Euro, Italian Bonds Rise on ECB Purchases; S&P 500 Index Caps Weekly Loss

The euro snapped a four-day slump as European Central Bank purchases pushed down Italian and Spanish bond yields, while U.S. stocks capped their worst weekly drop since September. Treasuries fell.

The euro appreciated 0.4 percent to $1.3516 at 4 p.m. in New York, trimming its weekly decline to 1.7 percent. The yield on the Italian two-year note fell 14 basis points and rates on the nation’s 10-year debt decreased 20 points. The cost of insuring against default on European government debt decreased. The S&P 500 slipped less than 0.1 percent and ended down 3.8 percent for the week , while the Stoxx Europe 600 Index slipped 0.8 percent. Ten-year Treasury yields rose five basis points to 2.01 percent.

The ECB bought sovereign debt for fifth straight day as part of its efforts to halt turmoil in European bond markets. The purchases have helped bring Italy’s 10-year yield below the 7 percent level that foreshadowed bailouts for Greece, Ireland and Portugal. European officials may start talks with the International Monetary Fund for the ECB to lend to the IMF for sovereign bailouts, Dow Jones Newswires reported.

“The underlying reason why they are buying bonds is negative but the fact that they are doing it is being viewed as positive,” said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. “It’s a monetary policy that’s in place to force down bond yields and if they didn’t get Italy under 7 percent, who knows?”

Market Leaders

Gauges of technology and energy companies retreated at least 0.5 percent today to lead declines among five of the 10 main groups in the S&P 500, while utilities, financial companies and providers of consumer staples rose the most.

Salesforce.com Inc. (CRM), the largest maker of online customer- management software, tumbled 10 percent as billings missed some estimates. Chevron Corp. and Halliburton Co. fell at least 2.2 percent to pace losses in oil producers as crude slipped for a second day

Hewlett-Packard Co. (HPQ) rose 2.6 percent after adding Relational Investors LLC’s Ralph Whitworth to its board. Boeing Co. gained 2.1 percent after winning a provisional order for 230 planes from Lion Air.

November options on U.S. stocks and indexes expire today.

The S&P 500 swung between gains and losses for much of the day, with an early advance fueled by growing optimism the world’s largest economy was accelerating. The U.S. Conference Board’s index of leading economic indicators climbed more than forecast, signaling the world’s largest economy will keep growing into early next year.

Growth Forecasts

The U.S. economy may end 2011 growing at its fastest in 18 months as analysts increase forecasts for the fourth quarter. Economists at JPMorgan Chase & Co. now see gross domestic product rising 3 percent in the final quarter, up from a previous prediction of 2.5 percent. Macroeconomic Advisers in St. Louis increased its forecast to 3.2 percent from 2.9 percent at the start of November, while Morgan Stanley boosted its outlook to 3.5 percent from 3 percent.

“Better economic growth in the U.S. will provide support for the markets and potentially set the stage for a nice rally if and when Europe does stabilize,” Mark Bronzo, who helps manage $24 billion at Security Global Investors in Irvington, New York, said in an e-mail. “Until we have some sense of stability in Europe, the volatility we have seen in the markets will continue.”

Rally Fizzles

U.S. stocks erased gains earlier as Germany’s Foreign Ministry confirmed the nation was considering the possibility of more “orderly defaults” beyond Greece, according to the Deutsche Presse-Agentur.

ECB President Mario Draghipushed back against politicians and investors asking him to do more to end the sovereign debt crisis, expressing impatience with leaders’ failure to act. The ECB would quickly lose credibility if it departed from its primary role of keeping prices stable, Draghi said in a speech in Frankfurt today.

“Where is the implementation” of government pledges to bolster the region’s rescue fund, he asked. “We should not be waiting any longer.”

The difference between the Italian 10-year yield and the rate on benchmark German bunds decreased 27 basis points to 4.68 percentage points. The Spanish two-year yield fell six basis points to 5.43 percent.

Five people with knowledge of the deals said the ECB bought Italian securities today and three said it purchased Spanish debt. They asked not to be identified because the trades are private. A spokesman for the central bank in Frankfurt declined to comment when contacted by phone.

‘Reacted Favorably’

The euro strengthened against 14 of 16 major peers, led by gains against the South Korean won, Brazilian real, New Zealand dollar and Taiwan’s dollar.

“Every day when the ECB has come in and bought stressed debt, the euro has reacted favorably,” said Jane Foley, a senior currency strategist at Rabobank International in London. “There’s this psychology going on surrounding what the ECB might do, which is giving the euro some support.”

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments fell 8.5 basis points to mid- price of 349, compared with a record of 362 reached on Nov. 15.

Agreement on the proposal between ECB and IMF may result in an announcement at a European Union summit on Dec. 9, Dow Jones said, citing two unidentified people with direct knowledge of the matter.

Funding Costs

The cost for European banks to fund in the U.S. currency remained at the highest since December 2008. The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was at 130 basis points below the euro interbank offered rate.

The Stoxx 600 declined for a second day. Kemira Oyj, the Finnish maker of water-treatment chemicals, sank 14 percent after cutting its forecasts. Chemring Group Plc (CHG), the U.K. maker of missile-avoidance gear, slumped 13, the most in 14 years, as profit missed estimates. SGL Carbon SE gained 1.2 percent as Bayerische Motoren Werke AG bought a 15 percent stake in the company.

Cotton and natural gas fell more than 2.8 percent to lead losses in 14 of 24 commodities tracked by the S&P GSCI Index, which slipped 0.8 percent and ended the week down 2.6 percent, snapping a three-week rally. Oil in New York declined 1.4 percent to $97.41 a barrel, widening its discount to Brent crude, on speculation that the reversal of the Seaway pipeline won’t be enough to eliminate a glut in the U.S. Midwest.

The MSCI Emerging Markets Index fell for a fourth straight day, losing 1.9 percent and extending its weekly drop to 3.8 percent. The Hang Seng China Enterprises Index sank 2.7 percent after new home prices fell last month in some Chinese cities and a person with knowledge of the matter said the country’s banking regulator warned lenders that some projects backed by local governments may run out of funds.

Benchmark indexes fell at least 1.9 percent in Hungary, South Africa, South Korea and Taiwan. Funds investing in developing nations withdrew $183 million in the week ended Nov. 16, first outflows in five weeks, Citigroup Inc. said, citing data compiled by researcher EPFR Global.

To contact the reporters on this story: Allison Bennett in New York at abennett23@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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