U.S. Stocks Fall as Bernanke Says More Federal Reserve Easing Is Possible

U.S. stocks fell, snapping a three- day rally in the Standard & Poor’s 500 Index, after Federal Reserve Chairman Ben S. Bernanke said the world’s largest economy may need more stimulus.

Bank of America Corp. slid 1.9 percent after Nomura Holdings Inc. said the lender is at risk of a credit downgrade in 2011. Celgene Corp. slumped 8.2 percent, the biggest drop in the S&P 500, after ISI Group Inc. said the company’s Revlimid treatment was associated with higher incidence of secondary cancers. Cisco Systems Inc. rose 1.9 percent after Oppenheimer & Co. lifted its rating. Sprint Nextel Corp. jumped 6.4 percent after detailing plans to upgrade its wireless network.

The S&P 500 dropped 0.1 percent to 1,223.12 at 4 p.m. in New York. The benchmark measure of U.S. equities rose 3.7 percent in the prior three days. The Dow Jones Industrial Average fell 19.90 points, or 0.2 percent, to 11,362.19.

“There’s a lot to worry about,” said Bruce McCain, who oversees $25 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland. “What’s going to lead us higher from here especially in light of high U.S. unemployment and problems brewing in Europe? There’s a lot of skepticism. Although we’re getting fairly good economic and corporate reports, investors are still not sure on whether to take a more aggressive or defensive stance.”

Last Week

U.S. stocks rose last week, sending benchmark indexes to their biggest gains in a month, amid improved economic data and efforts by the European Central Bank to stem the region’s debt crisis. The benchmark U.S. equity index has rallied 20 percent from its 2010 low in July as corporate profits improved and the Fed expanded its asset-purchase program to suppress interest rates and stoke the economic recovery.

Bernanke said the economy is barely expanding at a sustainable pace and it’s possible the Fed may expand bond purchases beyond the $600 billion announced last month to spur growth. He defended the Fed’s efforts to prop up a recovery so weak that only 39,000 jobs were created in November, missing the median economist estimate by 74 percent. The unemployment rate last month rose to 9.8 percent, the highest level since April, the Labor Department said on Dec. 3, three days after the Bernanke interview was taped.

“We’re not very far from the level where the economy is not self-sustaining,” Bernanke said in an interview broadcast yesterday by CBS Corp.’s “60 Minutes” program. “It’s very close to the border. It takes about 2.5 percent growth just to keep unemployment stable and that’s about what we’re getting.”

‘Hangover’

The S&P 500 fell as much as 0.4 percent on Dec. 3 after the jobs report before rebounding as commodities prices gained.

“That’s what everyone is continuing to grapple with -- where we expect a continued sustained recovery, it’s still at stall speed and you’re not getting the recovery that you want,” said E. William Stone, who oversees about $105 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “There’s also a hangover from the payrolls report. The numbers were bad and you still have to wait for more evidence that things are getting better.”

European officials voiced divisions over the steps needed to stop the debt crisis as Germany opposes increasing the 750 billion-euro ($1 trillion) bailout fund and the introduction of joint European bonds. Belgian Finance Minister Didier Reynders told reporters on Dec. 4 that the fund might be expanded if ministers decide to introduce a larger permanent facility when the current temporary one expires. Luxembourg and Italy today called for the creation of joint European bonds. Both proposals were today rejected by German Chancellor Angela Merkel.

Possible Downgrades

Bank of America declined 1.9 percent to $11.64. The lender along with Morgan Stanley and Citigroup Inc. are most at risk of being downgraded by credit-ratings companies in early 2011, Nomura said. The firm cited the pace of recovery, the threat that banks will have to buy back mortgages from investors, Europe’s government debt crisis, shrinking balance sheets and regulatory reform.

Celgene slid 8.2 percent to $55.64.

Cisco rose 1.9 percent to $19.43. The largest maker of computer networking equipment was raised to “outperform” from “market perform” by Oppenheimer, which said the stock already reflects concern about the company’s market-share losses.

Sprint rose 6.4 percent to $4.17. The third-largest U.S. mobile-phone carrier will spend as much as $5 billion to upgrade its network over the next three to five years. Also, David Einhorn, president of hedge-fund operator Greenlight Capital, told CNBC he has purchased shares of Sprint, which he says is “in a good spot” for a turnaround.

Rare-Earth Metals

Molycorp Inc., owner of the world’s largest non-Chinese deposit of rare-earth metals, soared 18 percent to $32.86. Nikkei English News reported Sumitomo Corp. may buy a stake in the U.S. company. Sumitomo, Japan’s third-largest trading company, may agree to buy a stake in Molycorp this week, Nikkei said, without saying where it obtained the information.

Jim Allen, Molycorp’s chief financial officer, didn’t immediately return a call for comment. No one was immediately available for comment when Bloomberg News called Sumitomo’s headquarters in Tokyo outside of normal business hours.

Energy shares had the biggest gain in the S&P 500 among 10 industries, rising 0.3 percent, as oil climbed to a 26-month high and natural gas rallied. Anadarko Petroleum Corp. advanced 1.8 percent to $70.25, while Occidental Petroleum Corp. added 1.4 percent to $93.05.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Jeff Kearns in New York at jkearns3@bloomberg.net.

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

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