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Oil, Gold Slide as Dollar Gains on Greece; Stocks Retreat

Oil slid to a six-month low and gold declined as the Dollar Index extended a record-long rally amid concern Greece’s financial crisis is worsening. U.S. stocks fell, while Treasuries erased losses after Federal Reserve policy makers said more monetary easing may become necessary.

Crude for June delivery fell 1.2 percent to settle at $92.81 a barrel while gold approached a bear-market drop of 20 percent from last year’s record. The S&P 500 slipped 0.4 percent to close at 1,324.80 at 4 p.m. in New York. The Dollar Index, a measure of the currency against six major peers, increased for a 13th straight day. Ten-year Treasury yields slipped one basis point to 1.76 percent after climbing five points earlier.

The European Central Bank said it will temporarily stop lending to some Greek banks to limit its risk as a political impasse threatens to force the nation out of the euro. Minutes from the Fed’s last meeting showed several policy makers said a deteriorating economic outlook could warrant more monetary stimulus to keep the recovery on track, citing Europe’s debt crisis and fiscal tightening in the U.S. as potential risks.

“Several Fed members are now saying more action may be needed, but they are not taking action,” said Peter Jankovskis, who helps manage about $2.9 billion at Oakbrook Investments in Lisle, Illinois. “Certainly the situation in Greece is troublesome. It’s getting to a point where it gets harder and harder to envision Greece staying within the euro.”

Commodities Retreat

The S&P GSCI Index of commodities lost 0.4 percent to its lowest level on a closing basis since Dec. 19 as a stronger dollar weighed on materials traded in the currency. Oil also tumbled as a U.S. Energy Department report showed inventories increased more than forecast, rising to the most since 1990. Lead, cotton, zinc, Brent crude and silver lost at least 1.8 percent to help lead losses in commodities.

Gold futures for June delivery fell 1.3 percent to settle at $1,536.60, leaving prices down 19 percent from a record close of $1,891.90 reached on Aug. 22, about 1 percentage point shy of a 20 percent bear-market plunge. Earlier, gold slumped to $1,526.70, the lowest since Dec. 29 and 21 percent below the intraday record $1,923.70 reached in September.

The Dollar Index, which hasn’t retreated since April 27, climbed 0.3 percent to 81.448, its highest level since January. The U.S. currency strengthened against 13 of 16 major peers, gaining 0.2 percent to trade at $1.2709 versus the euro.

Early Gains Fade

Stocks opened the session higher as U.S. builders broke ground on more homes than anticipated in April and output at factories, mines and utilities increased 1.1 percent, reports showed. U.S. equities reversed gains and European shares extended losses as two euro-area officials said the European Central Bank has no immediate plans to increase stimulus efforts even as market tensions mount.

The S&P 500 (SPX) closed at the lowest level since February and the Dow Jones Industrial Average slumped to the lowest since January. Indexes of financial companies and raw-material producers lost more than 1 percent to lead losses in eight of the 10 main industries the S&P 500, while Bank of America Corp., Alcoa Inc., JPMorgan Chase & Co. and United Technologies Corp. lost at least 1.9 percent for the biggest declines in the Dow.

J.C. Penney Co. (JCP) plunged 20 percent, the biggest drop since at least 1980, after the department-store chain reported a first-quarter loss and sales that fell more than analysts projected. General Electric Co. rose 3.3 percent after saying its finance unit plans to pay a special dividend of $4.5 billion to the parent company. General Motors Co. rallied 2.3 percent as Warren Buffett’s Berkshire Hathaway Inc. disclosed a stake.

Economic Data

Housing starts rose 2.6 percent to a 717,000 annual rate from March’s revised 699,000 pace that was stronger than previously reported, Commerce Department figures showed. The median estimate of 80 economists surveyed by Bloomberg News called for a rise to 685,000. The Federal Reserve’s report on industrial production showed that gains in auto manufacturing and utility use propelled growth.

The Stoxx Europe 600 Index slipped 0.6 percent and has retreated 10 percent from this year’s high on March 16. A.P. Moeller-Maersk A/S tumbled 6.2 percent after saying its container line will at best break even this year, falling short of analyst estimates for a profit. Banco Espirito Santo SA, Portugal’s biggest publicly traded lender by market value, sank 8.3 percent as first-quarter profit dropped 84 percent.

A Greek caretaker government will prepare new elections probably on June 17 that are shaping up as a ballot on whether the country should remain a euro member. The new vote follows inconclusive May 6 elections that pushed a political party opposed to Greece’s international bailout into second place.

European Central Bank President Mario Draghi indicated that while his “strong preference” is that Greece stays in the euro area, the bank won’t compromise on its principles to prevent an exit.

German CDS

Investors are amassing record amounts of insurance on German government debt on concern Europe’s biggest economy will suffer from the region’s worsening crisis.

The net amount of credit-default swaps outstanding on German bonds surged for a fourth week, climbing by $260 million in the period through May 11 to $20.5 billion, according to the Depository Trust & Clearing Corp. That’s up from $16.1 billion last June.

The MSCI Emerging Markets Index fell 2.4 percent to a three-month low. The Hang Seng China Enterprises Index of mainland stocks sank 3.4 percent and South Korea’s Kospi index slipped 3.1 percent. The Shanghai Composite Index fell 1.2 percent, and benchmark gauges in India and Hungary lost at least 1.8 percent.

The MSCI BRIC Index (MXBRIC) for shares in Brazil, Russia, India and China tumbled for a fourth day, wiping out this year’s gains, as concern deepened that China’s economic growth is slowing and Europe’s debt crisis spreading.

Foreign direct investment in China sank for a sixth month in April, the longest stretch of declines since the global financial crisis, according to the Ministry of Commerce.

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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