U.S. Stocks Fall, Treasuries Climb on Two-Year Note Auction; Euro Weakens

U.S. stocks fell, trimming gains in the best September for the Standard & Poor’s 500 Index since 1939, and the euro slumped as yield spreads for Irish and Portuguese debt jumped to record closing levels. Treasuries gained after a $36 billion auction of two-year notes.

The S&P 500 Index fell 0.6 percent to 1,142.16 at 4 p.m. in New York, after gaining 2.1 percent last week. Yields for two- year Treasuries fell 0.02 percentage point to 0.42 percent, near the record low of 0.41 percent, while the payout on 10-year notes slipped 10 basis points to 2.51 percent. The euro depreciated 0.2 percent to $1.3471. The extra yield investors demand to own 10-year bonds issued by Ireland and Portugal climbed to 6.57 percent and 6.42 percent, respectively, compared with 2.27 percent for Germany debt expiring at the same time.

Treasuries gained after the auction of two-year securities drew the most demand since August 2007 amid speculation the Federal Reserve will buy government debt to help sustain the economic recovery. Anglo Irish Bank Corp.’s credit was downgraded by Moody’s Investors Service, spurring concern that the European debt crisis is worsening.

“Continued issues on the global banking front are sending chills down the market’s spine,” said Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel Nicolaus & Co., which oversees $90 billion. “Overall concern about sustainable growth without fiscal stimulus will be the key driver in coming months as we digest the best September in U.S. equity markets since the ‘30s.”

Photographer: Jean Chung/Bloomberg

Gold jumped 0.1 percent after earlier climbing to a record $1,300.15 an ounce. Close

Gold jumped 0.1 percent after earlier climbing to a record $1,300.15 an ounce.

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Photographer: Jean Chung/Bloomberg

Gold jumped 0.1 percent after earlier climbing to a record $1,300.15 an ounce.

Inflation-Indexed Debt

The Fed will buy inflation-index debt tomorrow maturing from January 2011 to February 2040 as part of its program to reinvest principal payments from its mortgage holdings. The Fed said Sept. 21 that it’s prepared to provide “additional accommodation” to support the economy.

A benchmark indicator of U.S. corporate-credit risk rose for the fourth time in five trading days.

Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 0.7 basis point to a mid-price of 109.31 basis points in New York, according to index administrator Markit Group Ltd.

The benchmark, which typically rises as investor confidence deteriorates, began a new series Sept. 20 at 108.4 basis points.

European, Emerging Markets

The Stoxx Europe 600 Index fell 0.4 percent. Actelion Ltd., the largest Swiss biotechnology company, sank 8 percent after its treatment for bleeding in the brain didn’t meet the main goal of a study. Vestas Wind Systems A/S, the world’s largest maker of wind turbines, dropped 3.8 percent as Financial Times Deutschland reported that Germany scrapped provisions for funding energy programs. Unilever advanced 1.3 percent after agreeing to buy Alberto-Culver Co. for $3.7 billion in cash.

The MSCI Emerging Markets Index rallied 0.8 percent and was poised to close at the highest level since July 2008. Turkey’s ISE National 100 Index gained 0.6 percent in Istanbul, extending a record. China’s Shanghai Composite Index advanced 1.4 percent, the most in three weeks, after a report showed industrial profits jumped 55 percent during the first eight months of 2010. Benchmark equity gauges in the Philippines and Indonesia increased to records, while Thailand’s SET Index jumped to the highest level since 1996.

Venezuela’s bonds posted the biggest gain in emerging markets after opposition candidates secured 52 percent of the vote in a legislative vote yesterday, handing President Hugo Chavez his worst setback at the ballot box since taking office in 1999, losing his two-thirds majority in congress.

Venezuelan Spreads

The extra yield investors demand to own Venezuelan bonds instead of U.S. Treasuries fell 25 basis points, or 0.25 percentage point, to 11.52 percent, according to JPMorgan Chase & Co.’s EMBI+ index. The broader EMBI+ index rose 1 basis point to 2.84 percent.

Cotton for December delivery jumped 4 cents, the most allowed by ICE Futures U.S., to $1.0393 a pound, a 15-year high. Sugar climbed to a seven-month high on concern adverse weather will curb output in Brazil, the world’s biggest exporter, and Australia, the third-largest.

Refined-sugar futures for December delivery rose $11, or 1.7 percent, to close at $644.10 a metric ton on NYSE Liffe in London. The price reached $648.30, the highest level since March 1.

To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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