U.S. Stocks Pare Advance on Concern Debt-Ceiling Deal Will Fail

U.S. stocks pared gains, almost erasing a 164-point rally in the Dow Jones Industrial Average, after the Associated Press reported that House Speaker John Boehner said it’s a “crapshoot” whether the federal debt limit will be boosted if an agreement isn’t reached by Aug. 2.

AP later updated its story, quoting Boehner as saying “it’s a crapshoot” to determine what would happen if the limit isn’t increased. The Standard & Poor’s 500 Index advanced 0.3 percent to 1,317.72 at 4 p.m. in New York. Earlier, it climbed 1.4 percent after Federal Reserve Chairman Ben S. Bernanke said he’s prepared to provide more stimulus if needed and China’s economic growth beat estimates. The Dow rose 44.73 points, or 0.4 percent, to 12,491.61.

“The market took the reported information for what it is worth and traded off sharply on it,” said Philip Orlando, the New York-based chief equity market strategist at Federated Investors Inc., which oversees $354.9 billion.

Stock-index futures indicated the market could erase today’s gains when trading resumes tomorrow. S&P 500 futures expiring in September dropped 0.7 percent to 1,303.40 at 5:39 p.m. in New York after Moody’s Investors Service said it may cut the American government’s Aaa credit rating. Moody’s began a review as talks to raise the government’s $14.3 trillion debt limit stall, adding to concern that political gridlock will lead to a default.

Regular Session

During the regular trading session, materials producers in the S&P 500 added 0.8 percent after Federal Reserve Chairman Ben S. Bernanke said he’s prepared to provide more stimulus if needed and China’s economic growth beat estimates. Google Inc. (GOOG), Amazon.com Inc. (AMZN) and Netflix Inc. (NFLX) climbed at least 0.8 percent as JPMorgan Chase & Co. recommended buying the shares.

The S&P 500 snapped a three-day slide of 2.9 percent, which was the biggest in more than five weeks. The slump was fueled by concern Europe’s debt crisis will spread and American lawmakers will fail to boost the debt limit. The gauge had climbed 5.9 percent over the previous two weeks, the biggest gain since October 2009.

Stocks jumped early today after Bernanke told Congress the central bank is prepared to take additional action, including buying more government bonds, if the economy appears to be in danger of stalling. The Fed last month completed a program to buy $600 billion of Treasury bonds that aimed to stimulate the economy by reducing borrowing costs, boosting stock prices and spurring consumer spending.

‘Ready to Respond’

“The Fed stands ready to respond,” said Stephen Wood, the New York-based chief market strategist for Russell Investments, which manages about $161 billion. “The market is assessing that the Fed has a few more monetary bullets left in the gun and that would mean a more positive environment for equities because it’s creating liquidity and a lower interest rate environment.”

Gauges of materials and energy producers rose the most among 10 groups in the S&P 500, climbing 0.8 percent and 0.7 percent, respectively, as companies most-dependent on economic growth led gains in the index. The Morgan Stanley Cyclical Index of manufacturers, commodity producers and transportation stocks increased 0.8 percent. Caterpillar Inc. (CAT) advanced 1.6 percent to $108.64.

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Victoria Stilwell in New York at vstilwell@bloomberg.net

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

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