U.S. Stocks Retreat as Economic Concerns Overshadow Takeovers

Stocks declined, with the Standard & Poor’s 500 Index sliding to a five-week low, as speculation the economy may slip into another recession offset investor optimism amid more than $1 trillion in takeovers this year. Two-year Treasury notes climbed, while oil fell for a fourth day.

The S&P 500 lost 0.4 percent to 1,067.37 at 4 p.m. in New York, the lowest level since July 16. Two-year note yields slid 1 basis point to 0.49 percent, within 3 basis points of a record low 0.4547 percent reached on Aug. 20. Oil dropped 71 cents, or 1 percent, to $73.11 a barrel.

The S&P 500 has tumbled 12 percent from its high for the year in April as concern the recovery is in jeopardy overshadowed better-than-estimated profit growth. Reports this week will probably show U.S. home sales fell and the economy grew from April through June even less than previously estimated, according to Bloomberg surveys of economists.

“There still are very deep concerns about the economy and earnings,” said Hugh Johnson, who oversees $1.85 billion as chairman of Albany, New York-based Hugh Johnson Advisors LLC. “All of the data says the economy remains very weak, that the weakness is likely to persist. The possibility of a double dip is weighing heavily over the stock market.”

Caterpillar Inc. and Cisco Systems Inc. slid more than 2.4 percent for the biggest declines in the Dow Jones Industrial Average, which dropped 0.4 percent to 10,174.41.

Housing Woes

Housing, which brought the U.S. out of seven of the last eight recessions, may help kill the recovery as home sales collapse after a federal tax credit for buyers expired in April. Sales of existing homes in July tumbled 12.9 percent from June, the biggest monthly loss of 2010, a report tomorrow by the National Association of Realtors will probably show, according to the median estimate of economists surveyed by Bloomberg.

The S&P 500 fell 0.7 percent last week as a jump in jobless claims and an unexpected contraction in Philadelphia-area manufacturing bolstered concern the economic recovery is stalling. Earnings-per-share have grown 48 percent for the 461 companies in the index that released second-quarter results since July 12, according to data compiled by Bloomberg. Three- quarters of the companies have topped analysts’ average estimates.

Mergers are accelerating as HSBC Holdings Plc bid for Nedbank Group Ltd. and Potash Corp. of Saskatchewan Inc. tried to repel BHP Billiton Ltd.’s $39 billion bid. Hewlett-Packard offered to buy 3Par Inc. for about $1.6 billion, topping Dell Inc.’s bid. Global takeovers announced so far this year have totaled $1.29 trillion, up 23 percent from the same time last year, data compiled by Bloomberg show.

Recovery Peaking

European stocks rose for the first time in four days after the Stoxx Europe 600 Index’s biggest weekly decline in seven weeks left the gauge at the lowest level in a month. The Stoxx 600 increased 0.6 percent, led by banking and retail stocks. Old Mutual Plc rallied 3.2 percent after the biggest insurer in Africa said it may sell 70 percent of Nedbank to HSBC. Nedbank shares jumped 6 percent in Johannesburg, while HSBC rose 0.8 percent in London.

A benchmark gauge of European stock-market volatility declined. The VStoxx Index, which measures the cost of protecting against a decline in shares on the Dow Jones Euro Stoxx 50 Index, fell 2.6 percent to 28.29 in Frankfurt.

Elsewhere, the MSCI Asia Pacific Index climbed 0.1 percent.

Yen, Dollar

The yen gained against all 16 most-traded counterparts and touched 107.71 per euro, the highest since July 1, after a conversation between Japanese Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa failed to yield a plan to curb the currency’s rally. The dollar strengthened against most of its peers, climbing 1.2 percent versus the Mexican peso and 0.8 percent against the Brazilian real.

German 10-year bonds declined, sending the yield up 2 basis points to 2.28 percent. The yield on the 30-year bond advanced 1 basis points to 2.90 percent, rising from a record low 2.888 percent on Aug. 20.

Rice for settlement in November jumped 4 percent to $11.63 per 100 pounds in Chicago, its third day of gains. Rice, this year’s worst-performing grain, is set to extend its rally as consumers and investors seek alternatives to wheat after heat waves, wildfires and floods ruined crops across the Northern Hemisphere.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Kelly Bit in New York at kbit@bloomberg.net.

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