Treasuries, Gold Rally as Stocks Retreat on Economy Concern

Treasuries surged, sending 10-year yields to the lowest level in more than 16 months, and gold rose after reports showing weaker-than-forecast growth in New York manufacturing and Japan’s economy. Most U.S. stocks climbed as a weaker dollar lifted metals and shares of commodity producers.

Treasury 10-year yields slid 10 basis points to 2.577 percent at 4:15 p.m. in New York, the lowest since March 2009. The Standard & Poor’s 500 Index rose less than 0.1 percent to 1,079.38. The Dollar Index, which tracks the U.S. currency against six trading partners, snapped a five-day gain to slip 0.6 percent to 82.484. Gold futures climbed to the highest price since July 1 on demand for assets perceived as most safe.

U.S. bonds rallied as data showed global demand for long- term American financial assets increased in June and the Federal Reserve prepared to buy Treasuries this week to lower borrowing costs. Japan’s economy grew 0.4 percent last quarter, less than the 2.3 percent rate projected in a Bloomberg survey of economists. A Fed gauge of the New York region’s manufacturing expanded less than forecast in August as orders and sales fell.

“There’s a profound lack of conviction in the direction of the economy,” said James Dunigan, chief investment officer at PNC Wealth Management in Philadelphia, which oversees $99 billion. “So you have to choose your camp and stick to it. We’re not in the double dip. If that’s your case, you sort of have to hang on tight as we get through the periods when data doesn’t look so good.”

Photographer: Christophe Bosset/Bloomberg

Swiss 10 franc banknotes. Close

Swiss 10 franc banknotes.

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Photographer: Christophe Bosset/Bloomberg

Swiss 10 franc banknotes.

Gold Rallies

Two-year Treasury yields fell 4 basis points to a record low of 0.4882 percent. The difference between 2- and 10-year note yields narrowed for a third day to 2.09 percentage points, the flattest yield curve since April 2009. The central bank planned to purchase notes due from 2014 to 2016 tomorrow and debt due in 2016 to 2020 on Aug. 19, according to the Fed Bank of New York’s website. Thirty-year bond yields tumbled 14 basis points to 3.72 percent.

Gold futures for delivery in December climbed $9.60, or 0.8 percent, to $1,226.20 an ounce and earlier touched a six-week high of $1.229.50. Copper for delivery in December gained 0.9 percent to $3.3005 a pound on the Comex in New York and lead jumped 1.9 percent to lead industrial metals higher on the London Metal Exchange.

Demand for commodities from emerging markets and limited growth in supply will help to support raw-material prices toward the end of the year, Goldman Sachs Group Inc. said in a report.

Volume Slows

More than three stocks advanced for every two that fell on U.S. exchanges. Trading volume on U.S. stock exchanges amounted to 5.91 billion shares, near the 2010 low of 5.85 billion set on Aug. 9, according to data compiled by Bloomberg.

Raw-materials companies gained 0.5 percent as a group for the biggest gain among 10 industries in the S&P 500, which declined 3.8 percent last week, the biggest loss since the start of July. Freeport-McMoRan Copper & Gold Inc. rose 0.8 percent, while Newmont Mining Corp. gained 1.8percent.

Financial and health-care companies were the biggest drag on the S&P 500 among 10 groups.

Medco Health Solutions Inc. lost 2.4 percent after agreeing to buy closely held United BioSource Corp. $730 million in cash. Marshall & Ilsley Corp. Hartford Financial Group Inc. tumbled more than 2 percent to lead declines in financial stocks.

Banks in the U.S. eased standards and terms on loans in the second quarter, even as demand for business and consumer credit was little changed at the majority of lenders, according to a Federal Reserve survey. The Fed described the change as “a modest unwinding of the widespread tightening that occurred over the past few years.” It was the first survey since late 2006 that showed a loosening of standards on small business loans.

$1.9 Trillion Erased

About $1.9 trillion has been erased from the value of global equities since the Fed said Aug. 10 that the pace of recovery in the world’s biggest economy will probably be “more modest” than forecast.

The Fed Bank of New York’s general economic index rose to 7.1 this month from 5.1 in July. Economists forecast the measure would rise to 8, according to the median estimate in a Bloomberg News survey. Readings greater than zero signal expansion in the so-called Empire State Index that covers New York, northern New Jersey and southern Connecticut.

“More and more of the data continues to leave us in a limbo in the sense that it’s not bad enough to say it’s officially over and we’re going to go into a double-dip” recession, said E. William Stone, who oversees $104 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “Even when we get good stuff, it’s not enough to say here’s the relief.”

European Stocks

The Stoxx Europe 600 Index was little changed at 255.61 as 302 stocks dropped and 276 rose. Bank of Ireland Plc and Allied Irish Banks Plc led a retreat in financial shares. BP Plc lost 1.6 percent after the energy company delayed its relief well amid risk of a new oil leak in the Gulf of Mexico. Hennes & Mauritz AB led gains in retail shares as sales increased. Cairn Energy Plc rose 5.3 percent after Vedanta Resources Plc agreed to buy as much as 60 percent of the company’s Indian oil unit.

The MSCI Asia Pacific Index climbed 0.2 percent, while Japan’s Nikkei 225 Stock Average slipped 0.6 percent to a six- week low. The Shanghai Composite Index jumped 2.1 percent, the most in almost three weeks, as China’s demand for resources underscored the economy’s resilience.

Dollar, Bunds

The dollar fell against all but three of 16 major peers, slipping 1 percent against the yen and 0.5 percent against the euro to $1.2818. The Swiss franc appreciated against all 16 of its major counterparts on demand for currencies perceived as safe havens. The franc rose 0.6 percent to 1.3328 per euro, and strengthened 1.1 percent against the dollar.

German bonds rose, sending the yield on the 10-year bund down 6 basis points to 2.32 percent. The yield on the similar- maturity U.K. gilt fell 9 basis points to 3.03 percent.

Latin American stocks gained, with the MSCI EM Latin America Index jumping 1.4 percent, the most since Aug. 2. Chile’s Lan Airlines SA rallied to a record after saying it plans to add international commercial routes and expand its freight business to build on its $3.7 billion purchase of Brazil’s Tam SA, announced on Aug. 13.

The MSCI Emerging Markets Index of 21 developing countries rose 0.6 percent after falling 3 percent last week.

To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Kelly Bit in New York at kbit@bloomberg.net.

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