The euro retreated the most in two months against the dollar, while oil reversed earlier gains, as European Central Bank President Jean-Claude Trichet dimmed prospects for an interest-rate increase. U.S. stocks recovered from an early drop, while 10-year Treasuries fell a fourth day.
The euro slid 1.3 percent to $1.3633 at 4 p.m. in New York after tumbling as much as 1.5 percent. Two-year German bund yields sank 13 basis points to 1.36 percent. Brent crude, the benchmark grade for two-thirds of the world oil market, slipped 0.6 percent $101.70 after earlier reaching the highest price in 28 months. The Standard & Poor’s 500 Index rose 0.2 percent, while the 10-year Treasury yield increased seven basis points.
The shared European currency extended losses as Trichet said risks from rising prices are “broadly balanced,” causing investors to pare bets on an increase in borrowing costs even after euro-area inflation accelerated the most in two years in January. U.S. equities rebounded before the Labor Department releases its monthly jobs report tomorrow.
“Trichet’s comments have prompted a sharp decline in short-term European rates,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “I don’t see him saying anything different from what he said last time. The difference is that inflation went up in the euro zone since December. There have been few signs that selling the euro was a low risk venture. Today could very well be the turning point.”
The euro weakened against 14 of 16 major peers, losing at least 1.3 percent versus the Australian dollar, Mexican peso and Japanese yen.
The dollar strengthened against 14 of 16 counterparts, led by a 1.4 percent rally versus the South African rand. The dollar also appreciated amid improving optimism about the U.S. economy after reports showed service industries grew at the fastest pace since 2005, retail sales increased more than forecast, factory orders unexpectedly rose and jobless claims fell more than estimated.
The S&P 500 reversed a 0.7 percent drop as consumer, telephone and raw-materials companies led gains. Equities rebounded before the Labor Department releases its monthly report on U.S. jobs tomorrow at 8:30 a.m. New York time. Employers added 145,000 non-farm jobs in January, according to the median of 85 economist projections in a Bloomberg survey.
Estee Lauder Cos., the maker of Mac cosmetics and Clinique skin care, jumped 14 percent to a record high after raising its 2011 profit forecast. Merck & Co. slid 2.7 percent for the biggest decline in the Dow Jones Industrial Average after its 2011 profit forecast trailed analysts’ estimates.
Gold for April delivery jumped 1.6 percent to $1,353 an ounce, a two week high, as the mounting conflict in Egypt boosted demand for the metal as a haven. Silver also settled at a two-week high.
Egypt’s stock market remained closed for a fifth day after a 16 percent plunge in the benchmark index last week. The market is provisionally scheduled to resume trading Feb. 7, a day after banks are set to reopen. Egypt’s largest opposition group rejected talks with President Hosni Mubarak after at least six protesters were killed in Cairo’s Tahrir Square overnight, and vowed to stay at the scene of the fighting until he steps down.
Egypt had its long-term foreign currency issuer default rating cut to BB from BB+ by Fitch Ratings. The rating may be cut further, Fitch said. Egypt’s largest opposition group rejected talks with President Hosni Mubarak after at least six protesters were killed in Cairo’s Tahrir Square overnight, and vowed to stay at the scene of the fighting until he steps down.
The turmoil in the nation is having limited impact on global financial markets, where investors see few parallels with Iran’s 1979 revolution or the contagion that followed Thailand’s meltdown 13 years ago.
World equity-market capitalization climbed to $53.6 trillion this week, the highest level since June 2008. Dubai’s equity index rose the most in nine months yesterday and emerging-market bonds rallied, according to data compiled by Bloomberg. Traxis Partners LP’s Barton Biggs says it’s a mistake to sell shares because of Egypt’s crisis, while Pacific Investment Management Co.’s Mohamed El-Erian sees signs of a “reconciliation” in the most-populous Arab country.