Treasuries, U.S. Stocks Slump as Concerns Over Debt Talks Offset Earnings

U.S. stocks and Treasuries retreated as positive earnings reports were offset by concern that a Senate plan to help the U.S. government avoid default faced resistance from House Republicans. Oil rallied.

The Standard & Poor’s 500 Index slipped 0.1 percent to 1,325.84 at 4 p.m. in New York, a day after its biggest rally since March. The drop in Treasuries sent the 10-year yield up five basis points to 2.94 percent, erasing yesterday’s decrease. Oil rose 0.7 percent, rebounding from earlier losses. The Dollar Index, a gauge of the currency against six major peers, fell 0.6 percent to 74.81. Italian and Spanish bonds rallied before a European debt-crisis summit.

“There have been a couple of companies that have had some nice beats,” Thomas Garcia, head of equity trading at Santa Fe, New Mexico-based Thornburg Investment Management Inc., which oversees about $80 billion, said in a telephone interview. “But the macro environment is weighing on things and people are still worried about the U.S. debt situation.”

President Barack Obama plans to renew talks at the White House this week with congressional leaders amid concern that lawmakers are no closer to a compromise to cut the federal deficit and increase the debt ceiling. European leaders are meeting tomorrow to discuss steps to contain that region’s debt crisis. Apple Inc. (AAPL) led a pack of companies reporting higher- than-estimated results.

Deficit Debate

The Treasury 30-year yield rose seven basis points to 4.26 percent. Yields decreasing 12 points yesterday after President Barack Obama endorsed a $3.7 trillion debt-cutting plan from a group of senators known as the Gang of Six. Lawmakers are under pressure to reach a deal before an Aug. 2 deadline that officials have set for lifting the nation’s $14.3 trillion debt limit.

House Republicans last night passed their debt-reduction plan 234-190 -- legislation that stands little chance of passing the Senate and that Obama has said he would veto if it did. The measure would cut and cap government spending and allow the debt ceiling to be raised by $2.4 trillion only if Congress approves a balanced-budget amendment to the Constitution.

The Senate plan that emerged yesterday from the Gang of Six combines spending cuts with a smaller amount of tax increases. While House Republican leaders indicated a willingness to consider the proposal, they and other members of their fiscally conservative caucus continue to stress opposition to a debt compromise that includes more taxes.

’All Out’

Senator Tom Coburn, an Oklahoma Republican who helped negotiate the $3.7 trillion deficit-cutting plan, said he wants Congress to “go all-out” to solve the problem of cutting spending and raising the U.S. debt limit.

“My preference would be that we go all-out to try to accomplish this, to solve the problem,” Coburn said in an interview today on Bloomberg Television. He acknowledged the resistance that the Gang of Six plan faces within his own party: “We have made changes that some people cannot accept,” Coburn said.

Apple, the world’s second-biggest company by market value, rallied 2.7 percent after saying profit more than doubled last quarter amid record sales of iPhones and iPads. BlackRock Inc. and U.S. Bancorp also rose after earnings were higher than the average analyst estimate.

Per-share profits have exceeded estimates at about 89 percent of the 61 companies in the S&P 500 that released results since July 11, data compiled by Bloomberg show.

Technology Shares

S&P 500 technology stocks declined 0.4 percent, after yesterday rising the most since July 2010. International Business Machines erased 0.8 percent while Microsoft fell 1.7 percent. Financial stocks had the biggest gain out of 10 groups in the S&P 500, rising 1.1 percent. Bank of America Corp. rallied 2.9 percent after analysts said the lender probably won’t need to raise capital.

United Technologies Corp. (UTX) sank 1.8 percent for the biggest decline in the Dow Jones Industrial Average after Boeing Co. (BA) picked a competing jet-engine maker to upgrade its 737 model. Boeing increased 2.2 percent after AMR Corp., the parent of American Airlines, agreed to buy 460 single-aisle jets from Boeing and Airbus SAS in the industry’s biggest-ever order.

Takeover news also boosted equities. Clorox Co. rallied 2.4 percent after Carl Icahn, the company’s largest investor, increased his offer to buy the bleach maker. Nalco Holding Co., a water treatment services provider, surged 24 percent after agreeing to be bought by Ecolab Inc., the largest maker of cleaning chemicals for hotels and restaurants, for $5.4 billion.

Oil Rebounds

Oil rose 0.7 percent to $98.14, rising for a second day after a report showed that U.S. supplies dropped as refineries bolstered fuel output and on speculation that European leaders will agree on steps to address the region’s debt crisis.

The S&P GSCI Index of commodities rose 0.3 percent. Wheat gained for a second day on concern hot temperatures may stress plantings in parts of the U.S. Gold futures fell 0.3 percent to $1,596.90, retreating from a record for a second day.

The Stoxx Europe 600 Index climbed 1.3 percent as more than five shares advanced for every one that declined. Banks led gains, with Societe Generale SA, France’s second-biggest, and UniCredit SpA of Italy jumping at least 5 percent. BHP Billiton Ltd. (BHP) rose 1.7 percent as the world’s largest mining company reported increased iron-ore output. ARM Holdings Plc, which designs chips for Apple’s iPhone and iPad, rallied 4.9 percent.

European Summit

Italian 10-year bond yields decreased 13 basis points to 5.60 percent, while Spanish 10-year yields lost 11 points to 5.98 percent. Greece and Portugal 10-year yields lost more than 60 basis points each. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments fell 14.4 basis points to 280.65.

European officials are considering steps previously rejected by Germany, including the use of precautionary credit lines, to contain the debt crisis, a person close to the talks said. Other options up for discussion at tomorrow’s Brussels summit include enabling the main 440 billion-euro rescue fund to recapitalize banks, said the person, who declined to be named because the talks are in progress.

Emerging Markets

The MSCI Emerging Markets Index climbed 0.7 percent, adding to yesterday’s 0.6 percent gain. Taiwan’s Taiex Index gained 2.1 percent, the most since September, driven by companies supplying Apple. Catcher Technology Co., a casing maker, jumped 4 percent, and Wintek Corp. (2384), which supplies touch sensors for the iPad, gained 4.8 percent. Hon Hai Precision Industry Co., which assembles iPhones, increased 4.6 percent. Simplo Technology Co., a maker of battery packs for Apple products including the iPad, advanced 6.9 percent.

South Korea’s Kospi Index added 1.2 percent, while The Sensitive Index fell 0.8 percent in Mumbai as Wipro Ltd. (WPRO), the nation’s third-biggest software services provider, plunged the most in three months after its earnings report.

China’s central bank set its daily fixing 0.14 percent higher at 6.4592 per dollar, the strongest since July 21, 2005, the day the nation ended a fixed exchange rate and said the yuan would be allowed to fluctuate against a basket of currencies.

To contact the reporters on this story: Michael Regan in New York at mregan12@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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