ongoing.

“Europe has been the driver of this market,” said Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama. “The postponement of a conference call was a signal for traders to put on more risk. Another ‘kick the can’ would be viewed as favorable.”

Economic Data

Equities tumbled earlier today as the number of applications for unemployment benefits hovered last week near the highest of the year, showing little improvement in the labor market. The U.S. economy grew 1.9 percent in the first quarter, reflecting a gain in consumer spending that now shows signs of cooling as the labor market weakens.

Concern about a worsening of Europe’s debt crisis and a global slowdown has taken the S&P 500 (SPX) down 5.6 percent this quarter. Technology and financial shares have had the biggest losses in the period, tumbling at least 9.6 percent.

Financial shares in the S&P 500 dropped 0.2 percent, paring a loss of as much as 1.9 percent. Barclays Plc’s record $451 million fines for interest rate manipulation sent bank shares plunging as U.S. and U.K. authorities pursue sanctions in a global investigation of more than a dozen lenders.

JPMorgan slumped 2.5 percent to $35.88. The New York Times reported that the lender’s losses have increased in recent weeks as it sought to exit its holdings, citing unidentified former traders and executives at the bank.

‘Major Loss’

JPMorgan won’t have a “major loss” in 2012 following the lender’s disclosure of losses from credit derivatives that could amount to more than $2 billion this quarter, Richard Bove said.

“We’re not expecting JPM to run a major loss,” Bove, an analyst with Rochdale Securities LLC, said today in a Bloomberg Television interview with Tom Keene. “I don’t believe that there’s any likelihood that the liquidity of the company is going to be affected by this.”

Citigroup Inc. (C) dropped 2.6 percent to $26.39, trimming a decline of as much as 5.4 percent. The bank is not one of the lenders being investigated by the U.K.’s Financial Services Authority for attempting to manipulate the London interbank offered rate, the company said in an emailed statement today.

Tenet Healthcare Corp. (THC) led hospitals and Medicaid insurers higher while commercial health plans led by WellPoint Inc. (WLP) fell after the U.S. Supreme Court upheld most of President Barack Obama’s health-care overhaul.

Tenet Rallies

Tenet, the third-biggest hospital chain, rose 5.4 percent to $5.25, while Medicaid plan Molina Healthcare Inc. (MOH) climbed 8.6 percent to $23.16. Indianapolis-based WellPoint, the second- largest U.S. health insurer, declined 5.2 percent to $65.90.

Cisco Systems Inc. (CSCO), the largest maker of computer- networking gear, slipped 1.5 percent to $16.48 after Lazard Ltd. said in a note today that the company may be seeing weaker-than- expected demand trends.

Family Dollar Stores Inc. (FDO) slumped 2.8 percent to $67.20. The owner of more than 7,200 discount shops in the U.S. narrowed its fiscal 2012 profit forecast. Rival Dollar Tree Inc. (DLTR) retreated 2.4 percent to $52.18, while Dollar General Corp. (DG) declined 0.5 percent to $53.73.

News Corp. (NWSA) dropped 1.4 percent to $21.99, after climbing 11 percent over the previous two days. It announced plans to split into two publicly traded entities focused on publishing and entertainment after shareholder pressure prompted the biggest reorganization since Rupert Murdoch built the media empire.

In Talks

Genworth Financial Inc. rallied 11 percent to $5.43. The life insurer and mortgage guarantor surged as hedge fund Highfields Capital Management LP said it is in talks with management about increasing the value of its stake.

U.S. executives are tapping into their record pile of cash for the first time in four years as they drive spending on plants and equipment to an all-time high.

Cash held by S&P 500 companies, excluding financial institutions and utilities, fell 1.4 percent to $1.01 trillion in the first quarter, according to data compiled by Howard Silverblatt, a New York-based senior index analyst at S&P. Capital spending, based on 12-month trailing data compiled by Bloomberg for the entire index, rose 3.3 percent during the same period and reached a record $66.6 billion last month.

While record-low interest rates may have prompted companies to build more factories, concern over the European debt crisis and expiration of Bush-era tax cuts will make executives reluctant to keep increasing spending, said David Sowerby, a money manager at Boston-based Loomis Sayles & Co.

‘Great Concern’

“It will only persist to the extent that companies remain reasonably confident in the business outlook,” Sowerby, whose firm oversees about $170 billion, said in a telephone interview. “With the great concern in Europe as well as the pending expiration of the tax cuts, you could see a return to rebuilding cash and less capital expenditure.”

Companies amassed $1.03 trillion in cash at the end of last year after beating analysts’ earnings estimates for 12 straight quarters, data compiled by S&P and Bloomberg show. Combined profits by S&P 500 stocks rose 9.9 percent to a record $92.09 a share in 2011, Bloomberg data show.

Executives are seeking ways to give back money to shareholders. While share buybacks fell by 6.2 percent to $84.3 billion in the first quarter from a year earlier, dividends increased by 14 percent to $64.1 billion, S&P data show.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Julia Leite in New York at jleite3@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net