U.S. Stocks Drop on Budget Concern; Euro, Treasuries Gain

Photographer: Scott Eells/Bloomberg

A trader works on the floor of the New York Stock Exchange (NYSE) in New York on Dec. 19, 2012. Close

A trader works on the floor of the New York Stock Exchange (NYSE) in New York on Dec. 19, 2012.

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Photographer: Scott Eells/Bloomberg

A trader works on the floor of the New York Stock Exchange (NYSE) in New York on Dec. 19, 2012.

U.S. stocks fell, pulling the Standard & Poor’s 500 Index down from a two-month high, as federal budget negotiations deteriorated. Global equities reached a 17-month high and the euro rose as German business confidence grew.

The S&P 500 lost 0.8 percent to 1,435.81 at 4 p.m. in New York after yesterday closing at the highest level since Oct. 18. Trading volume was 6.6 percent above the 30-day average. The MSCI All-Country World Index (MXWD) gained for a third day, rising 0.2 percent to the highest since July 2011. Ten-year Treasury yields slipped two basis points to 1.80 percent after reaching an almost two-month high yesterday. The euro touched an eight-month high versus the dollar. Energy led commodities higher after U.S. supply data.

House Speaker John Boehner’s “Plan B” would put “too big a burden on the middle class” and President Barack Obama would veto it, White House Communications Director Dan Pfeiffer said. Boehner replied that Obama will be responsible for “the largest tax increase in American history” if Democrats don’t accept the measure the House plans to pass tomorrow.

“Markets continue to be very much focused on fiscal-cliff resolution,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in an interview. His firm oversees $250 billion. “The move over the last few days has been supported by optimism that a deal will be reached by year-end. However, so far today we’re seeing a bit of caution as congressional leaders remain at different ends on several key issues.”

Photographer: Simon Dawson/Bloomberg

The euro strengthened after German business confidence increased. Close

The euro strengthened after German business confidence increased.

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Photographer: Simon Dawson/Bloomberg

The euro strengthened after German business confidence increased.

‘Plan B’

The House may vote tomorrow on Boehner’s plan, which would raise tax rates on income over $1 million, rather than the $400,000 threshold the president proposed in his latest offer. Boehner is looking to pressure Obama to accept deeper spending cuts and a higher threshold for rate increases by showing how tough it will be to win Republican support for any higher taxes.

The S&P 500 snapped a two-day rally as health-care, consumer-staples, utility and telephone shares led losses in all of the 10 main industry groups. The S&P 500 has gained 14 percent this year and is up 1.4 percent so far in December after the Federal Reserve extended its unprecedented monetary-stimulus efforts and economic data improved.

An S&P gauge of homebuilders trimmed its loss to 0.9 percent after slumping as much as 2.2 percent. Commerce Department data showed housing starts fell 3 percent to a 861,000 annual rate from a revised 888,000 annual pace in October. The median estimate of 85 economists surveyed by Bloomberg called for a drop to 872,000. Building permits, a proxy for future construction, advanced to a four-year high.

Market Movers

Alcoa Inc. (AA) slumped 3 percent as Moody’s Investors Service placed the aluminum producer under review for a credit downgrade. General Motors Co. jumped 6.6 percent to 10-month high on plans to purchase 200 million shares from the government. Oracle Corp. gained 3.7 percent, the most since June, after profit and sales beat estimates. Knight Capital Group Inc. rose to the highest since Aug. 3 after agreeing to be bought by Getco LLC.

Smith & Wesson Holding Corp. and Sturm Ruger & Co. rebounded after sliding for three days following a school shooting in Newtown, Connecticut, that killed 20 children and six adults. Smith & Wesson rose 7.2 percent today after plunging 18 percent in the previous three sessions, its biggest drop in three years. The stock had more than doubled this year before the Dec. 14 shooting.

Obama said his administration will come up with “concrete proposals” by next month to help stem gun violence and endorsed restrictions on military-style assault weapons and high-capacity ammunition clips. Obama said there is a growing consensus in the country for restricting high-powered weapons and urged Congress to hold votes on such measures early next year.

Oil Climbs

Oil rallied 1.8 percent to $89.51 a barrel, its highest settlement price in two months, and gasoline and heating oil climbed more than 1 percent to lead gains in the S&P GSCI Index of commodities after the U.S. Energy Department said crude stockpiles decreased last week. The S&P GSCI increased 0.7 percent, even as 13 of its 24 commodities retreated. Copper declined 1.2 percent as rising inventories signal demand is weakening. Natural gas futures dropped 2.9 percent, halting a two-day rally, as weather forecasts for late December and early January turned warmer.

European Markets

The Stoxx Europe 600 Index advanced 0.4 percent to the highest level since May. The regional benchmark is up 15 percent this year. HSBC Holdings Plc advanced 2 percent as banking shares contributed the most to the index’s advance. Stada Arzneimittel AG jumped 5.4 percent. Merck KGaA lost 2.1 percent after an experimental drug missed the main goal in a trial with lung-cancer patients.

UBS AG slipped 0.3 percent after it was today fined $1.5 billion by U.S., U.K. and Swiss regulators for trying to rig global interest rates, three times more than the 290 million pounds ($472 million) Barclays Plc agreed to pay in June.

Germany’s Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 102.4 from 101.4 in November. That’s the second straight increase after sentiment dropped to a 2 1/2-year low in October. Economists predicted a reading of 102, according to the median of 43 forecasts in a Bloomberg News survey.

Ten-year German bund yields rose to the highest level in more than two weeks, advancing two basis points, or 0.02 percentage point, to 1.43 percent. The euro was stronger against 13 of 16 major peers.

Greek Rally

Greece’s ASE Index rallied 4.8 percent, the biggest gain in more than a month, after Standard & Poor’s lifted the nation’s credit rating from selective default. The company cited the completion of Greece’s distressed debt buyback and the determination of euro-zone member states to preserve its membership in the bloc. Greek 10-year bonds rose for a third day, with the yield falling 132 basis points to 11.68 percent.

Japan’s Topix Index rallied 2.8 percent for the biggest jump in 21 months, while the yen depreciated against 12 of 16 major peers.

Volumes on the Topix were double their 30-day average at the close. Canon Inc. (7751), which counts Europe as its biggest market, climbed 6.5 percent. Toyota Motor Corp. (7203) added 3.5 percent. The shares also rose after Nikkei newspaper reported Asia’s biggest carmaker plans to boost vehicle production next year to 9.9 million units.

Yen Weakens

The yen fell 0.4 percent to 111.88 per euro, the weakest since August 2011. Japan’s currency declined 0.3 percent to 84.46 per dollar. The euro was 0.1 percent stronger at $1.3242, near the highest since April.

The yen is on track to weaken against 15 of its 16 major peers this year, losing the most against the Mexican peso and New Zealand dollar. The euro advanced 2.4 percent against the dollar so far this year and about 11 percent against the yen.

Emerging market stocks rose to the highest in eight months after the World Bank increased its growth forecast for East Asia. The MSCI Emerging Market Index added 0.7 percent, extending its advance this year to 15 percent. The BSE India Sensex 30 Index gained 0.6 percent and is up 26 percent this year.

The Philippine Stock Exchange Index jumped 2.1 percent, the most in six months, after the government forecast “robust” first-half economic growth. Thailand’s SET Index climbed 1.1 percent to the highest since February 1996.

Developing East Asia will probably grow 7.5 percent this year, compared with a previous 7.2 percent forecast, and expand 7.9 percent in 2013, the World Bank said, predicting 40 percent of this year’s global growth will come from the region.

To contact the reporters on this story: Michael Shanahan in London at mshanahan3@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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

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