U.S. Stocks Decline as Italian Yields Increase; Boeing Rallies

U.S. stocks declined, snapping a two-day advance in the Standard & Poor’s 500 Index, as an increase in Italian borrowing costs deepened concern Europe will struggle to contain its sovereign debt crisis.

Morgan Stanley and Citigroup Inc. (C) fell more than 2.6 percent. Bank of America Corp. (BAC) slid 2.6 percent after agreeing to sell most of its China Construction Bank Corp. stake to boost capital. Bank of New York Mellon Corp. (BK) slid 4.5 percent as the world’s largest custody bank said it would book a charge of as much as $100 million this quarter. Boeing Co. (BA) added 1.5 percent after winning a record $26 billion order from Emirates.

The S&P 500 retreated 1 percent to 1,251.78 at 4 p.m. New York time. The Dow Jones Industrial Average decreased 74.70 points, or 0.6 percent, to 12,078.98. About 5.5 billion shares changed hands on U.S. exchanges, the lowest since April 25.

“These blip-ups in yields put more uncertainty in the market,” Peter Tuz, who helps manage about $800 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia, said in a telephone interview. “Just because they’ve had a bit of good news coming out of Europe last week, it doesn’t mean they don’t still have a lot of work to do to get their financial houses in order.”

Stocks fell as the yield on the Italian five-year bond rose following an auction and Spanish 10-year rates surged to a euro- era record above German yields. The S&P 500 extended its decline after German Finance Minister Wolfgang Schaeuble said Europe’s permanent bailout fund may not be implemented before 2013. The equity index also dropped after German Chancellor Angela Merkel’s Christian Democratic Union party voted to offer euro states a “voluntary” means of leaving the currency area.

2011 Gain

Stocks rose last week, restoring the year-to-date gain for the S&P 500, as improving economic data and leadership changes in Greece and Italy bolstered investor optimism. Equities tumbled on Nov. 9 as yields on Italian government bonds surged, fueling concern European leaders will struggle to fund bailouts.

“There’s a lot of risk to the global financial system,” Hayes Miller, who helps oversee about $43 billion as the Boston- based head of asset allocation in North America at Baring Asset Management Inc., said in a telephone interview. “The size of the problem is huge. Until you solve this problem, you aren’t getting rid of the risk a large-scale default.”

Lenders in the Stoxx Europe 600 Index fell 1.8 percent and financial shares had the biggest decline in the S&P 500 among 10 industries, dropping 2 percent. Morgan Stanley (MS) decreased 2.7 percent to $15.92. Citigroup sank 3.2 percent to $28.38.

Potential Rating Cut

U.S. shares of Credit Suisse Group AG fell 3.4 percent to $24.19. The Swiss bank may have its long-term credit rating cut by Moody’s Investors Service after the investment banking unit posted a loss and income at the wealth-management division fell.

Bank of America slid 2.6 percent to $6.05. The second- biggest U.S. lender by assets will sell 10.4 billion CCB shares this month to a group of investors in private transactions for an after-tax gain of about $1.8 billion, the bank said today. After the closing, the company will own about 1 percent of the common shares of CCB, the U.S. lender said.

Bank of New York Mellon slumped 4.5 percent to $20.55. The bank plans to save as much as $700 million before taxes by 2015, through operational improvements such as consolidating applications, insourcing software development and consolidating locations. BNY Mellon is cutting expenses as lawsuits over the pricing of foreign exchange transactions are pushing up legal costs and interest rates near zero erode revenue.

“The cuts do not have the impact that most people were hoping” for, Gerard Cassidy, an analyst with RBC Capital Markets in Portland, Maine, said in an e-mail.

Boeing Rallies

Boeing rallied 1.5 percent, the most in the Dow, to $67.94. The company signed an agreement with Emirates at the Dubai Air show for 50 of its 777-300ER jets and an option for 20 more, in a deal valued at $26 billion. The accord extends their relationship in the wide-body market, with Emirates operating more than 90 of the 777s for the industry’s biggest such fleet.

Lowe’s Cos. advanced 1.7 percent to $23.50. The second- largest U.S. home-improvement retailer reported third-quarter profit that exceeded analysts’ estimates, helped by sales at older stores.

Salesforce.com Inc. (CRM) increased 2.8 percent to $133.52. The supplier of online customer-management software was raised to “buy” from “neutral” at Citigroup, which cited “increasing confidence in long-term profitability.” Citigroup gave a price estimate of $158 a share.

IBM Stake

International Business Machines Corp. (IBM) lost less than 0.1 percent to $187.35, after rallying as much as 1.3 percent. Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) bought a 5.5 percent stake in the computer-services provider as the billionaire chairman accelerated stock purchases. Buffett, who spent more than $10 billion on IBM stock, paid near-record prices for the shares, recalling his winning 1988 investment in Coca-Cola Co. (KO)

Berkshire began buying IBM shares this year after Buffett read the Armonk, New York-based company’s annual report and saw the firm “through a different lens,” the billionaire told CNBC today in an interview. IBM had doubled in New York trading in the 27 months prior to the Feb. 22 release of its yearly 10-K filing. Coca-Cola had doubled in the four years through the end of 1987, and has risen more than 10-fold since.

“I think he looked at Coke through a different lens back in 1988,” said Jeff Matthews, a Berkshire shareholder and author of “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett.” In IBM, “he sees a business that supports the world’s IT infrastructure and has a lot of room to grow over the next couple decades.”

S&P 500 Forecast to Rise

Bank of America’s Savita Subramanian estimates the S&P 500 will rise to 1,350 in 2012, as the U.S. economy avoids a recession and earnings growth continues to push the gauge higher.

Combined profit by companies in the benchmark equity measure will be $98.25 a share this year and $104.50 next year, according to Subramanian, the head of equity and quantitative strategy, in her first equity forecasts since taking over the role from David Bianco in September. The year-end projection is 6.8 percent higher than the S&P 500’s close on Nov. 11.

“While we expect uncertainty and volatility to remain high well into 2012, the avoidance of a U.S. recession and continued earnings growth could drive the S&P 500 toward the high end of its two-year trading range” of 1,100 to 1,365, a team led by Subramanian wrote in a note dated today.

To contact the reporter on this story: 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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