U.S. Stocks Gain While Treasuries Drop Amid Budget Talks

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Traders work on the floor of the Frankfurt Stock Exchange in Frankfurt. Close

Traders work on the floor of the Frankfurt Stock Exchange in Frankfurt.

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Photographer: Ralph Orlowski/Bloomberg

Traders work on the floor of the Frankfurt Stock Exchange in Frankfurt.

U.S. stocks rose, sending the Standard & Poor’s 500 Index to an almost two-month high, as investors weighed prospects for a budget deal in Washington. The yen fell to 20-month low as the Liberal Democratic Party returned to power on calls for more monetary easing.

The S&P 500 rose 1.2 percent to 1,430.36 at 4 p.m. in New York, its highest closing level since Oct. 22. Ten-year Treasury yields increased seven basis points to 1.77 percent. Gold erased earlier losses, while sugar, natural gas, coffee, cotton and oil led gains in commodities. The yen weakened 0.4 percent and the Nikkei 225 Index closed at the highest level since April.

President Barack Obama is considering a possible budget concession on Social Security cost-of-living increases after House Speaker John Boehner dropped his opposition to raising tax rates for some top earners, said two people familiar with the talks. The two met for about 45 minutes at the White House today with two weeks remaining to avoid the so-called fiscal cliff.

“It’s a historic tug-of-war, pulling on one side is the fiscal cliff, pulling the other side is continued global monetary easing,” David Sowerby, a portfolio manager at Boston- based Loomis Sayles & Co., said in a telephone interview. His firm oversees about $175 billion. “The rhetoric is heightened in that they will bring us right to the brink.”

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Japanese ten-thousand yen banknotes are arranged for a photograph in Kawasaki, Kanagawa Prefecture, Japan. Close

Japanese ten-thousand yen banknotes are arranged for a photograph in Kawasaki, Kanagawa... Read More

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Photographer: Akio Kon/Bloomberg

Japanese ten-thousand yen banknotes are arranged for a photograph in Kawasaki, Kanagawa Prefecture, Japan.

N.Y. Manufacturing

S&P 500 futures maintained gains before the open of exchanges even after manufacturing in the New York region shrank more than forecast, showing weakness in the industry is persisting. The Federal Reserve Bank of New York’s general economic index dropped to minus 8.1, the fifth month of contraction, from minus 5.2 in November. The median forecast of 55 economists in a survey called for minus 1. Readings less than zero signal contraction.

Compuware Corp. rallied 13 percent after activist investor Elliott Management Corp. offered to buy the company for $2.3 billion. American International Group Inc. rose 3 percent on plans to sell as much as $6.5 billion of AIA Group Ltd. shares. Apple Inc. climbed 1.8 percent after dropping below $500 in premarket trading for the first time since February.

Smith & Wesson Holding Corp. led a decline in stocks of firearms makers amid talks about gun control following last week’s elementary school shooting that left 20 children dead. Smith & Wesson slid 5.2 percent and has lost 9.3 percent in two days.

Photographer: Tomohiro Ohsumi/Bloomberg

Shinzo Abe, president of the Liberal Democratic Party (LDP). Close

Shinzo Abe, president of the Liberal Democratic Party (LDP).

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Photographer: Tomohiro Ohsumi/Bloomberg

Shinzo Abe, president of the Liberal Democratic Party (LDP).

Budget Debate

The S&P 500 tumbled as much as 5.3 percent since the Nov. 6 election set the stage for a budget showdown between Obama and House Republicans. It erased that retreat last week before turning lower in the final two sessions. The Congressional Budget Office says the U.S. will probably tumble back into a recession should lawmakers fail to reach an accord on the more than $600 billion in automatic tax increases and spending cuts scheduled to start Jan. 1.

The budget debate is holding stocks hostage, as chief executive officers prepare to cut capital spending for the first time since 2009 should Obama and Congress fail to reach an accord. Expenditures by S&P 500 companies will fall 1.3 percent in 2013 after three years of growth, according to more than 10,000 analysts’ estimates compiled by Bloomberg.

Telecommunications companies posted the biggest decline of the 19 industries in the Stoxx Europe 600 Index (SXXP), falling 1.1 percent as a group. Royal KPN NV tumbled 15 percent, its biggest plunge in more than a decade. The phone operator scrapped its final dividend for 2012 after winning a spectrum auction in the Netherlands. Vodafone Group Plc fell 1.7 percent, Deutsche Telekom AG lost 0.3 percent and Tele2 AB dropped 1 percent. The three also bought frequencies.

Clothing Retailer

Aggreko Plc slumped 22 percent, the most in more than 10 years, after the world’s largest provider of mobile-power supplies said that profit will drop in 2013 and it will make provisions of $85 million for bad debts. Hennes & Mauritz AB (HMB) gained 3.4 percent after Europe’s second-largest clothing retailer reported better-than-expected November sales.

Telecom and banking stocks are among those being sold today after being “overperformers of last week,” Arnaud Scarpaci, a fund manager at Agilis Gestion SA in Paris, who helps oversee about 60 million euros, said in a telephone interview. “There is no closure on the fiscal cliff.”

Yearly Returns

The Stoxx 600, Europe’s benchmark gauge, has advanced 14 percent this year amid increased confidence that policy makers are gaining control over the region’s debt crisis. The S&P 500 has climbed almost 14 percent and the MSCI Asia Pacific Index has risen about 12 percent in 2012.

The yen weakened 0.4 percent to 83.89 per dollar. Three years after surrendering half a century of control, Japan’s LDP reclaimed power in a landslide election victory yesterday, calling for more government spending and central bank stimulus.

The Japanese currency has lost 12 percent this year, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar declined 3.1 percent in the period and the euro dropped 1.5 percent.

Gold for February delivery gained 0.1 percent to $1,698.20 an ounce. Bullion is headed for a 12th consecutive yearly gain. Crude oil rose 0.5 percent to $87.20 a barrel in New York. U.S. natural gas futures rose 1.3 percent to $3.358 per million British thermal units, rising for the first time in eight sessions, as revised forecasts showed below-normal U.S. temperatures that would spur demand for heating fuel.

The MSCI Emerging Markets Index fell 0.3 percent, the first decline in nine days, as suppliers to Apple tumbled after Citigroup cut its estimates for iPhone shipments. Hon Hai Precision Industry Co., (2317) the world’s largest contract maker of electronics, fell 4.7 percent in Taipei.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net

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