Stocks Drop on Greek Debt-Swap Stalemate as Commodities, Euro Erase Losses

Stocks (SXXP) fell, dragging U.S. and European benchmark indexes down from almost six-month highs, as talks over Greek debt restructuring reached a stalemate. The euro and commodities recovered from earlier declines.

The Standard & Poor’s 500 Index lost 0.1 percent to close at 1,314.65, halting a five-day rally, and the Dow Jones Industrial Average slid 33.07 points to 12,675.75. S&P 500 futures rose after normal trading hours, climbing 0.3 percent as of 4:44 p.m. in New York, following better-than-estimated results at Apple Inc. (AAPL) The euro recovered from early declines to increase 0.1 percent $1.3027, near its highest level of 2012. The S&P GSCI Index of commodities reversed early losses. Treasuries were little changed after a $35 billion auction.

The International Monetary Fund cut its forecast for the global economy as Europe slips into a recession and growth cools in China and India. Finance ministers balked at putting up more public money for Greece and called on bondholders to provide greater debt relief, spurring concern the nation may fail to make a March 20 bond payment. S&P would consider any debt relief being negotiated as a default, according to John Chambers, managing director of sovereign ratings.

A potential Greek default would be “uncatastrophic,” Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees $1.3 billion, told Bloomberg Television. “There would be a bad, short, sharp reaction by the market, and then we’d all get on with it. There’s going to be a deep loss suffered by the private holders of Greek debt whether you have a deal or default.”

Retreat From July High

The S&P 500 retreated from the highest level since July after yesterday extending its rebound from its 2011 low to almost 20 percent. Earnings-per-share topped estimates at about 65 percent of the 74 companies in the S&P 500 that released results from Jan. 9 through the start of trading today, data compiled by Bloomberg show, even as profit has decreased 7.5 percent for the group.

Travelers Cos. (TRV) tumbled 3.8 percent to lead losses in the Dow today after the insurer’s fourth-quarter profit fell 31 percent on lower investment income and a smaller benefit reserve. McDonald’s Corp. slid 2.2 percent as the restaurant chain said foreign-currency fluctuations will cut 2012 profit. Verizon Communications Inc. retreated 1.6 percent after posting a quarterly loss.

Wells Fargo & Co. and Bank of New York Mellon Corp. paced losses among the largest U.S. banks, dropping more than 1 percent each. Zions Bancorporation (ZION) tumbled 7.6 percent for the biggest loss in the S&P 500 as the Salt Lake City-based bank was cut to “hold” from “buy” at Stifel Nicolaus & Co. after yesterday reporting earnings-per-share that missed the average analyst estimate by 23 percent.

Earnings Season

Apple reported record quarterly sales and profit, topping analysts’ estimates, as holiday purchases of the new iPhone helped the company steer clear of a consumer spending slump that has hurt rival technology companies. Fiscal first-quarter earnings more than doubled to $13.1 billion, or $13.87 a share, and sales climbed 73 percent to $46.3 billion.

The Federal Reserve began a two-day policy meeting, with an announcement on interest rates and the outlook for the economy expected tomorrow.

Ten-year Treasury note yields increased one basis point to 2.06 percent, the highest on a closing basis since Dec. 9. Two- year yields were little changed at 0.24 percent.

European Stocks (SXXP)

Three shares dropped for every one that gained in the Stoxx Europe 600 Index as the regional benchmark lost 0.4 percent to trim its 2012 gain to 4.7 percent. Societe Generale SA and Credit Agricole SA paced losses in financial shares, retreating more than 4 percent. Royal KPN NV sank 7.2 percent to a six-year low as the largest Dutch phone company predicted lower 2012 profit and cash flow.

The yield on Spain’s two-year note fell seven basis points to 3.11 percent as the government sold 2.51 billion euros ($3.3 billion) of three- and six-month bills, meeting the maximum target for the sale. Italy’s 10-year yield increased six basis points to 6.17 percent after reaching a six-week low yesterday.

European officials may have to weigh a Greek default that triggers credit default swaps if no voluntary deal with creditors is struck in time, said Marco Buti, head of the European Commission’s economics division.

If talks on private-sector involvement yield a deal quickly that draws “very large participation,” then “we will not need to trigger the CDS,” Buti said, speaking to the European Parliament’s committee on economic and monetary affairs in Brussels today.

IMF Forecasts

The IMF lowered its estimate for global growth this year to 3.3 percent from a September forecast of 4 percent. The expansion next year will be 3.9 percent, down from 4.5 percent. The euro area may enter a “mild recession” in 2012 as it shrinks 0.5 percent. The U.S. outlook was unchanged at 1.8 percent growth, the fund said.

Natural gas climbed 1.1 percent to $2.554 per million British thermal units on speculation a supply glut will ease. The fuel surged 7.8 percent surge yesterday after Chesapeake Energy Corp. said it will cut production following a slump in prices. Oil declined 0.6 percent to $98.95 a barrel.

The MSCI Emerging Markets Index (MXEF) slipped 0.2 percent after rallying for five straight days as declines in eastern Europe and Africa offset gains in India.

The BSE India Sensitive Index, or Sensex, jumped 1.5 percent to the highest level since Nov. 14 after the central bank reduced its cash reserve ratio to 5.5 percent from 6 percent, the first cut to the amount of cash banks must put aside since 2009. Policy makers left borrowing costs unchanged, while signaling future interest-rate cuts were possible.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Michael P. Regan in New York at mregan12@bloomberg.net

To contact the editors responsible for this story: Michael P. Regan at mregan12@bloomberg.net; Nick Baker at nbaker7@bloomberg.net

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