Nov. 12 (Bloomberg) -- U.S. equity benchmark indexes fell from 13-month highs as energy shares slumped following bigger- than-estimated growth in oil stockpiles, erasing an earlier advance spurred by Hewlett-Packard Co.’s takeover of 3Com Corp. The dollar rose the most versus the euro since August.

Southwestern Energy Corp. and Range Resources Corp. slid more than 4 percent, helping lead 39 of 40 oil and gas companies in the Standard & Poor’s 500 Index lower as crude tumbled. The dollar strengthened against 14 of 16 major currencies, extending declines in commodities. 3Com rallied 31 percent, its best gain since 2007, as Hewlett-Packard offered to purchase the maker of computer networking equipment for $2.7 billion.

The S&P 500 slid 1 percent to 1,087.24 at 4:04 p.m. in New York after climbing to as high as 1,101.97 before the Energy Department’s report. The Dow Jones Industrial Average lost 93.79 points, or 0.9 percent, to 10,197.47. Eight stocks retreated for each that rose on the New York Stock Exchange.

“The fundamentals just aren’t quite there yet,” said Sarah Hunt, a money manager who helps oversee about $6.5 billion for Purchase, New York-based Alpine Mutual Funds. “You still have a lot of concerns about the demand side of the equation for energy stocks. We’re getting a bit of a pause. Every time we get these big bursts of enthusiasm they tend to be tempered by the fact that the economy still looks pretty bad.”

The S&P 500, which closed at its highest level since October 2008 yesterday, failed to remain above the 1,100 level for a second straight day. The index has rallied 61 percent from a 12-year low in March, recovering almost half of its plunge from a record in October 2007.

‘Cloud of Hope’

The rebound occurred as government stimulus measures and Federal Reserve interest rate cuts helped end a four-quarter contraction in the U.S. economy. The gains pushed the S&P 500 to about 22 times reported earnings, the highest since 2002, according to weekly data compiled by Bloomberg.

“This market has risen on a cloud of hope,” said Robert Arnott, founder of Research Affiliates LLC, which oversees $45 billion in Newport Beach, California. “It’s always dangerous to assume that a liquidity-induced bull market will end before the liquidity flows end. The liquidity flows have some time to go, but the market has gotten way, way, way ahead of fundamentals.”

Asian shares and U.S. stock-index futures fell before the open of exchanges in New York after China’s Premier Wen Jiabao spurred concern that the global economic recovery will slow.

‘Slow and Bumpy’

“The worst is over,” Wen said in speech televised from a forum in Beijing. “The global economy is starting to recover but a total recovery will be a slow and bumpy process.”

Southwestern Energy, the only oil and natural-gas producer in the S&P 500 to advance last year, slid 4.8 percent to $42.57. Range Resources, the independent energy producer that operates mostly in the southwestern, Appalachian and Gulf Coast regions of the U.S., slid 4.3 percent to $48.98. Chevron Corp., the second-largest U.S. oil company, lost 1.4 percent to $77.42.

Energy shares slumped 2 percent collectively, the steepest decline among 10 groups.

Oil for December delivery fell 3 percent to $76.94 a barrel in New York. Supplies of crude rose 1.76 million barrels to 337.7 million last week, the Energy Department report showed. Analysts surveyed by Bloomberg News forecast a 1 million-barrel gain on average. Refinery operations declined to the lowest level since September 2008, when units were shut in the aftermath of hurricanes Gustav and Ike.

“Demand for oil is not strengthening, despite indications that the economy is showing signs of stabilization and growth,” said Tim Ghriskey, who helps oversee $2 billion as chief investment officer for Solaris Asset Management in Bedford Hills, New York. “It calls into question on a minor basis the strength of the economic recovery.”

3Com Takeover

3Com surged 31 percent to $7.46 after the Hewlett-Packard bid. H-P Chief Executive Officer Mark Hurd is seeking to add to the company’s $118 billion in annual sales after the sharpest slump in PC demand in history. Hewlett-Packard slid 0.6 percent to $49.70.

Brocade Communications Systems Inc. dropped 13 percent to $8.08 after ratings downgrades at Piper Jaffray Cos., ThinkEquity LLC and Lazard Capital Markets Ltd. The analysts cited the loss of a potential partnership with Hewlett-Packard, which some investors had speculated would buy Brocade.

Wal-Mart Stores Inc. rose 0.5 percent to $53.24. The world’s largest retailer posted third-quarter profit of 84 cents a share, beating the 81-cent average analyst estimate in a Bloomberg survey, while forecasting U.S. sales for the fourth quarter will be little changed.

Earnings Season

Dow Chemical Co. climbed 7.1 percent to $28.60 after it said cost cuts and rising sales after the acquisition of Rohm & Haas Co. will boost earnings more than analysts estimate.

Eighty-one percent of S&P 500 companies that released results have exceeded the average analyst estimate for third quarter earnings per share, a record in Bloomberg data going back to 1993, even as profits slumped for a record ninth straight quarter.

U.S. Treasury Secretary Timothy Geithner said there are “early signs” that the world is addressing imbalances in spending and savings that contributed to the global crisis.

Asia is “leading the world” back to recovery, Geithner told reporters in a press briefing with counterparts from the Asia-Pacific Economic Cooperation group following a meeting in Singapore. American exports are also growing at a healthier rate, he said.

China will probably let the yuan start rising against the dollar in early 2010 after the central bank signaled it may pursue a more flexible currency policy, said Calyon, the investment-banking arm of Credit Agricole SA.

China’s Yuan

The exchange rate will be guided in a “proactive, controlled and gradual manner and based on international capital flows and movements in major currencies,” the People’s Bank of China said yesterday in a quarterly report. It omitted a pledge made three months earlier to keep the yuan “basically stable.”

The dollar strengthened against all of the most-traded counterparts tracked by &cls;Bloomberg except for the pound and South Korean Won. It gained 1 percent versus the euro Canadian dollar. The Dollar Index, which tracks the U.S. currency against six major trading partners, added 0.7 percent in its second day of gains after touching a 15-month low.

Gold prices climbed to a record $1,123.40 an ounce in New York, flirting with the longest rally in 27 years before declining as the dollar rebounded, curbing demand for the metal as an alternative asset.

Banks Drop

Financial shares in the S&P 500 posted the second-steepest decline among 10 groups, falling 1.8 percent collectively. Bank of America Corp. dropped 2.3 percent to $16.06 and JPMorgan Chase & Co. lost 2.3 percent to $43.30.

The Federal Reserve will prohibit banks from charging overdraft fees on automated teller machines or debit cards, unless a customer has agreed to pay extra charges for exceeding account balances. Lenders collected almost $37 billion in overdraft fees last year, according to research firm Moebs Services Inc.

The S&P 500 may drop as much as 15 percent by the end of the year as declines in bank stocks signal an imminent fall, said Mary Ann Bartels, head of technical analysis at Bank of America Corp.

The KBW Bank Index that tracks 24 lenders broke out of a so-called triple top pattern in the past two weeks, suggesting that it has entered a period of decline that will extend to the S&P 500, Bartels said in a telephone interview.

‘Triple Top’

The S&P 500, which closed at 1,098.51 yesterday, may drop to as low as 930 by the end of the year, she said. A triple top, a chart pattern where an asset creates three peaks near the same level, is used by technical analysts to predict the reversal of an uptrend.

Treasuries rose as stocks declined and the U.S. completed this week’s three note and bond offerings with a record $16 billion sale of debt maturing in 30 years. The 10-year yield fell five basis points to 3.44 percent. The difference between 2- and 30-year yields reached 3.60 percentage points, the most since June, amid expectations the Treasury will increase sales of longer-term securities.

Energy Future Holdings Corp.’s plan to reduce debt by swapping $6 billion of bonds for $4 billion of new securities failed, dealing a blow to the Texas electricity provider’s owners, buyout firms KKR & Co. and TPG.

The company, which reduced the maximum exchange amount to $3 billion from $4 billion on Oct. 23, received tenders for $357.5 million of notes, Dallas-based Energy Future said today in a statement. The former TXU Corp. will issue $256.6 million of senior secured notes in exchange for the old bonds.

To contact the reporter on this story: Mary Childs in New York at mchilds4@bloomberg.net.

Last Updated: November 12, 2009 18:59 EST