US Stocks, Euro Slump as 10-Year Note Yields Reach 2011 Low - BusinessWeek

June 24, 2011, 1:52 PM EDT By Michael P. Regan and Rita Nazareth

June 24 (Bloomberg) -- U.S. stocks and the euro retreated for a third day as concern about Italian banks kept Europe’s debt crisis in focus and Oracle Corp. led technology shares lower. Italian, Irish and Spanish bonds slid, while 10-year U.S. Treasuries rose to a 2011 high.

The Standard & Poor’s 500 Index lost 0.9 percent to 1,271.66 at 1:29 p.m. in New York and is little changed for the week. The Stoxx Europe 600 Index fell 0.1 percent, erasing a 1.2 percent rally, and the euro sank 0.5 percent to $1.4190. Italy’s 10-year yields climbed to a record relative to German rates as the cost to protect European sovereign debt reached a record. Energy products and hogs led commodities lower.

Technology shares fell the most among 10 groups in the S&P 500 after Oracle’s unexpected drop in hardware sales, while banks were the biggest drag in Europe after Moody’s Investors Service said it may downgrade 13 Italian lenders. Declines in the two groups overshadowed faster-than-forecast growth in U.S. durable-goods orders and European leaders’ pledge to support Greece if the nation approves austerity measures.

“There’s anxiety in the market,” said Kevin Caron, a market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co., which has $115 billion in client assets. “You’re going to go from headline to headline. When you look at Europe, you have Greece, you have the Italian banks. This theme is going to be playing for a while. In the U.S., the economic figures are consistent with an anemic recovery.”

Retreat Since April

The S&P 500 has lost more than 6 percent from an almost three-year high on April 29, and Treasury yields have decreased to their lows for the year, as investors fixated on Europe’s debt crisis, disappointing economic data and the end of the Federal Reserve’s $600 billion bond purchase program this month. The retreat has threatened the S&P 500’s advance for the year, leaving it up less than 2 percent in 2011. The S&P GSCI Index of commodities has lost 15 percent since April 29.

Government data today showed the U.S. economy grew at a 1.9 percent pace in the first quarter, marking the start of what the Fed projects is a temporary slowdown in the recovery. Orders for durable goods climbed 1.9 percent in May, Commerce Department data showed, topping the 1.5 percent median forecast in a Bloomberg survey of economists.

Fed Watch

Fed policy makers lowered their economic growth forecasts this week and said they will complete a second round of bond purchases at the end of the month as planned. While their statement did not address a potential third round of so-called quantitative easing, known as “QE3” among investors, Chairman Ben S. Bernanke said in a press conference on June 22 that the central bank could take additional stimulus action if economic conditions warranted.

“The question is, would adding more do much more?” Fed Bank of Dallas President Richard Fisher said in a Bloomberg Television interview. “Would adding more liquidity do much more? Would bringing rates down even further do much more? The 2-year note is within four basis points of an all-time low, money can’t get much cheaper than it currently is.”

Two-year yields slipped one basis point to 0.33 percent today compared with a low of 0.31 percent in November. Ten-year yields lost as much as 4 basis points to 2.87 percent today.

Oracle slumped 3.7 percent to lead losses in 70 of 74 technology companies in the S&P 500. Micron Technology Inc., the largest U.S. maker of computer-memory chips, sank 12 percent after third-quarter sales and profit fell short of analysts’ estimates. Accenture Plc, the world’s second-largest technology- consulting company, advanced 2.2 percent after raising its forecasts.

Eight-Week Slump

The Stoxx 600 has fallen for eight straight weeks the longest stretch of declines since 1998. The retreat has dragged its valuation to 12.5 times the reported earnings of its companies, the cheapest since 2008, according to data compiled by Bloomberg.

Greek 10-year bond yields fell for a third day this week, down 10 basis points at 16.78 percent, compared with a record of almost 18 percent on June 16. EU leaders vowed to stave off a Greek default as long as Prime Minister George Papandreou pushes through a 78 billion euro package of budget cuts next week, pledging to do whatever it takes to stabilize the euro economy.

‘New Program’

“We have agreed that there will be a new program for Greece,” German Chancellor Angela Merkel told reporters at an EU summit in Brussels today. “This is an important decision that says once again we will do everything to stabilize the euro overall.”

Italy’s benchmark FTSE MIB Index slid 1.6 percent to the lowest level on a closing basis since Nov. 30. UniCredit SpA, the nation’s biggest bank, led losses with a 5.5 percent slump.

Moody’s said yesterday it may downgrade Italian lenders because they would be vulnerable if the government’s credit rating is cut. The ratings company said last week Italy’s credit ratings may be reduced because of slowing economic growth and the potential for the sovereign crisis to drive the country’s borrowing costs higher.

The Markit iTraxx SovX Western Europe Index of default swaps on 15 governments climbed 4.1 basis points to a mid-price of 243. The yield premium, or spread, investors demand to hold Italy 10-year government bonds instead of benchmark German bunds increased seven basis points to a euro-era record of 214 basis points, or 2.14 percentage points. Spain’s 10-year yield increased five basis points to 5.68 percent and Ireland’s was up 18 basis points to 11.97 percent.

Debt Risk

The cost to protect U.S. corporate bonds from default rose for a third day to the highest in more than a week as investor concern mounted that Europe’s debt crisis will slow the global economic recovery. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 1.7 basis points to a mid-price of 100.28 basis points, according to index administrator Markit Group Ltd.

Gasoline, Brent crude and corn lost more than 1.5 percent to lead losses in 18 of 24 commodities in the S&P GSCI. New York-traded copper rose 1.4 percent to $4.1125 a pound, trimming this week’s drop, after the increase in durable goods orders revived prospects for manufacturing and metals demand.

Oil declined to four-month lows of $90.38 a barrel in New York and $104.73 for Brent in London, extending yesterday’s losses triggered by the International Energy Agency plan to release of 60 million barrels.

The MSCI Emerging Markets Index rose 1 percent. China’s Shanghai Composite Index climbed 2.2 percent, the most in four months. Premier Wen Jiabao said in an opinion piece in the Financial Times that “the overall price level is within a controllable range and is expected to drop steadily.”

South Korea’s Kospi Index increased 1.7 percent and India’s Bombay Stock Exchange Sensitive Index added 2.9 percent after yesterday’s decline in crude oil prices. Turkey’s ISE National 100 Index climbed 0.8 percent and Russia’s Micex Index jumped 1.6 percent.

--With assistance from Stephen Kirkland in London and Charlie Zuza in New York. Editors: Michael Regan, Nick Baker

To contact the reporters on this story: Michael Regan in New York at mregan12@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

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

Category: technology