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Stocks Retreat, Led by Chipmakers; Oil, Gold Gain

The MSCI Asia Pacific Index dropped 1.1 percent to 137.83 as of 3:32 p.m. in Tokyo, led by a 1.8 percent drop in Japan’s Nikkei 225 Stock Average. Photographer: Tomohiro Ohsumi/Bloomberg
The MSCI Asia Pacific Index dropped 1.1 percent to 137.83 as of 3:32 p.m. in Tokyo, led by a 1.8 percent drop in Japan’s Nikkei 225 Stock Average. Photographer: Tomohiro Ohsumi/Bloomberg

U.S. stocks fell, erasing last week’s gain, as chipmakers slid after a ratings downgrade and oil advanced to a 29-month high. Ten-year Treasuries climbed, while Greek default risk increased to a record after Moody’s Investors Service cut the nation’s credit rating.

The Standard & Poor’s 500 Index decreased 0.8 percent to 1,310.15 at 4 p.m. in New York and the Stoxx Europe 600 Index erased earlier gains to slip 0.4 percent. Oil advanced 1 percent to $105.44 a barrel. Gold trimmed gains after rallying to as much as $1,445.70 an ounce, an all-time high. Ten-year Treasury note yields slid five basis points to 3.51 percent.

Chipmakers in the S&P 500 slumped 2.5 percent collectively, the biggest decline among 24 industries, after Wells Fargo & Co. cut the group to “market weight” from “overweight.” Fighting increased between Libyan rebels and troops loyal to Muammar Qaddafi, reducing crude-oil output by as much as 1 million barrels a day, according to the International Energy Agency.

“It’s going to be hard for the market to push through this headwind from oil in the short-term,” said Daniel Genter, president of RNC Genter Capital Management in Los Angeles, which oversees about $3.7 billion. “The oil theme has taken over from the inflation theme because of the effect higher energy prices will have on inflation and economic growth. The market wants to go higher because all the other demographics look solid, but we’re entangled in this net of geopolitical uncertainty.”

‘Still Optimistic View’

Teradyne Inc., Micron Technology Inc. and Applied Materials Inc. lost at least 4.6 percent to lead declines in all 19 semiconductor companies in the S&P 500 after the Wells Fargo analysts cited the rally that more than doubled the Philadelphia Semiconductor Index over the past two years.

“Our sector downgrade is more an indication of a more moderate though still optimistic view of the sector rather than any active concern about the chip stocks as a group,” Wells Fargo analysts wrote in a note to clients.

Takeovers helped lift U.S. and European shares earlier. Western Digital Corp., the largest maker of computer hard-disk drives, rallied 16 percent after agreeing to buy a unit from Hitachi Ltd., while jewelry maker Bulgari SpA surged after receiving a takeover offer.

As crude approaches $110 a barrel, higher energy costs may begin to cause pain for companies that were able to weather $100 oil thanks to a strengthening economy. Corporate assumptions would have to start changing when oil reaches $110 a barrel, according to economists such as Chris Low of FTN Financial in New York. Crude at that price would offset the benefit from the tax cut approved by Congress in December, and begin to slow economic growth, Low said.

Oil Forecast

Commerzbank forecast today that West Texas Intermediate oil will average $107 in the second quarter. Technical analysts from Citi FX say oil is poised to test prices above $120 for the first time since September 2008 after breaching a target near $103. Oil faces resistance above $120 a barrel, the 76.4 percent retracement level on a linear-chart Fibonacci study of oil’s 2008 collapse, said Tom Fitzpatrick, chief technical analyst at Citi FX, part of Citigroup Capital Markets in New York.

Treasury five-year notes fell, pushing the yield up one basis point to 2.195 percent. The Federal Reserve purchased $6.6 billion in debt maturing from September 2013 to February 2015 to support the U.S. recovery.

Fed Bank of Atlanta President Dennis Lockhart said the central bank shouldn’t rule out asset purchases beyond the $600 billion planned by June because the U.S. economy could slow again. Fed of Dallas President Richard W. Fisher said he might vote to cut short the asset-purchase program if he believed it to be “counterproductive.”

European Markets

Most European stocks declined, with three shares retreating for every two that rose in the Stoxx 600. Inmarsat Plc dropped 13 percent as sales missed estimates. Bulgari soared 59 percent after LVMH Moet Hennessy Louis Vuitton SA agreed to buy the world’s third-largest jeweler for about 3.7 billion euros ($5.2 billion).

Credit-default swaps on Greek bonds rose 50 basis points to a record 1,036 basis points, according to CMA. Moody’s signaled Greece may face further cuts as European leaders prepared to meet this week to discuss ways to contain the region’s debt crisis. The Greek Finance Ministry said the Moody’s decision was “incomprehensible.” Moody’s didn’t heed the progress Greece made in cutting the deficit by 6 percentage points of gross domestic product last year, according to a ministry statement.

The extra yield, or spread, investors demand to hold Greek 10-year bonds instead of benchmark German bunds rose 8 basis points to 906 basis points. The spread for Portuguese 10-year securities climbed eight basis points to 428 basis points.

Asian Shares

The MSCI Asia Pacific Index lost 0.9 percent. Kajima Corp., a Japanese construction company, slid 2.3 percent following a report that its highway project in Algeria may incur losses of more than 80 billion yen ($971 million).

The MSCI Emerging Markets Index fell 0.6 percent to snap a six-day streak of gains, the longest in eight weeks. Air China Ltd. and Korean Air Lines Co. lost more than 3 percent on speculation higher fuel costs will crimp earnings. India’s Bombay Stock Exchange Sensitive Index retreated 1.4 percent as the Dravida Munnetra Kazhagam party said March 5 it would end support for Singh’s Indian National Congress-led government.

The Bloomberg GCC 200 Index of Persian gulf stocks advanced 1.4 percent, with Saudi Arabia’s Tadawul All Share Index rising 3.3 percent. S&P said the country may escape the popular unrest that is sweeping the Middle East and that the outlook for nation’s debt is stable.

Tunisia’s Tunindex gained 4.2 percent as trading resumed after a week-long stoppage triggered by violent protests that forced the prime minister to resign.

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