U.S. Stocks Fall, Treasuries Erase Drop on ISM, Shutdown

U.S. stocks tumbled as a report showed weaker-than-forecast growth in service industries and partial government shutdown entered a third day. Treasuries reversed losses, while gold pared an earlier slide.

The Standard & Poor’s 500 Index fell 0.7 percent at 10:15 a.m. in New York and the Stoxx Europe 600 Index slipped 0.2 percent, with both gauges trading below-average volume. Ten-year Treasury yields were down one basis point at 2.61 percent after rising three points earlier, while the cost of insuring the debt climbed to a six-month high. Gold dropped 0.4 percent to $1,315.10 an ounce. The MSCI Emerging Markets Index advanced 0.9 percent with the Malaysian ringgit and Indian rupee leading currencies higher. Spanish bonds stayed lower after the nation sold debt.

Stocks extended losses and Treasuries reversed declines as the Institute for Supply Management’s U.S. non-manufacturing index fell to 54.4 in September from 58.6 and below the median economist estimate of 57. The first face-to-face talks between President Barack Obama and congressional leaders failed to break the budget impasse yesterday. China’s non-manufacturing index rose to the highest level since March last month, according to the National Bureau of Statistics and Federation of Logistics and Purchasing.

“The fear is that the U.S. economy’s performance will suffer with the government shutdown,” said Adrian Zuercher, a global strategist at Credit Suisse (Hong Kong) Ltd., part of the Swiss bank’s asset-management unit that oversees about $433 billion. “The hard-landing fear in China is fading.”

Services Slow

U.S. futures and bonds pared losses before the open of exchanges in New York after a report showed fewer Americans than forecast filed applications for unemployment benefits last week. Jobless claims rose by 1,000 to 308,000 in the week ended Sept. 28, from a revised 307,000, the Labor Department said. The median forecast of 50 economists surveyed by Bloomberg called for a rise to 315,000.

The yield on 10-year Treasury notes climbed after dropping three basis points yesterday. The rate touched a high for the year of 3.005 percent on Sept. 6. The 10-year average is 3.53 percent.

The cost of insuring against losses on Treasuries rose, with credit-default swaps linked to U.S. government debt increasing 3.3 basis points to 36.2 basis points, the highest since April 4. That compares with a peak of 56 basis points in July 2011, when a political standoff threatened to shutter programs and delay bond payments.

Debt Protection

The amount of debt protected by default swaps has fallen to $3.4 billion dollars from $5.6 billion two years ago and compares with $13 billion of outstanding insurance on German bunds. There are 886 credit-default swaps contracts linked to U.S debt outstanding, according to the Depository Trust & Clearing Corp. There were 56 trades covering a gross $2.1 billion of Treasuries in the week through Sept. 27, compared with 10 trades the week before.

Spain’s 10-year bond yield climbed two basis points to 4.27 percent. The government sold 1.18 billion euros ($1.6 billion) of 2023 bonds priced to yield 4.269 percent, the lowest since Sept. 10. Italy’s yield increased three basis point to 4.39 percent.

The yen slid against 12 of its 16 major counterparts while the dollar slipped 0.3 percent to $1.3615 per euro after touching $1.3623, the weakest level since Feb. 4.

West Texas Intermediate oil slipped 0.2 percent to $103.94 a barrel. U.S. crude inventories climbed by 5.5 million barrels last week, Energy Information Administration data showed. They were forecast to rise by 2.5 million in a Bloomberg News survey.

China’s Economy

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong climbed 1.8 percent, the most in three weeks. The non-manufacturing purchasing managers’ index rose to 55.4 in September from 53.9 in August, the report showed. A number more than 50 indicates an expansion. Benchmark equity gauges in Taiwan, India and Thailand added at least 1.4 percent. The ringgit climbed 1 percent versus the dollar and the rupee strengthened 1.2 percent.

The Philippine peso advanced 0.7 percent and the main stock index added 0.4 percent, after falling as much as 0.9 percent. Moody’s Investors Service upgraded the country’s debt rating to investment grade and said the outlook is positive. The yield on the government’s dollar debt due January 2021 fell six basis points to 3.37 percent

Trading volume for shares in the Stoxx 600 was 12 percent below the 30-day average as Germany marked the German Unity Day holiday.

Finmeccanica SpA (FNC), Italy’s largest arms company, climbed 3.6 percent as Banca Akros upgraded the shares. The stock has rallied 15 percent this week.

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To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net; Stephen Kirkland in London at skirkland@bloomberg.net

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

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New York Stock Exchange

Scott Eells/Bloomberg

Traders work on the floor of the New York Stock Exchange (NYSE) in New York.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York. Photographer: Scott Eells/Bloomberg

9:49

Oct. 3 (Bloomberg) -- Jim Walker, managing director and founder at researcher Asianomics Ltd. in Hong Kong, talks about the economic outlook for the U.S. and Asian countries including Japan and China. He speaks with Susan Li and Rishaad Salamat on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

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Japan's Yen

Akio Kon/Bloomberg

The yen slid against all of its 16 major counterparts, falling most against Asian peers.

The yen slid against all of its 16 major counterparts, falling most against Asian peers. Photographer: Akio Kon/Bloomberg