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U.S. Stocks Fall on China Economic Data Ahead of Fed Meeting

U.S. stocks fell, with a late-day rally failing to erase losses, after the Federal Reserve’s plan to purchase Treasury securities wasn’t enough to overcome concern the recovery is faltering.

Bank of America Corp. declined 2 percent after Fed officials said the economic rebound has slowed enough to require fresh stimulus. Alcoa Inc. retreated 2.7 percent after metal prices declined on slower growth in Chinese imports. Intel Corp., the biggest U.S. semiconductor maker, dropped 4 percent after two securities firms reduced their ratings on the shares. Colgate-Palmolive Co. rallied 2.2 percent as investors bought companies whose earnings are least tied to economic growth.

The S&P 500 lost 0.6 percent to 1,121.06 as of 4 p.m. in New York. The benchmark index fell as much as 1.4 percent earlier after economic data from China signaled weakness in the global recovery. The Dow Jones Industrial Average decreased 54.50 points, or 0.5 percent, to 10,644.25 after dropping as low as 10,551.62.

“We’re seeing an acknowledgement that this is going to be a slow and gradual recovery,” said Eric Marshall, who helps oversee about $700 million as research director of Dallas-based Hodges Capital Management Inc. “Equity prices have started to discount in that slower trajectory of growth.”

‘More Modest’

A rebound that is “more modest in the near term than has been anticipated” prompted the Fed to reinvest principal payments on mortgage securities it owns into Treasuries, a bid to cut borrowing costs. It’s the central bank’s first attempt to boost growth since March 2009.

Concern the U.S. may face the second recession in three years has pushed the S&P 500 down 7.9 percent from its 2010 high on April 23. The decline reached 16 percent on July 2 after the Labor Department said private employers added 83,000 jobs in June, fewer than estimated. After the Fed’s announcement today, the S&P 500 pared its drop to as little as 0.1 percent.

“They’re funneling money from mortgage-backed securities and agency debt into Treasuries and that’s an accommodative policy,” said Robert Stimpson, a money manager at Oak Associates in Akron, Ohio, which manages $1 billion. “There’s been concern over the strength of the economy, so stocks are reacting positively because it’s good to hear the Fed is staying accommodative.”

Trimmed Forecasts

Economists have trimmed forecasts for U.S. economic expansion since May. Gross domestic product may increase 3.1 percent this year, 2.9 percent next year and 3 percent in 2012, according to the median estimate of 55 contributors to a Bloomberg survey. Three months ago, the estimates were 3.2 percent, 3.1 percent and 3.1 percent respectively, according to data compiled by Bloomberg.

Stocks rose last week, with the S&P 500 increasing 1.8 percent and reaching the highest level since May on Aug. 4. Second-quarter earnings at S&P 500 companies have beaten analysts’ estimates by 11 percent, helping spur a 6.9 percent rally in July. The index slipped 0.4 percent to 1,121.64 on Aug. 6 after hiring by private employers in the U.S. trailed forecasts, according to the Labor Department.

Bank of America, the biggest U.S. bank by assets, fell 2 percent to $13.63, leading losses in the S&P 500 Financials Index, which slipped 1 percent.

Materials Producers

Materials producers in the benchmark equity index fell 1 percent on concern that demand from China may cool. Alcoa, the largest U.S. aluminum producer, lost 2.7 percent to $11.35. Freeport-McMoRan Copper & Gold Inc., the world’s second-biggest copper producer, slipped 2 percent to $73.21.

In China, customs bureau data showed July imports grew at the slowest pace since November, missing economists’ forecasts. The trade surplus increased to an 18-month high, signaling a diminished contribution to global growth and adding to pressure on China to allow faster appreciation of the yuan.

Colgate-Palmolive, the world’s largest toothpaste maker, rose 2.2 percent to $77.97. Consumer staples companies gained the third-most in the S&P 500 out of 10 industry groups, climbing 0.3 percent. Phone-company and utilities gauges increased 0.4 percent.

The productivity of U.S. workers unexpectedly fell in the second quarter, showing companies may find it harder to keep cutting costs as the recovery unfolds. The measure of employee output per hour decreased at a 0.9 percent annual rate, the first drop since the end of 2008, Labor Department data show.

Confidence among U.S. chief executive officers fell this quarter for the first time in a year as their outlook on sales, employment and the economy weakened, a private survey showed.

Young Presidents

The Young Presidents’ Organization’s gauge of sentiment fell to 57.5 in July from 61 in April, according to the Dallas- based group. A reading higher than 50 shows more chief executives had a positive outlook than a negative one.

Semiconductor companies fell after stock ratings for Intel Corp., the world’s largest manufacturer, were reduced at Barclays Plc and R.W. Baird & Co. because of weakening orders for personal computer components.

Chipmakers in the S&P 500 fell 2.9 percent as a group, the most among 24 industries. Intel slumped 4 percent to $19.82. LSI Corp. decreased 5.6 percent to $4.25. Micron Technology Inc. slipped 3.6 percent to $7.27 and Teradyne Inc. lost 4 percent to $10.45. Advanced Micro Devices Inc. plunged 8 percent to $6.83 for the biggest drop in the S&P 500.

Akamai Technologies Inc. rose 4.9 percent to $43.15 for the biggest gain in the S&P 500. Goldman Sachs Group Inc. upgraded the largest supplier of software to make online media load faster to “buy” from “neutral” after a 6.5 percent drop in the shares from July 28, when Akamai said its profit margin narrowed, through yesterday.

Netflix Inc. surged 6.9 percent to $125.01. The mail-order and online movie-rental service reached a deal that gives customers access to films from pay-television channel Epix over the Web. The multiyear agreement starts on Sept. 1 and includes movies from Epix’s owners, Viacom Inc.’s Paramount Pictures, Lions Gate Entertainment Corp. and Metro-Goldwyn-Mayer Inc.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.

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