Stocks Fall, Slowing Global Advance; Commodities Trim Gain

Stocks advanced for a 10th day, sending the MSCI World Index to its longest rally in 11 months, oil and copper soared and Treasuries plunged after China signaled it will relax the yuan’s fixed rate to the dollar.

Futures on the Standard & Poor’s 500 Index rose 1.3 percent and the Stoxx Europe 600 Index climbed to the highest point since May 13 at 8:38 a.m. in New York. The MSCI Asia Pacific Index jumped 2.5 percent, the most in more than two weeks. Oil exceeded $78 a barrel, copper gained more than 3 percent and gold reached a record in New York. The Korean won strengthened as the yen and dollar fell against most major currencies, while the 10-year Treasury yield surged 7 basis points.

The People’s Bank of China said it will end a two-year currency peg adopted during the global financial crisis to protect exporters, a sign policy makers expect the world economy to strengthen. China, the world’s largest copper consumer and second-biggest user of oil after the U.S., signaled the change before the G-20 summit in Toronto on June 26 to 27.

“It’s a vote of confidence in Asia and in risk appetite and a reduction in the dangers of a trade war,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “The currencies of Asian nations, which are close competitors with China on the trade front, should do well.”

Gains in Asia were led by the Shanghai Stock Exchange Composite Index, which surged 2.9 percent. Toyota Motor Co., the world’s biggest automaker, rose 1.7 in Tokyo while Mitsubishi Corp. jumped 6.6 percent. Posco, South Korea’s biggest steelmaker, rallied 5.9 percent in Seoul.

BHP, Rio Tinto

In Europe, all 19 industry groups in the Stoxx 600 advanced. Basic-resources shares led the rally, as BHP Billiton Ltd., the world’s biggest mining company, gained 4.2 percent and Rio Tinto Group surged 4.5 percent in London. Daimler AG led automakers higher, climbing 3 percent in Frankfurt. Akzo Nobel NV rallied 1.7 percent in Amsterdam after agreeing to sell its National Starch business to Corn Products International Inc.

BP Plc led declining shares, falling 3.8 percent after saying the cost of its response to the Gulf of Mexico oil spill, the worst in U.S. history, has accelerated to reach $2 billion.

The surge in U.S. futures indicated the S&P 500 may rise for a third day. Corn Products Inc. climbed 0.9 percent in German trading. Goldman Sachs Group Inc. rose 0.8 percent in pre-market U.S. trading as people with direct knowledge of the matter said the U.S. Securities and Exchange Commission agreed to give the lender more time to file a response to the agency’s April 16 fraud lawsuit.

Emerging Markets

The MSCI Emerging Markets Index rose 2.4 percent, extending its 10-day rally to 9.8 percent, the longest winning streak since September 2005. Benchmark equity indexes in every major emerging market open for trading advanced, led by industrial companies on optimism for increased sales to China. Indonesia’s Jakarta Composite index climbed as much as 1.8 percent, the rupiah strengthened 1 percent against the dollar and bonds rallied after Moody’s Investors Service raised the nation’s credit rating outlook to positive from stable.

Gold for immediate delivery jumped to an all-time high of $1,265.30 an ounce. Copper for delivery in three months on the London Metal Exchange jumped as much as 4.6 percent to $6,729.75 a metric ton, the biggest increase since May 18. Crude for July delivery, which expires tomorrow, rose as much as $1.69, or 2.2 percent, to $78.87 a barrel in electronic trading on the New York Mercantile Exchange.

Bonds, Default Swaps

Government bonds in the U.S. and Germany declined as their appeal as a haven waned. The 10-year Treasury yield climbed to 3.29 percent, while the German bund yield rose three basis points to 2.76 percent. The yields on bonds of so-called peripheral euro-region nations fell, narrowing the difference between Spanish and German 10-year securities by 19 basis points, or 0.19 percentage point, to 167 basis points.

The cost of insuring against losses on European corporate bonds plunged by the most in more than three weeks, with the Markit iTraxx Crossover Index of credit-default swaps on 50 junk-rated European companies falling 28 basis points to 492, the lowest since May 13, according to Markit Group Ltd.

Developing-nation, Asian and commodity currencies rose most against the dollar, with the Korean won strengthening 2.6 percent, its biggest gain since June 3, to 1,171.95 per dollar. The Australian dollar jumped 1.4 percent to 88.38 U.S. cents. The yen fell against all 16 of its most-traded counterparts.

The pound and U.K. government bonds rose as a report showed London house prices increased to a record, and before the government presents an emergency budget tomorrow. The 10-year U.K. gilt yield fell two basis points to 3.52 percent. The pound reached a five-week high against the dollar before trading little changed at $1.4827 from $1.4824 on June 18.

----With assistance from Matthew Brown, Claudia Carpenter, David Merritt, Abigail Moses, Michael Patterson and Steve Voss in London. Editors: Stephen Kirkland, Paul Armstrong

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Patrick Chu at pachu@bloomberg.net.

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