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Stocks Drop on Bank Probe as Dollar Sinks on Fed Speculation

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Dollar, Stocks Fall As U.S. Data Casts Doubt on Recovery
The dollar has slumped against all 16 of its most-traded counterparts since August on mounting speculation that the Fed will pump cash into the economy to bolster the recovery. Photographer: Daniel Acker/Bloomberg

Oct. 14 (Bloomberg) -- U.S. stocks fell, with benchmark indexes retreating from five-month highs, amid growing scrutiny of bank foreclosure practices. The Dollar Index slid to the lowest level of 2010 as an increase in jobless claims fueled speculation the Federal Reserve will pump cash into the economy.

The Standard & Poor’s 500 Index fell 0.4 percent to 1,173.81 at 4 p.m. in New York. The Dollar Index, a gauge of the currency versus six major peers, sank 0.7 percent to 76.546 and the dollar slid below 81 yen for the first time since 1995. Cotton and gold reached records and the Thomson Reuters/ Jefferies CRB Index of commodities rose to the highest level since October 2008. Treasuries slid after a 30-year bond sale.

An index of financial shares in the S&P 500 slumped 1.8 percent after attorneys general in all 50 states launched a coordinated probe of bank actions that led to record foreclosures. The unexpected rise in jobless claims and an increase in the trade deficit to $46.3 billion in August added to signs that the Fed may decide to buy Treasuries to suppress borrowing costs and bolster the recovery.

“Investors are spooked,” said Mark Bronzo, a money manager in Irvington, New York, at Security Global Investors, which oversees $21 billion. “You have concern over foreclosure practices. That’s hitting pretty hard the stocks of big banks because people fear that’s another risk to earnings. Investors want to know that the worst is over in terms of the outlook for the industry.”

Banks Lead Drop

The S&P 500 closed yesterday at the highest level since before the May 6 market crash as higher-than-estimated earnings bolstered optimism. Financial stocks were the biggest drag on the index today, with Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. slumping at least 4.2 percent.

The National Association of Attorneys General announced yesterday that all 50 states will conduct a coordinated inquiry into whether banks and loan servicers used false documents and signatures to justify hundreds of thousands of foreclosures.

A benchmark indicator of corporate credit risk in the U.S. climbed for the third time this month. Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 2.9 basis points to a mid-price of 98.4 basis points, according to index administrator Markit Group Ltd.

Yahoo Speculation

Yahoo! Inc. jumped 4.5 percent today after three people familiar with the matter said it is working with Goldman Sachs Group Inc. to defend against takeover approaches. EMC Corp., the biggest maker of storage computers, rallied 4.5 percent after London’s Evening Standard reported that “gossips reckon” the company may be purchased by Oracle Corp. or Microsoft Corp.

Apollo Group Inc. plunged 23 percent to lead a rout in for-profit colleges. The biggest U.S. education company by enrollment and the operator of the University of Phoenix withdrew its forecast for fiscal 2011, citing regulatory scrutiny and a possible 40 percent decline in new students.

U.S. stock-index futures erased gains in pre-market trading after jobless claims rose by 13,000 to 462,000 in the week ended Oct. 9, from a revised 449,000 a week earlier, Labor Department figures showed. Economists forecast claims would hold at 445,000, according to the median of 47 projections in a Bloomberg News survey. Other data showed U.S. producers prices rose in September.

Growth Forecast

Economists at Morgan Stanley cut their forecast for third-quarter U.S. growth based on an increase in imports from countries like China in today’s trade-deficit report. The world’s largest economy grew at a 1.8 percent annual pace from July through September, down from a previously projected 2.1 percent, as the trade gap subtracted almost a percentage point from growth, according to a forecast by the bank’s David Greenlaw and Ted Wieseman.

“The data today, while not overly compelling, was a wake-up call that the economy is losing momentum as we close out the year,” said Alan Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees $63 billion. “The market was not helped by the rise in the trade deficit. This is a market that has been ignoring a lot of troublesome economic reports and signs of fading momentum.”

The dollar fell 0.4 percent to 81.46 yen and touched 80.89 yen, the weakest since April 1995. The Australian dollar strengthened to as much as 99.94 U.S. cents, the most since exchange controls ended in 1983.

Singapore Dollar Band

Singapore’s dollar appreciated to S$1.2966 after earlier reaching a record S$1.2894. The Monetary Authority of Singapore unexpectedly said it will steepen and widen the band in which its dollar trades against a weighted basket of currencies.

South Korea’s won pared gains after appreciating to the strongest level since April as the central bank held off from raising interest rates. China’s yuan advanced to its strongest level since 1993. It rose 0.2 percent to 6.6508 per dollar, according to the China Foreign Exchange Trade System. It touched 6.6503, the strongest level since the central bank unified official and market exchange rates at the end of 1993.

About three stocks declined for every two the rose in Europe’s Stoxx 600, which slipped 0.2 percent. Rio Tinto Group climbed 2.4 percent to a two-year high after saying iron-ore production rose to 47.6 million metric tons in the third quarter, more than analysts predicted.

Syngenta AG, the biggest maker of agricultural chemicals, gained 3.8 percent as sales beat analysts’ estimates. African Barrick Gold Plc tumbled 9.5 percent after criminal gangs “widely infiltrated” a mine in Tanzania, forcing the company to suspend 60 workers and delay production.

Emerging Markets

The MSCI gauge for developing countries climbed 0.8 percent to the highest level since June 2008. The MSCI Asia Pacific Index advanced 1.9 percent, the biggest rally since June, and the Shanghai Composite Index advanced for a sixth day after Royal Bank of Scotland Group Plc strategists said stocks across Asia will benefit from a global “liquidity wave.”

Cotton futures rose to the highest price since trading began 140 years ago, climbing by the 4-cent exchange limit to $1.1487 a pound in New York, on speculation China, the world’s largest buyer, will boost imports. Silver jumped 2.1 percent to $24.435 an ounce and touched $24.95, the highest since 1980. Gold for December deliver closed at $1,377.60 an ounce after reaching an all-time high of $1,388.10.

Treasuries fell, with the 10-year note yield up seven basis point at 2.5 percent, after the government sold $13 billion of 30-year bonds to lower-than-average demand. The 30-year yield climbed eight basis points to 3.9 percent.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Tara Lachapelle in New York at tlachapelle@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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