U.S. stocks pared most of their early declines amid optimism President Barack Obama and Congress will reach a deal on the budget impasse. Treasuries trimmed gains; commodities reversed losses.
The Standard & Poor’s 500 Index closed down 0.1 percent at 1,418.10 at 4 p.m. in New York, trimming an earlier plunge of 1.3 percent, with trading volume 15 percent below the 30-day average. The VIX, the benchmark gauge of U.S. equity options, fell for the first time in six sessions. Ten-year Treasury yields dropped two basis points to 1.73 percent after earlier losing five points. The yen fell 0.5 percent to 86.05 per dollar, trading at the lowest level since August 2010.
Equities extended declines earlier as Senate Majority Leader Harry Reid said a resolution to the budget dispute before Jan. 1 appears unlikely because Republicans won’t cooperate, pushing the U.S. closer to more than $600 billion in automatic tax increases and spending cuts set to begin in January. Stocks recovered as the Republican-led House planned to convene on Dec. 30 as lawmakers seek to resolve the standoff.
Democratic and Republican leaders of the House and Senate plan to meet with Obama tomorrow, Senator Dick Durbin said after the close of U.S. markets. Whether there will be more budget- related Senate votes before the end of the year depends “a lot” on what happens at tomorrow’s meeting, Durbin said. S&P 500 stock futures were down 0.2 percent as of 5:30 p.m. in New York.
“The tones are really going to follow the back-and-forth rhetoric coming out of Washington until something is definitively announced,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in a telephone interview. His firm oversees $250 billion.
House Majority Leader Eric Cantor announced the Dec. 30 session today in a message posted on Twitter. He said that the House may meet through Jan. 2. The next session of Congress is scheduled to convene the following day. The first votes on Dec. 30 are planned at about 6:30 p.m., Cantor said.
Treasury Secretary Timothy F. Geithner said yesterday the government will hit its statutory debt ceiling on Dec. 31 and he will take “extraordinary measures” to postpone a U.S. default for about two months, allowing more time for lawmakers to agree on a deficit-reduction deal.
The S&P 500 fluctuated in early trading before turning lower after a report showed the budget impasse helped trigger a worse-than-forecast drop in the Conference Board’s index of consumer confidence in December. The sentiment gauge slid to 65.1, below the median forecast of economists in a Bloomberg survey for a reading of 70 and down from the revised 71.5 reading for the prior month.
Other reports showed U.S. jobless claims fell by 12,000 to 350,000 last week, less than the 360,000 median estimate in a survey of economists. Purchases of new homes climbed 4.4 percent to a 377,000 annual pace, the most since April 2010, following a revised 361,000 rate in October, the Commerce Department reported today. The median estimate of 71 economists surveyed by Bloomberg called for sales to increase to 380,000.
Cisco Systems Inc., Alcoa Inc. and American Express Co. lost at least 0.8 percent to lead declines in 23 of 30 stocks in the Dow Jones Industrial Average, with the gauge closing down 18 points after tumbling more than 150 points earlier. Financial and commodity shares led losses in eight of the 10 main groups in the S&P 500 today, with only consumer-staples and consumer- discretionary companies gaining.
Marvell Technology Group Ltd. fell 3.5 percent after being downgraded by JMP Securities LLC. BCD Semiconductor Manufacturing Ltd. rallied 86 percent after Diodes Inc. agreed to buy the company for $151 million.
The VIX (VIX), as the Chicago Board Options Exchange Volatility Index is known, fell less than 0.1 percent to 19.47 today. The gauge had jumped 25 percent in the previous five sessions for its biggest advance since May.
Cotton, cattle and lean hogs lost at least 0.4 percent to lead declines in 13 of 24 commodities tracked by the S&P GSCI Index, while sugar, zinc and copper rose more than 1.3 percent to leave the gauge little changed after a 0.5 percent early slump. Crude oil fell from the highest level in more than two months, slipping 11 cents to settle at $90.87 a barrel.
The Stoxx Europe 600 Index closed up less than 0.1 percent after gaining as much as 0.3 percent. The regional benchmark has rallied 15 percent in 2012, on course for the biggest annual gain since 2009. Bankia (BKIA) plunged 20 percent as Spain’s bank- rescue fund said the lender has a negative value of 4.15 billion euros. Clariant AG, a Swiss chemical company, climbed 3 percent after selling units for 502 million Swiss francs ($550 million).
In European bond markets, Italian, Spanish and Greek debt declined, while U.K. gilts and German bunds advanced. Italian 10-year yields climbed six basis points to 4.53 percent after a debt auction.
Italy sold 3.25 billion euros of zero-coupon securities maturing in 2014 to yield 1.884 percent compared with 1.923 percent Nov. 27. The sale is the first since Prime Minister Mario Monti announced on Dec. 23 that he would consider being a candidate for premier in elections on Feb. 24-25.
The MSCI Asia Pacific Index rose 0.3 percent today, led by Japanese exporters and financial companies. The gauge has risen 13 percent this year. The Nikkei 225 Stock Average climbed 0.9 percent to the highest level since March 2011.
The yen was weaker against all 16 major peers tracked by Bloomberg. Japan’s consumer prices excluding fresh food fell 0.1 percent last month from a year earlier, according to the median estimate in a Bloomberg survey. That would be the sixth decline in seven months and compares with the Bank of Japan (8301)’s target of 1 percent inflation.
A drop in core consumer prices would support newly installed Prime Minister Shinzo Abe’s case to add stimulus.
Further depreciation of the yen versus the dollar is one of the surest bets going into the new year, according to John Taylor, founder and chairman of New York-based currency hedge fund FX Concepts LLC. The yen will weaken to 90 per dollar before a resumption in risk aversion prompts investors to return to traditional refuge currencies, he said.
The Japanese currency has tumbled 14 percent this year, the biggest drop among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar is the second-worst performer with a 3 percent slide, while the euro has lost 0.5 percent. Norway’s krone is the best performer, climbing 4.7 percent, the indexes show.
The Istanbul Stock Exchange National 100 Index advanced for a fourth day, rising 0.6 percent to a record 78,454.19. Turkey was raised to investment grade by Fitch Ratings last month.