U.S. Stocks Retreat, Treasuries Gain on Spain Skepticism

U.S. stocks fell, while the euro and commodities erased early rallies, as optimism over Spain’s bailout plan gave way to skepticism that the rescue will succeed in taming the European debt crisis. Treasuries advanced.

The Standard & Poor’s 500 Index lost 1.3 percent to 1,308.93 at 4 p.m. in New York after climbing as much as 0.7 percent in the first minutes of trading. Futures on the gauge surged as much as 1.5 percent before U.S. markets opened. The euro weakened 0.3 percent to $1.2484 after adding 1.2 percent. Oil fell to an eight-month low, reversing a 3 percent jump, and the S&P GSCI Index of commodities slid 1 percent. Ten-year Treasury note yields decreased five basis points to 1.59 percent after increasing nine basis points earlier.

Spain asked euro-region governments over the weekend for as much as 100 billion euros ($126 billion) to help shore up its banking system. Spanish and Italian bonds rallied as European markets opened, only to erase the gains as costs of default swaps to protect Spanish government debt rose. Spain’s benchmark stock index reversed an almost 6 percent gain.

“The Spanish deal is another Band-Aid,” Matt McCormick, who helps oversee $6.2 billion at Bahl & Gaynor Inc. in Cincinnati, said in a telephone interview. “Many investors are viewing this with skepticism. The problem is not going to be fixed by this amount. It’s not a solution, and people know the difference. Expect more volatility not less.”

Lingering Crisis

European officials have failed to control the debt crisis that started in Greece at the end of 2009 and has now required a bailout of the euro area’s fourth-largest economy. Concern about a deepening of the region’s turmoil almost drove the S&P 500 into a bear market last year as the index tumbled more than 19 percent between April 29 and Oct. 3. Since then, the index surged as much as 29 percent to a four-year high in April, then lost 6.6 percent through last week.

Gauges of financial, commodity and technology shares lost more than 1.7 percent to lead declines among the 10 main groups in the S&P 500, while telephone and utility companies performed the best. Hewlett-Packard Co., Bank of America Corp. (BAC), Caterpillar Inc. and JPMorgan Chase & Co. (JPM) slid more than 2.5 percent to lead the Dow Jones Industrial Average down 142.97 points to 12,411.23.

Nvidia Corp. (NVDA) rallied 1.2 percent after Apple Inc. (AAPL) said its latest MacBook Pro computer uses a new Nvidia graphics chip. Apple slid 1.6 percent, erasing a 1.4 percent rally, as it introduced new computers at its developers conference.

Long Bond

Thirty-year U.S. bonds rose for the first time in six sessions, sending yields down three basis points to 2.72 percent. The rate is up from a record low of 2.5089 percent on June 1.

The average yield on bonds issued by the Group of Seven nations has fallen to 1.120 percent from 3 percent in 2007, Bank of America Merrill Lynch index data show. Germany’s two-year note yield fell below zero for the first time on June 1, while Switzerland’s has been negative since April 24, meaning investors are paying for the right to lend the nation money.

The Stoxx Europe 600 Index (SXXP) ended the session little changed after increasing as much as 1.9 percent. Banco Santander SA fell 0.3 percent, erasing a gain of as much as 9.7 percent. Bankinter SA rose 0.5 percent and Banco Bilbao Vizcaya Argentaria SA was little changed after each jumped more than 10 percent earlier.

The IBEX-35 Index of Spanish stocks slipped 0.5 percent, reversing a 5.9 percent rally. Greece’s ASE Index rose 0.8 percent, paring an earlier 4.5 percent jump.

French Production

France’s CAC 40 Index lost 0.3 percent. The benchmark gauge surged as much as 2.3 percent earlier as industrial production increased 1.5 percent in April. Economists had predicted a 0.1 percent decline.

The Dollar Index was little changed after earlier slumping as much as 1 percent. Norway’s krone strengthened against 14 of 16 major peers, climbing 0.2 percent versus the dollar, after data showed consumer prices rose more than estimated last month.

Spain’s two-year yield rose 28 basis points to 4.57 percent, after falling to as low as 3.94 percent, on concern investors holding the securities may rank behind official creditors in seniority following the bailout. Italy’s 10-year yield jumped 26 basis points to 6.03 percent, the highest since January.

“We’ve seen these dominoes fall: Greece, Ireland, Portugal, now Spain is getting on the dole and the next big one to be watching is Italy,” Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co. in New York, told Bloomberg Television. “And when Italy comes into pressure, I’m suggesting we have to be careful with France too.”

Commodities

Nickel, copper and zinc rose at least 1.2 percent to lead gains among 10 of 24 commodities in the S&P GSCI Index, while natural gas and oil fell the most. Oil futures slid 1.7 percent to $82.70 a barrel, the lowest settlement since Oct. 6.

Goldman Sachs Group Inc. said today it expects a 29 percent return for commodities over the next 12 months. Gains for raw materials will be led by a 41 percent jump in energy and 23 percent gain in industrial metals, Goldman Sachs said.

The MSCI Emerging Markets Index rose 1.1 percent. The Hang Seng China Enterprises Index of mainland companies climbed 2.4 percent, the most in two months, after China’s exports grew last month at more than double the pace analysts estimated and crude oil imports rose to a record. Overseas shipments climbed 15.3 percent from a year earlier, exceeding all 29 estimates in a Bloomberg News survey. Benchmark gauges in South Korea, Taiwan, Thailand and Indonesia increased at least 1 percent.

India’s Sensex slipped 0.3 percent, reversing a 1.1 percent gain after S&P said the country may lose its investment-grade rating.

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

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