Stocks, Commodities Retreat on China as Treasuries Halt Slump

Stocks fell, pulling the Standard & Poor’s 500 Index down from an almost four-year high, and commodities slid amid concern growth will slow in China. Treasuries rebounded following the longest drop since 2006.

The S&P 500 slipped 0.3 percent to 1,405.52 at 4 p.m. in New York and the MSCI All-Country World Index fell 0.7 percent, snapping a three-day rally. The S&P GSCI Index declined 1.5 percent as lead, silver and corn led losses among 21 of 24 commodities. Ten-year Treasury (USGG10YR) yields slipped two basis points to 2.36 percent after increasing for nine straight days. The dollar rose versus 15 of 16 major peers.

China, the world’s biggest energy consumer and steelmaker, is raising fuel prices for the second time in less than six weeks and BHP Billiton Ltd. said the nation’s steel production is slowing. Vehicle sales may miss industry forecasts this year as economic growth slows, an official from the China Association of Automobile Manufacturers said. U.S. housing starts fell from a three-year high, Commerce Department data showed.

“There will be some sort of slowdown coming out of China and the Asian economies,” said Tim Price, who helps oversee more than $1.5 billion of assets at PFP Group LLP in London. “It can definitely take the heat out of the commodities markets.”

Rally Halted

The S&P 500 had rallied for three straight days before today, extending its 2012 advance to 12 percent. The index is poised for its best first quarter since 1998 as a decline in the unemployment rate to a three-year low and growth in manufacturing bolstered optimism in the economy.

The benchmark gauge of American equities closed at the highest level since May 2008 yesterday, while the S&P SmallCap 600 Index reached a record and the Nasdaq Composite Index rallied to an 11-year high. Today’s decline was the biggest for the S&P 500 in two weeks.

“With this improving economy and rising confidence, its very hard for a correction read to take hold here in a big way,” David Kelly, who helps oversee about $394 billion as chief market strategist at JPMorgan Funds in New York, told Bloomberg Television. “So we’ll have small corrections, but I don’t think a big one right now.”

Industrial and commodity companies led losses among five of the 10 main industries in the S&P 500 today. Alcoa Inc., Caterpillar Inc. and United Technologies Corp. fell at least 1.5 percent for the biggest declines in the Dow Jones Industrial Average.

Housing Starts

Toll Brothers Inc. and D.R. Horton Inc. paced declines in an S&P homebuilders index. U.S. builders broke ground on 698,000 homes at an annual rate, in line with the median forecast of economists surveyed by Bloomberg News and down 1.1 percent from a January pace that was stronger than previously reported, Commerce Department figures showed today.

The 10-year Treasury yield jumped 44 basis points in the previous nine days. Two-year Treasury yields rose two basis points to 0.40 percent and 30-year rates lost three basis points to 3.45 percent, retreating from the highest level since October.

U.S. stocks posted the best returns when 10-year Treasury yields rose to close to 4 percent, according to a study by S&P that tracked market performance since 1953.

The S&P 500 advanced 1.7 percent a month on average during periods when 10-year yields climbed to a range of 3 percent to 4 percent, according to data compiled by New York-based S&P. That’s the best performance among six categories of rising yields studied by the firm. Stocks began to fall when yields exceeded 6 percent, the study found.

Stocks, Yields

While rising yields tend to boost borrowing costs for companies and act as “a depressant in intrinsic value calculations,” they can also suggest a strengthening economy and prompt investors to switch to equities, according to Sam Stovall, S&P’s chief equity strategist.

Oil fell the most in more than three months in New York, retreating 2.3 percent to $105.61 a barrel, as Saudi Arabia, the world’s biggest crude-exporting country, said it can boost output immediately to stave off shortages. Silver futures dropped 3.4 percent to $31.83 an ounce and gold slid 1.2 percent to $1,647 an ounce.

European Stocks

The Stoxx Europe 600 Index (SXXP) fell 1.1 percent as Bayerische Motoren Werke AG and Daimler AG slid more than 4 percent, leading a gauge of automakers down 4 percent for the biggest drop in two weeks. Mercedes dealers are offering record markdowns of 25 percent on high-end models such as the S300 sedan, according to data stretching back to 2009 at cheshi.com, which tracks prices at more than 3,000 Chinese dealerships.

Chinese Premier Wen Jiabao announced this month an economic growth target of 7.5 percent for 2012, down from an annual 8 percent over the past seven years. China’s steel production is slowing as the economy focuses more on consumers than large infrastructure projects, according to Ian Ashby, president of iron ore at BHP, the world’s third-largest exporter.

David Joyce, managing director of expansion projects at Rio Tinto Group (RIO), the second-biggest iron-ore exporter, said at a conference in Perth, Australia, that the company is seeing a slowdown in China, its biggest customer.

Credit default swaps linked to China rose 10 basis points to 107 basis points, climbing from the lowest level in almost a year, according to CMA in London.

The yield on the 10-year German bund slipped two basis points to 2.04 percent, falling for the first time in six days.

Currencies

The Dollar Index, which tracks the U.S. currency against those of six trading partners, climbed 0.2 percent. The Australian dollar tumbled 1.2 percent against the dollar and dropped 0.8 percent versus the yen, falling for the first time in four days against the two currencies.

The MSCI Emerging Markets Index (MXEF) lost 1.1 percent, a fourth consecutive decline, its longest losing streak of the year and paring its 2012 gain to 15 percent. The Hang Seng China Enterprises Index (HSCEI) lost 1.5 percent to close at the lowest level since Jan. 16.

OAO Gazprom fell 2.6 percent in Moscow as the Micex Index (MICEX) slid 1.7 percent. The FTSE/JSE Africa All Shares Index (JALSH) dropped 1 percent in South Africa.

To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Michael P. Regan in New York at mregan12@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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