Aug. 5 (Bloomberg) -- U.S. stocks fell, dragging the Standard & Poor’s 500 Index down from a nine-month high, after reports on job losses and service industries were worse than economists estimated.

Procter & Gamble Co. slid 2.8 percent after profit fell on lower sales of higher-priced skin-care products and detergents. Electronic Arts Inc. sank 6.8 percent after reporting a quarterly loss. Declines were limited as financial shares rallied after mortgage insurer Radian Group Inc. posted better- than-estimated results and commodity producers gained as copper and aluminum rose to the highest prices in at least nine months.

The S&P 500 declined for the first time in five days, slipping 0.3 percent to 1,002.72 at 4:07 p.m. in New York. The gauge climbed yesterday to 0.1 point below its close on Nov. 4, the day President Barack Obama was elected. The Dow Jones Industrial Average fell 39.22 points, or 0.4 percent, to 9,280.97.

“Data is less bad, but it’s still going to be weak,” said Tim Hartzell, who manages $300 million as chief investment officer for Houston-based Sequent Asset Management. “The talk is all about the smaller companies that are now into that next phase of downsizing. That’s what we have to go through. There’s going to be some smaller and midsize companies that have to go out of business to reduce capacity.”

Yesterday’s advance pushed the valuation of the S&P 500 to about 17.5 times its companies’ earnings over the past 12 months, the most expensive since May 2008, according to daily data compiled by Bloomberg.

Historic Rally

Since reaching a 12-year low of 676.53 on March 9, the S&P 500 has rebounded 48 percent, the steepest rally over the same number of days since the Great Depression. The S&P 500’s 14-day relative strength index, a measure of momentum, rose to almost 76 yesterday for its highest level since October 2006. An RSI above 70 is typically a sell signal to technical analysts.

Benchmark indexes opened lower after data from ADP Employer Services showed companies cut 371,000 workers from payrolls in July, more than the average estimate of 350,000 in a Bloomberg survey of economists. The figures from the world’s largest payroll processor have shown declines in employment since February 2008. The number of lost jobs has dropped each month since April and fell in July from 463,000 in June.

“I don’t think the lessening of the recession will carry weight much longer,” said Ron Kiddoo, who oversees $500 million as chief investment officer for Cozad Asset Management Inc., based in Champaign, Illinois. “It helped for the past few months, but it’s not going help forever.”

Service Industries Contract

Equities extended losses as the Institute for Supply Management’s index of non-manufacturing businesses, which make up almost 90 percent of the economy, fell to 46.4 from 47 in June. Fifty is the dividing line between growth and contraction.

Procter & Gamble lost 2.8 percent to $53.91, leading a measure of consumer-staples companies in the S&P 500 down 1 percent for its biggest decline in a month. The world’s largest maker of household products said fourth-quarter net income dropped 18 percent to $2.47 billion as consumers switched to cheaper generic brands to save money during the recession.

Electronic Arts, the world’s second-largest video-game publisher, sank 6.8 percent to $20.40. EBay Inc. dropped 1.1 percent to $21.61 as gauge of S&P 500 technology companies lost 0.9 percent.

Earnings Analysis

Emerson Electric Co. fell 3.6 percent to $34.83 as industrial shares in the S&P 500 snapped a four day streak of gains. The maker of electronic products was cut to “neutral” from “buy” at FTN Equity Capital Markets Corp., which said fiscal year 2010 earnings may continue to be hurt by lower volumes.

Companies in the S&P 500 are headed for a record eighth consecutive drop in quarterly profits. Per-share earnings have tumbled 31 percent on average, matching analysts’ estimates compiled by Bloomberg. Analysts predict a 22 percent third- quarter decline before a 62 percent rebound in earnings in the final three months of the year.

While profits are falling, results have surpassed projections by an average 9.5 percent in the current season. Per-share earnings have beaten estimates at three-quarters of the 411 companies in the S&P 500 that released second-quarter results since June 17, according to data compiled by Bloomberg.

Walt Disney Co., the world’s biggest media company, fell 1.4 percent to $25.27 after being downgraded to “neutral” from “buy” at Miller Tabak & Co.

Dean Foods, Baker Hughes

Dean Foods Co., the biggest U.S. dairy-product maker, sank 9.2 percent to $19.38 for the steepest loss in the S&P 500 after its full-year profit forecast fell short of analysts’ estimates.

Baker Hughes Inc., the world’s third-largest oilfield- services provider, declined the most since March 2, dropping 7.8 percent to $38.68, after second-quarter profit fell 77 percent after energy prices tumbled.

Radian surged 83 percent to $6.72 for the biggest gain in the Russell 2000 Index and the most since the company began trading in 1992. The third-largest U.S. mortgage insurer posted a second-quarter profit on lower provisions. Analysts had forecast a loss.

American International Group Inc., the insurer bailed out by the government, rallied 63 percent to $22 for the largest gain in the S&P 500. AIG is scheduled to report a second-quarter results on Aug. 7.

Financial shares in the S&P 500 advanced for a fifth day, limiting the market’s loss, as Bank of America Corp. rallied 6.5 percent $16.66 for the biggest gain in the Dow average. The largest U.S. lender was recommended by CNBC’s “Mad Money” host Jim Cramer, who predicted the bank’s stock may add at least 50 percent should the economy begin to expand.

‘License to Steal’

Shares of financial companies in the S&P 500 have more than doubled since sliding to a 17-year low in March as the biggest lenders posted profits to start the year and borrowing costs declined. The TED spread, the difference between what banks and the Treasury pay to borrow money for three months, fell below 30 basis points this week for the first time since March 2007.

“With rates being as low as they are and with companies borrowing short and lending long, it’s almost a license to steal,” Kevin Rendino, who manages $10 billion at BlackRock Inc. in Plainsboro, New Jersey, said in an interview on Bloomberg television. “We think the worst is behind the banks in credit quality.”

A measure of materials producers in the S&P 500 erased earlier losses and gained 0.8 percent as the Reuters/Jeffries CRB Index, a gauge of 19 raw materials and commodities, added 0.5 percent. Alcoa Inc., the largest U.S. aluminum producer, climbed 3.7 percent to $13.28.

Whole Foods Rallies

Whole Foods Market Inc. rallied 16 percent to $28.70, the largest gain since February. The biggest natural-food grocer reported third-quarter earnings excluding some items of 25 cents a share, exceeding the average analyst estimate by 25 percent. The company also raised its full-year profit forecast after reducing expenses and using coupons to lure customers.

Garmin Ltd., the maker of car navigation devices, jumped 24 percent to $33.66 after posting earnings that beat analysts’ estimates by 61 percent. The company also said the first quarter “seems to have represented the low point” in declining revenue.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

Last Updated: August 5, 2009 17:09 EDT