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S&P 500 Snaps Two-Day Rally Amid Concern About Economy

U.S. stocks declined amid concern that a rally which gave the Standard & Poor’s 500 Index its biggest two-day gain in 2012 has outpaced the economic outlook.

JPMorgan Chase & Co. (JPM) retreated 2 percent after Deutsche Bank AG lowered its recommendation for the shares. Loews Corp. (L) slumped 5.2 percent as Chief Executive Officer James Tisch said he’s “very concerned” about the global economy after profit fell for a third-straight quarter. A measure of homebuilders in S&P indexes dropped 2 percent as Citigroup Inc. said the industry’s shares may decline after this year’s surge.

Three stocks fell for every two that rose on U.S. exchanges at 4 p.m. New York time. The S&P 500 (SPX) declined 0.1 percent to 1,385.30, after rallying 3.6 percent in two days. The Dow Jones Industrial Average slid 2.65 points, or less than 0.1 percent, to 13,073.01. Volume for exchange-listed stocks in the U.S. was 5.8 billion shares, or 14 percent below the three-month average.

“You have the jobs report on Friday, the Fed meeting before that and that’s getting people a little nervous,” said Keith Wirtz, who oversees $14.7 billion as chief investment officer for Fifth Third Asset Management in Cincinnati. “You’ve got concerns about a weakening economy and slowing earnings. It’s a terribly difficult trading environment.”

Stocks declined ahead of an Aug. 3 report that may show the pace of hiring in July failed to reduce the U.S. jobless rate, which has been stuck above 8 percent for more than three years. Policy makers meeting this week are looking for new monetary tools after the Federal Reserve lowered its benchmark interest rate to near zero in December 2008 and purchased $2.3 trillion of securities to spur the economy.

European Rally

American equities fell even as European stocks rallied to their highest level since April on speculation policy makers will take action to ease the debt crisis. U.S. Treasury Secretary Timothy F. Geithner and German Finance Minister Wolfgang Schaeuble backed a commitment by European leaders to do everything needed to defend the euro area while failing to mention its weakest link, Greece.

“Policy makers are saying: hey, we have another card to play,” said Ann Miletti, fund manager for Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin. Her firm manages $201 billion. “It’s a positive to have indications out of Europe that they are willing to do things that the market feared they weren’t willing to do before, such as buying bonds.”

JPMorgan lost 2 percent, the most in the Dow, to $36.14. The shares were cut to hold from buy at Deutsche Bank, which said earnings expectations may be too high.

Earnings Tumble

Loews slumped 5.2 percent, the biggest decline since Aug. 10, to $39.54. It has been pursuing growth at subsidiaries that sell insurance, manage hotels and produce energy. Second-quarter profit fell 78 percent to $56 million as the company took an impairment at its HighMount Exploration & Production LLC tied to lower natural gas prices.

Nine out of the 11 stocks in a measure of homebuilders in S&P indexes retreated. The gauge had surged 51 percent this year through July 27. PulteGroup Inc. (PHM), the largest U.S. homebuilder by revenue, declined 3.4 percent to $11.60 after Citigroup downgraded the stock to neutral from buy.

Solar companies slumped on concern an oversupply of panels and reduced subsidies in Europe will erode revenue. Trina Solar Ltd. (TSL) sank 11 percent to $4.84 after cutting its forecast for second-quarter shipments. Suntech Power Holdings Co. tumbled 15 percent to $1.34 after the world’s largest solar-panel maker said it may have been the victim of fraud.

Progenics Pharmaceuticals Inc. (PGNX) plunged 50 percent, the most since 2008, to $5.39. The company failed to gain U.S. approval to expand use of its constipation medicine Relistor licensed to Salix Pharmaceuticals Ltd. Salix decreased 13 percent to $46.25.

Best Buy

Best Buy Co. (BBY) rose 1.7 percent to $18.06. Founder Richard Schulze is recruiting executives to help lead the retailer if his attempt to take the company private is successful, according to a senior Best Buy executive.

Shaw Group Inc. (SHAW) surged 55 percent to $41.49. Chicago Bridge & Iron Co. agreed to buy the company for about $3 billion, expanding its nuclear building services in a portfolio of energy-related engineering and construction projects. Chicago Bridge lost 14 percent to $34.94.

Roper Industries Inc. (ROP) rose 1.1 percent to $99.64 after agreeing to buy Sunquest Information Systems Inc. for about $1.42 billion to add health-care diagnostic systems that bridge its software and medical businesses.

Franklin Resources Inc. (BEN) rallied 2.8 percent to $115.39. The manager of the Franklin and Templeton mutual funds beat analysts’ estimates after gathering money into its funds amid sagging global markets.

New CEO

Supervalu Inc. (SVU) surged 13 percent to $2.24. The supermarket chain that said earlier this month it will review strategic alternatives named board member Wayne C. Sales chief executive officer to replace Craig Herkert. The third-largest U.S. grocery chain increased the interest rate and price discount on an $850 million term loan it’s seeking to refinance debt, according to a person with knowledge of the matter.

TRW Automotive Holdings Corp. climbed 5.5 percent to $36.42. The world’s biggest vehicle-safety equipment supplier agreed to pay a $5.1 million fine to settle an antitrust investigation by the U.S. Department of Justice.

AT&T Inc. (T) added 0.8 percent $37.43. The biggest U.S. telephone company said July 27 its board authorized a repurchase of as much as $11.1 billion in stock, doubling a buyback program the company announced in December 2010.

The Chicago Board Options Exchange Volatility Index has fallen to the lowest daily average in five years, pushed down amid optimism that policy makers will support growth and prevent Europe’s debt crisis from derailing the global recovery.

Below Average

The VIX’s mean rate of 18.9 in 2012 compares with 24.2 last year and is the lowest since 17.5 in 2007, according to data compiled by Bloomberg. The benchmark gauge for options that protect against losses in the S&P 500 has held below 20.7, its two-decade average, 77 percent of the time in 2012.

Demand for options linked to the S&P 500 has fallen after the index rallied 6.2 percent during the past 12 months, the most among the world’s 10 largest developed stock markets.

“Investors aren’t paying for volatility because they believe that government intervention will put a floor on stock prices,” Sean Heron, who manages options strategies at Glenmede Trust Co., said in a phone interview last week. The Philadelphia-based firm oversees about $21 billion. “The fear of a big down market has been diminished.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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