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Dollar Strengthens as Most U.S. Stocks Fall; Spanish Bonds Rally

Spanish Bonds Rise Debt Risk Falls on Bailout
The extra yield investors demand to hold Spanish 10-year debt instead of similar-maturity benchmark German bunds dropped 18 basis points to 181 basis points. Photographer: Denis Doyle/Bloomberg

Feb. 2 (Bloomberg) -- The dollar rose while most stocks fell in the U.S. as Egyptian President Hosni Mubarak sought to regain control of Cairo’s streets. Spanish bonds advanced on optimism European leaders will resolve the region’s debt crisis.

The Dollar Index, which gauges the currency against those of six major U.S. trading partners, snapped a two-day losing streak and the Standard & Poor’s 500 Index retreated 0.3 percent to 1,304.03 at 4 p.m. in New York. The rally in Spain’s 10-year bond drove the yield down 12 basis points to 5.10 percent. Crude oil rose nine cents to settle at $90.86 a barrel, near its highest price in more than two years. U.S. Treasuries fell.

The S&P 500 halted a two-day rally after yesterday’s advance sent its valuation to almost 15.7 times its companies’ reported operating earnings, near the highest since June. Today’s decline came as supporters of Mubarak clashed in central Cairo with demonstrators demanding an end to the 30-year-reign of the president, who said yesterday he won’t step down until an election in September.

Unrest in Egypt “is the sort of event risk that is difficult to hedge, so many will prefer to be better safe than sorry,” said Arnab Das, the head of global market research at Roubini Global Economics in London. “Another trade or oil shock, so soon after the systemic global financial crisis and last year’s double-dip fears, could hit global recovery, fragile as it is.”

Dollar Strengthens

The dollar strengthened against 11 of 16 major peers, gaining 0.2 percent to rebound from an almost three-month low versus the euro and increasing 0.3 percent against the yen. The 10-year U.S. Treasury note yield rose four basis points to 3.48 percent as the government said it will sell $72 billion of notes and bonds next week and an ADP Employer Services report indicated the economy is poised to add jobs for a second straight month.

The yield on Egypt’s 5.75 percent debt due in April 2020 increased 13 basis points to 6.63 percent at 4:06 p.m. in London. Egypt’s central bank will pay interest on treasury bills until banks reopen in the country, the state-run Middle East News Agency reported, citing Deputy Governor Hisham Ramez.

The cost of insuring Egypt’s sovereign debt rose 38.7 basis points to 378.9, according to CMA prices for credit-default swaps. The Market Vectors Egypt Index exchange traded fund, a U.S. ETF that tracks Egyptian stocks, tumbled 3.7 percent.

U.S. Equities Slip

About seven stocks retreated for every five that rose on U.S. exchanges. Broadcom Corp. slumped 5.6 percent after the biggest maker of chips for television set-top boxes reported margins that missed analysts’ estimates. Aflac Inc., the world’s largest seller of supplemental health insurance, dropped 2.4 percent as operating income trailed forecasts.

Cotton futures surged to a record on mounting supply concerns after flooding in Pakistan and Australia slashed crops. Cotton futures for March delivery rose 4 cents, or 2.3 percent, to $1.7622 a pound.

Corn and soybeans rose to 30-month highs in Chicago as a strike by port workers in Argentina disrupted crop shipments. Rice climbed to the highest price in 13 months.

Most European stocks fell as companies from Electrolux AB to Scania AB announced results that disappointed investors. Electrolux led a selloff in Swedish stocks, sinking 7.9 percent after forecasting “modest” growth in North America and Europe this year, while Scania slid 2 percent after warning the stronger kronor will hurt the first quarter. Imperial Tobacco Group Plc rose 5.9 percent as it plans to pay more in dividends.

Irish, Spanish Bonds

Irish bonds led a surge by securities from Europe’s high-deficit countries as political leaders prepared a pledge to defend the euro and bridge differences over the mandate of the European Financial Stability Facility.

Yields on Irish 10-year bonds slid 20 basis points to 8.82 percent, the lowest in more than a week, even as Standard & Poor’s cut the nation’s credit rating. Portuguese bonds rose as borrowing costs fell at the nation’s sale of short-term debt, while German two-year yields were at the highest since August 2009 as data showed the fastest producer-price growth in two years for the euro region.

The drop in the euro came as Germany ruled out allowing the European Financial Stability Facility to fund bond buybacks, reviving concern the region’s sovereign-debt crisis may worsen.

Spain will never need to tap a European Union bailout fund and will succeed in cutting the euro region’s third-largest budget gap and shoring up its savings banks, Deputy Finance Minister Jose Manuel Campa said.

Asian stocks rose, driving up a regional benchmark index by the most in two months, after companies reported higher earnings and a report yesterday showed U.S. manufacturing expanded more than forecast, boosting confidence in a global economic recovery. Toyota Motor Corp., the world’s biggest carmaker, advanced 3.3 percent in Tokyo after saying U.S. sales rebounded.

To contact the reporters on this story: Nick Baker in New York at; Stephen Kirkland in London at

To contact the editor responsible for this story: Nick Baker at

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