May 5 (Bloomberg) -- U.S. stocks fell for the first time in three sessions as speculation grew that government stress tests will show some banks need more capital. Treasuries were little changed as oil prices dropped, dragging down commodity producers, and the dollar rose against the euro.
The Standard & Poor’s 500 Index retreated a day after erasing its 2009 decline. KeyCorp and Fifth Third Bancorp tumbled at least 5.3 percent as the Federal Reserve prepared to release results of its evaluation of lenders. Legg Mason Inc. plunged 17 percent after investors pulled $44 billion from its funds in the first three months of the year. Energy companies in the S&P 500 collectively slid 1.3 percent, the most among 10 industries, as crude fell from a five-month high.
“The stress tests are causing a little bit of stress,” said Mike Ryan, the New York-based head of wealth management research for the Americas at UBS Financial Services Inc., which oversees $590 billion. “I do expect to see lingering uncertainty about exactly what’s next for the banking system.”
The S&P 500 dropped 0.4 percent to 903.8 at 4:03 p.m. in New York. The index was valued at 14.52 times its companies’ earnings as of yesterday’s close, the most expensive since Jan. 2. The Dow Jones Industrial Average slipped 16.09 points, or 0.2 percent, to 8,410.65. Stocks in Europe and Asia increased.
Earnings Beat Estimates
The S&P 500, which closed yesterday with a 0.4 percent advance for 2009, gave back almost all of that gain today. The U.S. stock benchmark has rebounded almost 34 percent from a 12- year low on March 9 after companies from Wells Fargo to Ford Motor Co. beat analysts’ projections and reports showed the worst losses in the housing market may be over. The gauge closed at 907.24 on May 4, the highest since Jan. 8.
The rebound restored more than $2.3 trillion to the value of American shares after the S&P 500 fell as much as 57 percent from its record 1,565.15 on Oct. 9, 2007, according to data compiled by Bloomberg.
The Fed plans to deliver results of stress tests on U.S. banks to executives today that may show about 10 companies need additional capital to weather a deeper recession, people familiar with the matter said. Many of the 19 lenders under review and the government are set to discuss the examinations publicly after markets close May 7, the people said.
The S&P 500 Banks Index slipped 2.8 percent, the second- steepest loss among 24 industries. The gauge of 16 lenders pared a loss of 5 percent after Fed Chairman Ben S. Bernanke said the central bank doesn’t want “substantial” bank ownership over time and the industry can go without federal aid in a few years.
‘Signs of Bottoming’
Bernanke, speaking to the congressional Joint Economic Committee in Washington, warned that another shock to the financial system would undercut the Fed’s forecast that the U.S. recession will give way this year to a slow recovery. He highlighted that the economic contraction may be slowing and that the housing market has “shown some signs of bottoming” after a three-year slump.
Treasuries were little changed as traders focused on the 10- and 30-year auctions later this week.
U.S. debt pared losses that came after the Treasury’s sale of $35 billion of three-year notes drew a higher yield than traders anticipated. The sale was the first of three this week that will auction $71 billion of notes and bonds.
“The market is saying we got through that but we still have 10s and bonds,” said Michael Pond, an interest-rate strategist in New York at Barclays Capital Inc., one of the 16 primary dealers that are required to bid at Treasury auctions.
10-Year Yield Falls
The 10-year note yield fell one basis point, or 0.01 percentage point, to 3.15 percent as of 2:45 p.m. in New York, according to BGCantor Market data. The 2.75 percent security maturing in February 2019 rose 1/32, or 31 cents per $1,000 face amount, to 96 22/32.
Crude oil retreated on speculation a government report will show that U.S. supplies climbed to the highest level in more than 18 years.
The Energy Department tomorrow will probably say that crude-oil inventories increased 2.5 million barrels last week, according to a Bloomberg News survey. Prices surged yesterday as the Standard & Poor’s 500 Index gained 3.4 percent and pending sales of existing U.S. homes jumped.
“Prices fell on expectations that we are going to see another inventory build and because the stock market has moved a little lower today,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “We did reach a new high for the year today but were unable to break through $55, which is a sign of weakness.”
Oil Retreats
Crude oil for June delivery fell 63 cents, or 1.2 percent, to settle at $53.84 a barrel at 2:49 p.m. on the New York Mercantile Exchange. Futures touched $54.83, the highest since Nov. 28. Oil is up 21 percent this year.
The dollar rose against the euro for the first time in three days on Bernanke’s comments that the U.S. economic contraction may be easing and a report that showed services industries shrank at a slower pace.
Australia’s dollar appreciated to the highest level against the U.S. dollar since October after the Reserve Bank held the target lending rate at 3 percent. The euro fell against the dollar after a report showed European producer prices dropped in March by the most in 22 years, bolstering the case for more action by the European Central Bank to revive economic growth.
“Bernanke sounded positive on housing,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “What else could he say? But there is not a lot of conviction. Once the euro started to slip, the markets were quick to cut risk positions.”
Euro Drops
The U.S. currency advanced 0.6 percent to $1.3326 per euro at 4:02 p.m. in New York, from $1.3406 yesterday. It earlier slid to $1.3438, the weakest level since April 6. The dollar gained 0.2 percent to 98.97 yen, from 98.80. The euro dropped 0.4 percent to 131.90 yen, from 132.45.
Copper fell from the highest price in two weeks on concern that financial losses will continue to curb growth. Copper surged 12 percent in the previous four sessions on speculation that the global contraction may be bottoming.
“We’ve had some optimism that the worst may be over, but we’re not at the other end of the tunnel just yet,” said Matthew Zeman, a trader at LaSalle Futures Group in Chicago. “People are going to be skittish this week ahead of the bank stress tests.”
Copper futures for July delivery dropped 6.15 cents, or 2.9 percent, to $2.0825 a pound on the Comex division of the New York Mercantile Exchange. Earlier, the most-active futures touched $2.177, the highest since April 20.
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