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U.S. Stocks, Commodities Gain as Dollar Falls Before Fed

U.S. stocks climbed with commodities while the dollar weakened as investors speculated the Federal Reserve will announce more stimulus plans. Treasuries fell, while European shares erased early losses.

The Standard & Poor’s 500 Index climbed 0.3 percent at 4 p.m. in New York while natural gas, coffee and cattle added more than 1 percent to lead commodities higher. The Stoxx Europe 600 Index rose 0.3 percent, reversing a 0.6 percent drop. The dollar slid versus all 16 major peers, with the euro up 0.8 percent to $1.2858 after a German court said it won’t delay a decision tomorrow on the country’s role in a bailout fund. Ten-year Treasury yields rose four basis points to 1.70 percent.

The Federal Open Market Committee will start a two-day meeting tomorrow amid speculation it will introduce a third round of asset purchases. Germany’s Federal Constitutional Court is due to rule tomorrow on participation in the 500 billion-euro ($640 billion) fund, while Greek politicians meet amid an impasse on spending cuts needed for a bailout.

“Everybody is waiting to see what the Fed and German court will do,” Greg Peterson, director of investment research at Ballentine Partners LLC in Waltham, Massachusetts, which has about $4 billion in assets, said in a telephone interview. “The Fed has come out and said that things are weakening and that they’re willing to act. Bernanke is really playing the steady course and emphasizing that they have more ammo. I’m not sure they’re going to announce QE3 but they’re trending in that direction.”

Bernanke’s Concern

The S&P 500 rebounded following yesterday’s 0.6 percent drop. Fed Chairman Ben S. Bernanke said on Aug. 31 that the weak jobs market was a “grave concern.” A gauge of market expectations for additional stimulus rose to record 99 percent in August, according to Citigroup Inc.

Alcoa Inc., Bank of America Corp. and Hewlett-Packard Co. climbed at least 3 percent to lead gains in the Dow Jones Industrial Average. Green Mountain Coffee Roasters Inc. jumped 5.9 percent after Luigi Lavazza SpA increased its stake in the company.

Two-year Treasury yields were little changed at 0.25 percent, while rates on 30-year bonds increased 4.5 basis points to 2.85 percent.

Treasuries pared losses after an auction of $32 billion in U.S. three-year debt, the first of three note and bond sales this week, attracted record demand. A gauge of inflation expectations approached the highest level since March. Moody’s Investors Service said it may cut the U.S. credit rating if Congress fails to agree on a plan to reduce the nation’s ratio of debt to gross domestic product.

Economic Data

Confidence among small businesses in the U.S. climbed in August for the first time in four months as more companies anticipated a pickup in hiring and sales. The National Federation of Independent Business’s optimism index rose to 92.9 from a nine-month low of 91.2 in July. Government data showed the U.S. trade deficit widened in July for the first time in four months as the global economic slowdown reduced demand for American-made goods.

The dollar declined the most against the New Zealand and Australian dollars, losing more than 1 percent, and the Dollar Index sank 0.7 percent to its weakest level since May 8.

Burberry Group Plc (BRBY) tumbled 21 percent and led losses in Britain’s FTSE-100 Index after saying full-year profit will be at the lower end of analyst estimates amid slowing sales growth. Hugo Boss AG, LVMH Moet Hennessy Louis Vuitton SA, Cie. Financiere Richemont SA and Ralph Lauren Corp. retreated more than 2 percent.

Euro Strengthens

The euro strengthened against 13 of its 16 major peers, climbing as much as 0.9 percent to $1.2871, the strongest level since May.

The S&P GSCI Index of commodities climbed for a fourth straight day, rising 0.5 percent to the highest level since May.

Crude for October delivery gained 63 cents, or 0.7 percent, to $97.17 a barrel on the New York Mercantile Exchange, the highest settlement since Aug. 22. Its five-day increase is the longest since July 19. Prices are 1.7 percent lower this year.

The MSCI Emerging Markets Index (MXEF) added 0.3 percent for a fourth straight gain, its longest rally in a month. The Shanghai Composite Index (SHCOMP) slipped 0.7 percent after auto sales missed analysts’ estimates and Macquarie Group Ltd. cut its economic growth estimate for the country. India’s Sensex rose 0.5 percent.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Jason Clenfield in Tokyo at jclenfield@bloomberg.net

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

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