: Stocks, Dollar, Treasuries Fall; Gold Rises

U.S. Markets Wrap: Stocks, Dollar, Treasuries Fall; Gold Rises

May 21 (Bloomberg) -- Stocks and Treasuries fell, and the dollar dropped to a four-month low on speculation the U.S. government’s credit worthiness is deteriorating.

U.S. stocks declined for a third day, extending a global slump, after jobless claims topped economists’ forecasts and Standard & Poor’s said the U.K. may lose its AAA credit rating.

“The markets are beginning to anticipate the possibility of” a downgrade to the U.S.’s top AAA credit rating, and it will “eventually” be lost, said Bill Gross, co-chief investment officer of Pacific Investment Management Co. in Newport Beach, California, in a Bloomberg Television interview. “It’s certainly nothing that’s going to happen overnight.”

The S&P 500, which has rebounded 31 percent from a 12-year low on March 9, slid 1.7 percent to 888.33 at 4:07 p.m. in New York as nine of 10 industry groups declined. The Dow Jones Industrial Average dropped 129.91 points, or 1.5 percent, to 8,292.13. Europe’s Stoxx 600 Index tumbled 2 percent, while the MSCI Asia Pacific Index lost 0.5 percent.

Initial jobless claims fell by 12,000 to 631,000 in the week ended May 16 from a revised 643,000 the prior week that was higher than initially estimated, the Labor Department said in Washington. Economists surveyed by Bloomberg had forecast claims would drop to 625,000, according to the median of 42 estimates. The total number of workers receiving benefits rose to a record, a sign that the job market continues to weaken even as the economic slump eases.

Alcoa, Schlumberger

Alcoa Inc., Schlumberger Ltd. and Deere & Co. slid at least 4.1 percent on concern a lingering recession will reduce demand for materials, energy and machinery. Regions Financial Corp. tumbled 16 percent after selling shares at a discount to boost capital. The U.K.’s FTSE 100 Index plunged 2.8 percent and gilts slid after S&P lowered its outlook on Britain to “negative” from “stable” as government finances deteriorate.

The dollar declined to the lowest level against the euro since January and dropped versus the yen as an increase in Treasury yields and gold prices indicated inflation may accelerate while the U.S. budget deficit widens.

The spread between yields on 10-year notes and Treasury Inflation Protected Securities, reflecting the outlook among traders for consumer prices, reached 1.73 percentage points, the highest level since September. Sterling erased its decline versus the dollar on speculation a credit downgrade from Standard & Poor’s wasn’t imminent and two other rating companies affirmed the U.K.’s “stable” outlook.

Dollar Slides

The dollar slid 0.9 percent to $1.3901 per euro at 4:02 p.m. in New York, from $1.3780 yesterday. It touched $1.3923, the weakest level since Jan. 5. The dollar fell 0.6 percent to 94.31 yen from 94.88 and reached 93.97, the lowest since March 19. The euro increased 0.3 percent to 131.93 yen from 130.77.

Treasuries dropped after the Federal Reserve bought a smaller percentage of debt than some expected at today’s purchase operation and traders shifted focus to the three note sales next week.

Yields on 10-year notes rose the most since May 7 as the Treasury announced it would auction $101 billion in two-, five- and seven-year notes next week. The central bank bought $7.398 billion, or 16 percent, of the $45.694 billion in U.S. debt due in 2013 to 2016 offered by dealers for consideration. A gauge of inflation reached the highest level since September.

The yield on the 10-year note rose 15 basis points, or 0.15 percentage point, to 3.35 percent at 2:50 p.m. in New York, according to BGCantor Market Data. The 3.125 percent security due May 2019 fell 1 7/32, or $2.19 per $1,000 face amount, to 98 3/32.

Treasury Spread

The difference between two- and 10-year Treasuries rose 0.15 percentage point to 2.50 percentage points today, the steepest the so-called yield curve has been since Nov. 14.

Gold rose to the highest price since March as the slump in global equity markets increased the appeal of precious metals as an alternative investment. Silver touched the highest since February.

Gold futures for June delivery gained $13.80, or 1.5 percent, to $951.20 an ounce on the New York Mercantile Exchange’s Comex division. Earlier, the price reached $951.80, the highest for a most-active contract since March 23. Bullion for immediate delivery in London jumped $16.19, or 1.7 percent, to $954.84 at 7:23 p.m.

Silver futures for July delivery climbed 16.5 cents, or 1.2 percent, to $14.445 an ounce in New York, after earlier touching $14.51, the highest since Feb. 24. The metal surged 28 percent this year, while gold is up 7.6 percent.

Oil Falls

Crude oil dropped from a six-month high after the Federal Reserve cut its forecast for the economy of the U.S., the world’s biggest energy-consuming country.

U.S. stocks erased gains in the final hour of trading yesterday after minutes from the Federal Reserve’s April meeting predicted a deeper recession.

Minutes of the Fed’s Open Market Committee meeting last month showed that policy makers see “significant downside risks” to the economic outlook. The price decrease accelerated after U.S. jobless claims topped forecasts. Fuel demand in the past four weeks fell 7.6 percent from a year earlier, the Energy Department said yesterday.

Crude oil for July delivery declined 99 cents, or 1.6 percent, to settle at $61.05 a barrel at 2:42 p.m. on the New York Mercantile Exchange, the first drop this week. Prices are up 37 percent this year.

U.S. Markets Wrap: Stocks Retreat on Stress Tests as Oil Drops

U.S. Markets Wrap: Stocks Retreat on Stress Tests as Oil Drops

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.