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Euro Slides as Trichet Damps Rate-Increase Speculation; U.S. Stocks Fall

The euro retreated the most in two months against the dollar, while oil reversed earlier gains, as European Central Bank President Jean-Claude Trichet dimmed prospects for an interest-rate increase. Most U.S. stocks fell and 10-year Treasuries dropped for a fourth day.

The euro slid 1.2 percent to $1.3647 at 11:53 a.m. in New York after tumbling as much as 1.4 percent. Two-year German bund yields sank 14 basis points to 1.35 percent. Brent crude, the benchmark grade for two-thirds of the world’s oil market, was little changed at $102.40 after earlier reaching the highest price in 28 months. The Standard & Poor’s 500 Index fell 0.1 percent while the 10-year Treasury yield rose 3 basis points.

The shared European currency extended losses as Trichet said risks from rising prices are “broadly balanced,” causing investors to pare bets on an increase in borrowing costs even after euro-area inflation accelerated the most in two years in January. The dollar also strengthened after reports showed U.S. service industries grew at the fastest pace since 2005 and jobless claims fell more than estimated.

“Trichet’s comments have prompted a sharp decline in short- term European rates,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “I don’t see him saying anything different from what he said last time. The difference is that inflation went up in the euro zone since December. There have been few signs that selling the euro was a low risk venture. Today could very well be the turning point.”

Euro, Dollar

The euro weakened against 14 of 16 major peers, losing more than 1.2 percent versus the Australian dollar and Japanese yen.

The dollar strengthened against 15 of 16 counterparts, led by a 1.6 percent rally versus the South African rand. The Institute for Supply Management’s index of non-manufacturing businesses, which covers service industries accounting for about 90 percent of the U.S. economy, rose to 59.4 and topped forecasts.

Data from the Labor Department showed new claims for unemployment benefits dropped by 42,000 to 415,000 last week. Economists forecast claims would fall to 420,000, according to the median estimate in a Bloomberg survey.

Exxon Mobil Corp. and Freeport-McMoRan Copper & Gold Inc. paced losses in shares of U.S. commodity producers as oil and copper prices erased earlier gains. Merck & Co. slid 2.5 percent to lead declines in the Dow Jones Industrial Average after its 2011 profit forecast trailed analysts’ estimates.

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

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

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