Treasuries gained, gold surged to a record and the dollar tumbled to a 15-year low against the yen on speculation the Federal Reserve will purchase as much as $1 trillion in bonds to bolster the economy. U.S. stocks declined.
The 10-year Treasury yield slid 9 basis points to 2.67 percent at 4 p.m. in New York. Gold futures surged as much as 2.4 percent to $1,276.50 an ounce, while the Dollar Index, which gauges the U.S. currency against six major trading partners, slumped 0.9 percent and the Swiss franc touched $1 for the first time this year. The Standard & Poor’s 500 Index fell 0.1 percent to 1,121.10, erasing gains of as much as 0.5 percent, as a slump in financial shares offset a rally by technology companies.
A total of $1 trillion in bond purchases would improve stability in financial markets and boost real gross domestic product by as much as 0.4 percentage point, Goldman Sachs Group Inc.’s chief economist Jan Hatzius said. The central bank’s Federal Open Market Committee will meet next week to set policy.
“The Fed has a couple of more bullets in the chamber,” said Michael Nasto, senior trader at U.S. Global Investors Inc., which manages about $2.5 billion in San Antonio. “There’s expectation of monetary easing through bond purchases. That would be a mild positive for the economy. That explains why stocks and bonds are rising and the U.S. dollar is selling off.”
The MSCI World Index of stocks in 24 developed nations rose for a fifth day, the longest streak of gains since June, with a 0.3 percent advance. The global measure dropped earlier after German investor confidence slumped to a 19-month low and concerns grew that China will cool its real-estate market.
U.S. equities swung between gains and losses during the final hour of trading, before closing lower, as Bank of America Corp. dragged down financial stocks, offsetting a rally in technology shares.
The Association of Financial Guaranty Insurers told Bank of America, the largest U.S. lender by assets, it should repurchase as much as $20 billion in home loans that were based on wrong or missing information, according to letter obtained by Bloomberg News. Bank of America shares slumped 1.9 percent and Wells Fargo & Co. dropped 1.7 percent.
Cisco Systems Inc. climbed 0.9 percent, helping lead a measure of technology companies to the biggest gain among 10 groups in the S&P 500, after saying it will start paying a dividend this fiscal year. The “current thinking” is for a dividend yield of 1 percent to 2 percent, according to a presentation at the annual analyst conference today at Cisco’s headquarters in San Jose, California.
Two-year Treasury yields slipped 3 basis points to 0.5 percent, while 30-year yields lost 6 basis points to 3.79 percent.
Bond investors are growing more convinced that Fed Chairman Ben S. Bernanke will push Treasury yields down to the levels of the 1950s with another round of asset purchases.
Goldman Sachs Group Inc. and Pacific Investment Management Co. project the Fed will resume quantitative easing by buying government debt as soon as this year to prevent what they see as a 25 percent chance the economy will slip back into a recession. Bank of America says the central bank will send the 10-year note yield to a record low of 1.75 percent in the first quarter of 2011.
If Fed officials engage in further easing, Hatzius said, they may announce their purchases in increments, rather than announcing a large “shock and awe” sum. Goldman Sachs correctly projected yields will slide in 2010 as the recovery faltered, and forecasts the 10-year note will end the year at 2.5 percent. Hatzius said he doesn’t expect an announcement at the September meeting, while one is possible in November or December.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, said he has “played down” the possibility of the Fed announcing a major asset-purchase plan in November.
“The bar to more Fed action is a significant deterioration of the economy, which we did not expect,” he wrote in a note to clients. “The FOMC meeting in November is a day after the election, which would give it an air of political considerations.”
Gold futures for December delivery rose $24.60, or 2 percent, to $1,271.70 an ounce on the Comex in New York after touching $1,276.50. The previous all-time high was $1,266.50 on June 21.
Gold, heading for the 10th straight annual gain, has offered insurance against fluctuations in the dollar and the euro, and the metal has outperformed most stocks and bonds this year. The Fed and the European Central Bank have kept benchmark lending rates at the lowest level ever to revive the economy.
The dollar weakened against all but one of 16 most-traded peers, dropping to parity with the Swiss franc for the first time since December and falling to $1.30 versus the euro for the first time since Aug. 11. The yen traded below 83 per dollar for the first time since 1995 after Prime Minister Naoto Kan beat Ichiro Ozawa in a party vote today, reducing the likelihood the government will step in to weaken the currency.
The Dollar Index has dropped 1.9 percent in the last two days, the most since July 2.
China’s yuan surged to the strongest level since 1993 on speculation the government will allow appreciation to head off U.S. trade sanctions as its economy improves. The currency gained 0.2 percent to 6.7469 per dollar and touched 6.7400, the strongest level since the central bank unified official and market exchange rates at the end of 1993.
European stocks were little changed, with the Stoxx Europe 600 Index closing near a four-month high, as better-than-estimated U.S. retail sales offset a selloff in utilities and a slump in German investor confidence. The ZEW Center for European Economic Research showed German investor confidence fell more than economists forecast to a 19-month low in September.
The MSCI Asia Pacific Index climbed 0.4 percent, rising for a fourth straight day.
Other commodities rallied amid speculation potential quantitative easing by the Fed will stoke inflation. The S&P GSCI Total Return Index climbed 0.3 percent to a one-month high.
Cotton extended a rally to a 15-year high amid tightening supplies, with December futures surging 1.9 percent to 94.5 cents a pound. Corn futures rose to the highest price in almost two years on speculation that the U.S. crop will be smaller than the government forecast. Corn for December delivery rose 11.5 cents, or 2.4 percent, to close at $4.95 a bushel in Chicago.