Oil Rally Helps Stocks Reverse Drop as Treasuries Rise

U.S. stocks rose, erasing an early drop and trimming the biggest weekly loss of the year, as energy companies and oil rallied on a report that sanctions will reduce Iranian crude exports by 300,000 barrels a day. Ten-year Treasuries rose for a fourth straight day.

The Standard & Poor’s 500 Index was up 0.3 percent at 1,397.11 at 4 p.m. in New York after tumbling as much as 0.4 percent. Energy companies climbed 1 percent as a group to lead the market’s rebound following the Reuters report. Crude surged 1.4 percent to $106.87 a barrel, erasing most of a weekly decline. The yield on the 10-year Treasury note dropped five basis points to 2.23 percent, retreating for a fourth day after climbing to the highest level since October (USGG10YR).

Earlier declines in stocks were triggered when an unexpected decrease in sales of new U.S. homes added to concern the global economic rebound was slowing. The S&P 500 lost about 0.5 percent this week as reports that manufacturing contracted in Europe and China overshadowed a drop in U.S. jobless claims to a four-year low.

“It’s a rotation into energy companies,”Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel Nicolaus & Co., which oversees more than $116 billion in client assets, said in a telephone interview.’’ We’ve had a predictable pullback from an extraordinary run in the global financial markets. Investors are considering the soft economic data from China and Europe as a potential warning, but I don’t see this as a massive correction. We have an improving economic environment.’’

Weekly Drop

Today’s gain trimmed the S&P 500’s second weekly drop of the year. Hewlett-Packard Co., Bank of America Corp., Caterpillar Inc., Chevron Corp. and Alcoa Inc. climbed at least 0.9 percent to help lead gains in the Dow Jones Industrial Average. Gauges of raw-material producers and financial shares in the S&P 500 also climbed at least 0.9 percent to help lead today’s gain.

An S&P index of 11 homebuilders slid after sales of new U.S. homes dropped 1.6 percent to a 313,000 annual pace last month, the slowest since October, a Commerce Department report showed. KB Home tumbled 8.7 percent as it reported first-quarter revenue that missed estimates.

Bats Global Markets Inc., the six-year-old equity exchange, canceled its initial public offering, stunning Wall Street after errors on its own computer systems derailed trading in the stock and forced a halt in Apple Inc.

Pulling the IPO capped a day of missteps for the electronic exchange, beginning just as the shares were making their debut. Data received by Bloomberg around 11 a.m. in New York showed the stock, the first ever listed on its Lenexa, Kansas-based market, quoted at pennies after being priced yesterday at $16. Around the same time, a 100-share transaction in Apple was executed on Bats so far away from the market price that it triggered a halt.

VIX Rebounds

The Chicago Board Options Exchange Volatility Index fell 4.8 percent today to trim its weekly gain to 2.4 percent, snapping a five-week decrease in the benchmark measure of U.S. equity options. The VIX is down about 66 percent since Sept. 30, a record two-quarter decline.

Credit Suisse Group AG, under pressure to restore order to an exchange-traded note tracking U.S. equity volatility, said it will start resupplying the market with shares today after cutting issuance off in February. Stock will be added to the VelocityShares Daily 2x VIX Short-Term ETN (TVIX), or TVIX. The security, designed to track futures on the Chicago Board Options Exchange Volatility Index, has whipsawed investors for the past month, climbing 89 percent above its asset value before plunging 29 percent yesterday.

Traders betting today’s release of “The Hunger Games” will spur larger price swings in Lions Gate Entertainment Corp. pushed prices of 30-day options to the highest in two years compared with two-month contracts.

Volatility of ‘Hunger’

Implied volatility for one-month contracts closest to the independent filmmaker’s stock price was 10.79 points above two- month options, according to data compiled by Bloomberg. The spread reached 12.35 on March 19, the widest since March 2010. Lions Gate shares have almost tripled since their 2011 low in March to $14.55.

Even after this week’s retreat, the S&P 500 is up more than 11 percent in 2012 and poised for its best first-quarter return since 1998. The S&P 500 closed at the highest level since May 2008 on March 19, while the S&P SmallCap 600 Index reached a record and the Nasdaq Composite Index rallied to an 11-year high that day.

‘Geopolitical Concerns’

Oil futures jumped more than 2 percent in three minutes on the New York Mercantile Exchange, topping $108 a barrel for the first time in four days, following the Reuters report on Iranian exports, which cited Petrologistics, a Geneva-based consultant. Stephen Schork, president of the Schork Group in Villanova, Pennsylvania, said the gain may have triggered traders’ automatic buy orders.

Crude has risen more than 8 percent this year as Western countries imposed sanctions on Iran’s petroleum exports aimed at halting its nuclear program. Iran threatened to shut the Strait of Hormuz , a transit route for a fifth of the world’s oil, in retaliation. Futures fell earlier this week as Saudi Arabia said it could boost output immediately to make up for any supply shortfall.

“The Iranian headlines highlight the geopolitical concerns that threaten to cut exports from the world’s third-biggest oil exporter,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “The weaker dollar is also giving commodities a lift.”

The dollar weakened against 14 of 16 major peers, losing more than 0.5 percent versus the currencies of Australia, New Zealand and Norway.

Fed Watch

Federal Reserve Bank of St. Louis President James Bullard said the U.S. and world economies risk elevated inflation that persists for years should developed nations mistime their exits from stimulative monetary policies.

“Once inflation gets out of control, it takes a long, long time to fix it,” Bullard said in a Bloomberg Television interview in Hong Kong today. “Ultra-easy” policies across the Group of Seven nations, which include the U.S. and Germany, may be retained for too long, he said.

European stocks were little changed, paring earlier losses, as shares of mining companies rose with metal prices. Renault SA and Antofagasta Plc rallied at least 2 percent after both tumbled more than 3 percent yesterday. BT Group Plc climbed after the U.K.’s largest fixed-line phone company said it will cut its pension deficit by half. Randgold Resources Ltd. and Publicis Groupe SA paced declining shares.

In European bond markets, yields on Spanish 10-year debt slid 12.4 basis points to 5.33 percent and Italian yields decreased 4.9 basis points to 5.02 percent.

The euro increased against 11 of 16 major peers, rising 0.5 percent to $1.3271 after three days of declines prompted bets the move lower was overdone. The yen strengthened against all of its major counterparts this week, paring its losses for the year, amid increased concern of slowing economic growth spurred investor appetite for safety.,

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net

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

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