S&P 500 Index Caps Worst Thanksgiving-Week Drop Since ’32; Treasuries Fall

U.S. stocks slipped, capping the worst Thanksgiving-week loss since 1932, and commodities fell as a reduction in Belgium’s credit rating and reports that Greece is demanding bondholders accept larger losses fueled concern Europe’s debt crisis is worsening. Treasuries fell.

The S&P 500 declined for a seventh straight day, losing 0.3 percent to close at 1,158.67 at 1 p.m. in New York and extending its weekly retreat to 4.7 percent. The S&P GSCI Index of commodities slipped 0.3 percent. The euro lost 0.9 percent to $1.3229. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments lingered near a record, up 6 basis points at 386. The dollar rallied against most peers.

U.S. equities erased earlier gains as Reuters reported Greece is demanding that new bonds issued to investors as part of a debt swap have a net present value of 25 percent, lower than the “high 40s the banks have in mind.” Greece’s 10-year bond traded at about 24.3 percent of face value as of today’s close. Equities rose earlier amid reports European leaders were discussing sparing private investors from sharing the costs of bailing out troubled nations.

“The demands of Greece now totally change the game,” Mark Grant, a managing director at Southwest Securities Inc. in Fort Lauderdale, Florida, said in an e-mail. “The situation can no longer be called voluntary by any stretch of the imagination. The equity markets in the United States may test the lows again as there is increasing concern of a major recession in Europe.”

Energy producers and retailers had the biggest declines among 24 industries in the S&P 500, with Exxon Mobil Corp. down 0.9 percent and Amazon.com Inc. slumping 3.5 percent.

Retailers (S5RETL) Retreat

Twenty-two of 30 retailers in the S&P 500 retreated as Black Friday, the biggest retail day of the year, arrived with consumer sentiment at levels previously reached during recessions, as a record share of households said this is a bad time to spend, according to the Bloomberg Consumer Comfort Index. The measure has reached minus 50 or less in nine of the past 10 weeks, an unprecedented performance in its 26-year history.

Banks advanced following reports that some European officials oppose forcing private investors to share the cost of bailing out countries with the region’s permanent rescue fund. German Chancellor Angela Merkel and French President Nicolas Sarkozy “confirmed their support for Italy, saying that they are aware that the collapse of Italy would inevitably lead to the end of the euro,” Italian Prime Minister Mario Monti told a Cabinet meeting, according to an e-mailed statement.

Bondholder Provisions

European governments may ease provisions in a planned permanent rescue fund requiring bondholders to share losses in sovereign bailouts, German Finance Minister Wolfgang Schaeuble suggested. Schaeuble signaled that Germany may retreat from demands that private creditors contribute to rescues in exchange for European treaty amendments toughening rules on budget oversight.

The S&P 500 Financials Index (S5FINL) rose 0.4 percent today and has tumbled 13 percent in November to lead the S&P 500’s 7.6 percent slide.

U.S. financial shares “had been knocked down dramatically and there’s a better tone today,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a telephone interview. “We have to hope they can get their act together in Europe and we go back to concentrating on what we’re doing here.”

Treasuries fell on speculation investors seeking refuge from volatility in the European sovereign-debt markets may have pushed U.S. government yields too low. The 10-year note’s yield rose eight basis points to 1.97 percent. The rate is up from a record low of 1.67 percent on Sept. 23.

Dollar Gains

The dollar increased against 15 of 16 major peers, surging 1.2 percent against the Swiss franc and at least 1 percent against the Norwegian krone and Swedish krona. The euro weakened against 12 of 16 major peers.

Silver and gasoline lost at least 1.9 percent to lead declines in 19 of 24 commodities tracked by the S&P GSCI. Crude oil 1.2 percent to $97.36 a barrel as of 1:44 p.m. in New York.

The Stoxx Europe 600 Index climbed 0.7 percent, reversing an earlier 1.1 percent retreat and trimming its weekly loss to 4.6 percent. The regional benchmark index is down almost 24 percent from its 2011 high in February. Greek lender Piraeus Bank SA and Dexia SA climbed more than 7.8 percent to lead today’s gains. Dexia, the bank being broken up after running out of short-term funding, should have borrowing guarantees agreed by the Belgian and French governments within days, a French official said.

Italian Rates

European stocks slid earlier as Italy had to pay almost 7 percent to sell six-month bills at an auction today, nearly twice the rate it paid a month ago and the highest since 1997, adding to evidence Europe’s debt crisis was spreading to the core nations.

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo urged euro-area politicians to take bold steps toward fiscal union to end the debt crisis, and said they should not rely on the ECB. European Union Economic and Monetary Affairs Commissioner Olli Rehn said it looks like contagion is spreading to core countries. Moody’s Investors Service cut Hungary’s debt to junk. Yesterday, S&P said Japan hasn’t made progress in tackling its debt load.

“We need to see more action out of Europe before any sort of rebound happens,” Nick Maroutsos, who oversees the equivalent of about $3 billion as co-founder of Sydney-based Kapstream Capital, said in a Bloomberg Television interview. “Greece, Ireland, Portugal are becoming after-thoughts as the crisis is now unfolding at the footsteps of Italy, France and Germany. These are the larger countries and these would have the largest knock-on effects.”

Extending Declines

Italian five- and 10-year bonds extended declines after borrowing costs increased at the bill sale even as the ECB bought the nation’s securities, according to three people with knowledge of the transactions, who declined to be identified because the deals are private. A spokesman for the ECB in Frankfurt declined to comment. The five-year yield was up 21 basis points at 7.74 percent and rates on 10-year debt were up 15 points at 7.26 percent.

Italy sold 8 billion euros ($10.6 billion) of 183-day bills to yield 6.504 percent, up from 3.535 percent at the previous auction on Oct. 26 and the highest since August 1997.

The Spanish two-year note yield exceeded 6 percent for the first time since the euro was created in 1999. Portugal’s 10- year bond yield rose 43 basis points to 12.64 percent, a day after the nation’s credit ranking was lowered to below investment grade by Fitch Ratings. After European markets closed today, S&P lowered the long-term sovereign credit ratings on Belgium to ‘AA’ from ’AA+’. The outlook is negative.

Best Since January

Japan’s benchmark bond yields completed the biggest weekly gain since January on concern the government will fail to rein in the world’s largest debt burden. Ten-year yields added 3.5 basis points to 1.03 percent at the 6:05 p.m. close at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The last time the rate rose above 1 percent was Nov. 1. Yields climbed 8.5 basis points this week, the most since the period ended Jan. 7.

The MSCI Emerging Markets Index slipped 1.3 percent to a seven-week low. Hungary’s BUX Index lost 3.1 percent, the most in three weeks, the cost of insuring Hungarian debt against default climbed to a record, bond yields surged and the forint tumbled after the Moody’s downgrade.

Hong Kong’s Hang Seng China Enterprises Index slid 1.8 percent.

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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