Stocks, Oil Fall on Economy; Euro Weakens on Stimulus Concern

Stocks, commodities and the euro dropped amid concern the U.S. economic recovery is in peril and after European Central Bank council member Axel Weber said the ECB shouldn’t withdraw stimulus before the end of the year. The dollar strengthened against all 16 major counterparts.

The Standard & Poor’s 500 Index fell 0.4 percent to 1,071.69 at 4 p.m. in New York, the lowest level in a month and extending its weekly loss to 0.7 percent. The Stoxx Europe 600 Index retreated 0.7 percent for a third straight decline and the euro slumped as much as 1.2 percent to $1.2664. Oil sank below $74 a barrel and lead and tin led metals lower. Treasuries erased gains after an earlier rally sent the 10-year yield to a 17-month low of 2.53 percent.

Weber told Bloomberg Television that the ECB should discuss waiting until the first quarter of 2011 to stop providing stimulus to the economy, spurring concern the region’s economy may struggle for the rest of the year. Revisions to U.S. economic growth next week are forecast to show the expansion slowed even more in the last quarter, to 1.4 percent from the 2.4 percent preliminary estimate, a Bloomberg survey shows.

“There’s a bias towards defensive assets,” said Russ Koesterich, the San Francisco-based head of investment strategy for scientific active equities at BlackRock Inc., which oversees $3.2 trillion as the world’s largest asset manager. “Investors worry about the likelihood of a double dip. This is why you’re seeing stocks and commodities under pressure.”

Alcoa, Tyco

Nine of 10 industries in the S&P 500 retreated today, with the index paring losses late in the session as utilities gained. Hewlett-Packard Co. and General Electric Co. fell more than 1.4 percent to help lead declines in the Dow Jones Industrial Average. Tyco International Ltd. rallied 5.3 percent after S&P said late yesterday it will replace Smith International Inc. in the S&P 500 at the close of trading on Aug. 26 as Schlumberger Ltd. completes its purchase of the oil-services company.

The S&P 500 tumbled 1.7 percent yesterday after American jobless claims climbed more than economists estimated and Federal Reserve data showed manufacturing in the Philadelphia area shrank.

Almost nine stocks fell for every one that gained in the Stoxx 600 index, while 17 of 19 industry groups retreated.

European Aeronautic, Defence & Space Co. slipped 1.8 percent after Nomura Holdings Inc. cut its recommendation on the stock. Dana Petroleum Plc. led rising shares, gaining 6.1 percent after Korea National Oil Corp. made a hostile 1.87 billion-pound ($2.9 billion) bid for the U.K. explorer.

German Bunds

German 10-year and 30-year bond yields both fell to record lows after Weber, who heads Germany’s Bundesbank, said the ECB is likely to continue to support banks through end-of-year liquidity tensions before determining in the first quarter when to withdraw emergency-lending measures. The 10-year German yield fell as low as 2.26 percent, while the 30-year yield dropped as much as 8 basis points to below 2.89 percent.

The Shanghai Composite Index lost 1.7 percent, the most since Aug. 10, as investors speculated inflation will delay monetary easing. The MSCI Emerging Markets Index sank 0.5 percent, the first drop in six days. Korea’s won depreciated 0.9 percent, declining for the first time in four days, on concern a stalling U.S. recovery may hurt exports.

JPMorgan Chase & Co. trimmed forecasts for China’s growth this year and in 2011, citing a near-term “loss of momentum” in the U.S. and global recoveries. China’s gross domestic product may expand 9.8 percent this year, JPMorgan said in an e- mailed note today, less than the previous estimate of 10 percent. Next year the expansion may be 8.6 percent, down from an earlier forecast of 8.8 percent, the note said.

The euro fell against all but two of 16 major counterparts. The dollar climbed more than 0.8 percent against the euro, Danish krone, Norwegian krone and won.

Metals Drop

All metals on the London Metal Exchange dropped, steered by declines of at least 1.5 percent in lead, tin and zinc.

Banks led an increase in the cost of insuring against corporate-bond defaults as investors bet slowing U.S. growth will hurt Europe’s recovery. The Markit iTraxx Financial Index of credit-default swaps on the senior debt of 25 European banks and insurers rose 5 basis points to 136, heading for a third weekly increase, according to JPMorgan Chase & Co. at 3 p.m. in London.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Stephen Kirkland in London at skirkland@bloomberg.net.

Enlarge image

President Of The Deutsche Bundesbank Axel Weber

Hannelore Foerster/Bloomberg

“Most of these discussions about the continuation of the exit I think will be focused on the first quarter,” European Central Bank council member Axel Weber said.

“Most of these discussions about the continuation of the exit I think will be focused on the first quarter,” European Central Bank council member Axel Weber said. Photographer: Hannelore Foerster/Bloomberg

Aug. 20 (Bloomberg) -- Jeffrey Palma, global equity strategist at UBS AG, talks about investment strategy. Palma, speaking with Betty Liu and Jon Erlichman on Bloomberg Television's "In the Loop," also discusses merger and acquisition activity, the outlook for the U.S. economy and the U.S. stock and Treasury markets. (Source: Bloomberg)

Aug. 20 (Bloomberg) -- Komal Sri-Kumar, chief global strategist at TCW Group Inc., talks about the outlook for the U.S. economy and stock market. Sri-Kumar speaks with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart." Matthew Zeman, a trader at LaSalle Futures Group also speaks. (Source: Bloomberg)

Aug. 19 (Bloomberg) -- Bloomberg's Courtney Donohoe reports on the performance of the U.S. equity market today. Stocks fell, extending a second straight weekly decline for the Standard & Poor’s 500 Index, as a drop in commodities pulled oil and metals producers down amid concern the economic rebound may be flagging. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)

Aug. 20 (Bloomberg) -- Tobias Levkovich, chief U.S. equity strategist at Citigroup Inc., talks about his view of stocks versus bonds. Levkovich speaks with Tom Keene and Ken Prewitt on Bloomberg Radio's "Bloomberg Surveillance." (This is an excerpt of the full interview. Source: Bloomberg)

Aug. 20 (Bloomberg) -- Steven Major, global head of fixed-income research at HSBC Holdings Plc, talks about the outlook for government bonds. He speaks with Andrea Catherwood on Bloomberg Television's "The Pulse." (Source: Bloomberg)

Aug. 20 (Bloomberg) -- European Central Bank council member Axel Weber talks with Bloomberg's David Tweed in Frankfurt about monetary policy and the prospects for economic growth in the region. Andrea Catherwood also speaks on Bloomberg Television's "The Pulse." (Excerpt. Source: Bloomberg)