Dollar Falls, Commodities Climb as Fed Seen Boosting Economy; Stocks Drop

The Dollar Index slid to the lowest level of 2010 and a gauge of commodities rose to a two-year high as gains in jobless claims and the trade deficit reinforced speculation the Federal Reserve will pump cash into the economy. Banks led U.S. equity indexes down from five-month highs.

The Dollar Index, a gauge of the currency against six major peers, sank 0.6 percent at 1:50 p.m. in New York and the U.S. currency slid below 81 yen for the first time since 1995. The Standard & Poor’s 500 Index fell 0.5 percent to 1,171.82 as lenders slid and costs to protect their debt from default climbed amid growing legal scrutiny of foreclosure practices. Cotton surged to a record and the Reuters/Jefferies CRB Index of commodities climbed to the highest since October 2008.

The number of Americans filing first-time applications for unemployment benefits unexpectedly increased last week, indicating the U.S. job market is struggling to heal. The dollar has slumped against all 16 of its most-traded counterparts since August on mounting speculation that the Fed will buy Treasuries to suppress borrowing costs and bolster the recovery. The trade deficit widened more than forecast to $46.3 billion in August.

“The data today, while not overly compelling, was a wake- up call that the economy is losing momentum as we close out the year,” said Alan Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees $63 billion. “The market was not helped by the rise in the trade deficit. This is a market that has been ignoring a lot of troublesome economic reports and signs of fading momentum.”

The dollar fell 0.4 percent to 81.48 yen and touched 80.89 yen, the weakest since April 1995. The Australian dollar strengthened to as much as 99.94 U.S. cents, the most since exchange controls ended in 1983.

Yahoo, Apollo

The S&P 500 closed yesterday at the highest level since before the May 6 market crash as higher-than-estimated earnings bolstered optimism. Financial stocks were the biggest drag on the index today, with Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. slumping at least 4.5 percent. Top legal officers of all 50 states opened a joint investigation into home foreclosures yesterday, saying they will seek an immediate halt to any improper practices.

Costs to protect against default on bank debt increased. Credit-default swaps on Goldman Sachs Group Inc. climbed 8.8 basis points to 154, according to broker Phoenix Partners Group. Contracts on Morgan Stanley climbed 7.8 basis points to 181, and those on Bank of America Corp. added 16.5 basis points to 197, Phoenix Partners data show.

Yahoo Speculation

Yahoo! Inc. jumped 4.3 percent today after three people familiar with the matter said it is working with Goldman Sachs Group Inc. to defend against takeover approaches. EMC Corp., the biggest maker of storage computers, rallied 4.7 percent after London’s Evening Standard reported that “gossips reckon” the company may be purchased by Oracle Corp. or Microsoft Corp.

Apollo Group Inc. plunged 26 percent to lead a rout in for- profit colleges. The biggest U.S. education company by enrollment and the operator of the University of Phoenix withdrew its forecast for fiscal 2011, citing regulatory scrutiny and a possible 40 percent decline in new students.

U.S. stock-index futures erased gains in pre-market trading after jobless claims rose by 13,000 to 462,000 in the week ended Oct. 9, from a revised 449,000 a week earlier, Labor Department figures showed. Economists forecast claims would hold at 445,000, according to the median of 47 projections in a Bloomberg News survey. Other data showed U.S. producers prices rose in September.

Growth Forecast

Economists at Morgan Stanley cut their forecast for third- quarter U.S. growth based on the increase in imports from countries like China in today’s trade-deficit report. The world’s largest economy grew at a 1.8 percent annual pace from July through September, down from a previously projected 2.1 percent, as the trade gap subtracted almost a percentage point from growth, according to a forecast by the bank’s David Greenlaw and Ted Wieseman.

Singapore’s dollar appreciated to S$1.2964 after earlier reaching a record S$1.2894. The Monetary Authority of Singapore unexpectedly said it will steepen and widen the band in which its dollar trades against a weighted basket of currencies.

South Korea’s won appreciated to the strongest level since April after the central bank held off from raising interest rates. China’s yuan advanced to its strongest level since 1993. It rose 0.2 percent to 6.6508 per dollar, according to the China Foreign Exchange Trade System. It touched 6.6503, the strongest level since the central bank unified official and market exchange rates at the end of 1993.

European Stocks

Three stocks declined for every two the rose in Europe’s Stoxx 600. Rio Tinto Group climbed 2.4 percent to a two-year high after saying iron-ore production rose to 47.6 million metric tons in the third quarter, more than analysts predicted.

Syngenta AG, the biggest maker of agricultural chemicals, gained 3.8 percent as sales beat analysts’ estimates. African Barrick Gold Plc tumbled 9.5 percent after criminal gangs “widely infiltrated” a mine in Tanzania, forcing the company to suspend 60 workers and delay production.

The MSCI gauge for developing countries climbed 0.8 percent to the highest level since June 2008. The MSCI Asia Pacific Index advanced 1.9 percent, the biggest rally since June, and the Shanghai Composite Index advanced for a sixth day after Royal Bank of Scotland Group Plc strategists said stocks across Asia will benefit from a global “liquidity wave.”

Record Cotton

Cotton futures rose to a record, climbing by the 4-cent exchange limit to $1.1487 a pound in New York, on speculation China, the world’s largest buyer, will boost imports. Silver jumped 1.5 percent to $24.345 an ounce, the highest since 1980. Gold for December deliver pared gains, rising 0.3 percent to $1,373.90 an ounce.

Treasuries were little changed, with the 10-year note yield up one basis point at 2.44 percent before the government sells $13 billion of 30-year bonds today, the last of three auctions this week. The yield on the long-dated security slipped two basis points to 3.81 percent. Italy sold 5.5 billion euros of 2015, 2023 and 2037 bonds.

A benchmark indicator of corporate credit risk in the U.S. climbed for the third time this month. 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 3 basis points to a mid-price of 98.5 basis points, according to index administrator Markit Group Ltd.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Tara Lachapelle in New York at tlachapelle@bloomberg.net.

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

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