S&P 500 Falls on Growth Concern as Treasuries Erase Gain

Most U.S. stocks fell and an index of emerging-market shares slid the most in almost two months as reports spurred concern the global economy is slowing. The euro weakened and Spanish bonds dropped, while commodities erased early losses and Treasuries reversed gains.

The Standard & Poor’s 500 Index fell less than 0.1 percent to 1,460.27 at 4 p.m. in New York, trimming an earlier slide of 0.8 percent as consumer-staple and energy shares advanced. The MSCI Emerging Markets Index slid 0.9 percent, the most since Aug. 2. The euro lost 0.6 percent to $1.2966, a one-week low. Ten-year Treasury yields were little changed at 1.77 percent after losing five points earlier. Oil fluctuated near a six-week low while the S&P GSCI commodities gauge rose 0.3 percent.

Concern about the world economy increased after reports showed euro-area services and manufacturing output fell to a 39- month low in September and China’s manufacturing probably contracted for an 11th month. A gauge of leading U.S. economic indicators fell and more Americans than forecast filed unemployment claims, while profit forecasts from Norfolk Southern Corp. and Bed Bath & Beyond Inc. disappointed investors.

“It’s a globally synchronized economic slowdown and the U.S. is not decoupling,” said Jeffrey Schappe, chief market strategist of Sterling Capital Management LLC, which oversees about $37 billion in investments. “You have to be careful trying to fight the Fed as an investor but it may not be enough to keep the U.S. out of a recession.”

Retreat From High

The S&P 500, which closed at the highest level since December 2007 last week after the Federal Reserve announced plans to buy mortgage securities to bolster the economy, retreated for the third time in four days. The index is up 16 percent in 2012.

Bed Bath & Beyond, the operator of more than 1,000 home- furnishing stores, dropped 9.8 percent after reporting second- quarter profit that trailed analysts’ estimates as discounts cut into profit margins. Norfolk Southern slid more than 9 percent as the second-biggest eastern U.S. railroad forecast third- quarter profit that trailed analysts’ estimates.

The S&P 500 pared early losses as ConAgra Foods Inc. jumped 6.2 percent, leading consumer-staples companies to the biggest gain among 10 groups, after boosting its profit forecast and dividend. Energy shares halted a three-day slump.

Stocks also recovered as the Financial Times reported that European Union authorities are working to pave the way for a new financial rescue for Spain. The plan will be announced on Sept. 27 and will focus on structural reforms to the Spanish economy requested by the EU, rather than new taxes and spending cuts, the newspaper said, citing officials involved in the talks.

Fed Watch

Fed Bank of Minneapolis President Narayana Kocherlakota said the central bank should hold the main interest rate near zero until unemployment falls below 5.5 percent, marking the first time he has linked policy to a specific economic goal. The jobless rate was 8.1 percent in August.

“Specifying 5.5 percent as an acceptable level goes further than what we’ve heard from even the most dovish Fed presidents,” Dan Greenhaus, chief global strategist at BTIG LLC in New York, wrote in a note to clients. “It’s less important now because the FOMC has already launched QE3 in an unending fashion, but virtually all, if not all, regional Fed presidents have weighed in and its amazing how far they’ve gone in terms of favoring easing.”

Benchmark indexes opened lower after Labor Department data showed jobless claims decreased by 3,000 last week to 382,000, above the median forecast of 375,000 from economists surveyed by Bloomberg projected

Economic Data

The index of U.S. leading economic indicators fell in August, led by a decline in new orders for manufacturing. The Conference Board’s gauge of the outlook for the next three to six months decreased 0.1 percent, matching the median economist forecast. The Fed Bank of Philadelphia’s general economic index increased to minus 1.9 in September from minus 7.1 the previous month. Economists forecast the gauge would improve to minus 4.5.

Treasuries erased gains as an auction of inflation-indexed notes drew the weakest demand in more than three years amid speculation that consumer prices may not rise as fast as their yields indicated following the Fed’s latest monetary stimulus plans. The $13 billion 10-year issue’s bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.36, the lowest level since April 2009.

TIPS Auction

Ten-year TIPS pared gains after the auction. Yields approached an all-time low earlier, falling as much as six basis points to negative 0.83 percent compared with a record minus 0.86 percent on Sept. 17. The rate ended the day at minus 0.74 percent after the auction.

The Stoxx Europe 600 Index slipped almost 0.2 percent as mining companies and automakers led losses. Anglo American Plc and Vedanta Resources Plc dropped at least 2.4 percent. Telenet Group Holding NV (TNET) jumped 13 percent after Liberty Global Inc., the John Malone-led cable-TV company operating outside the U.S., offered to buy the almost 50 percent of the Belgian company that it doesn’t own for 1.96 billion euros ($2.54 billion).

Germany’s 10-year bond yield declined five basis points to 1.57 percent and the rate on similar-maturity U.K. gilts dropped five basis points to 1.80 percent. Spain’s 10-year bond yield rose eight basis points to 5.77 percent as the government sold 4.8 billion euros of bonds, beating the 4.5 billion euro maximum target.

Euro Weakens

The euro declined against 14 of its 16 major counterparts, losing 0.8 percent versus the yen. Japan’s currency appreciated against 15 of its 16 main peers.

In emerging markets, the Shanghai Composite Index tumbled 2.1 percent to the lowest level since February 2009. The Hang Seng China Enterprises Index of mainland companies declined 1.4 percent. India’s Sensex index fell 0.8 percent and Russia’s Micex Index was little changed. Benchmark gauges in Poland, Malaysia and Egypt lost at least 1 percent.

“We’re very concerned about the near-term outlook for the global economic picture,” Peter Elston, the head of Asia- Pacific strategy at Aberdeen Asset Management, said in a Bloomberg TV interview from Hong Kong today. “There’s some fairly significant weakness just around the corner. We’re fairly cautious.” His firm oversees about $270 billion.

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Michael P. Regan in New York at mregan12@bloomberg.net

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

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