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Euro Rises on Debt Talks, Inflation; Stocks, Commodities Retreat

Asian Stocks, Euro Drop on Greece’s Debt Concerns
A demonstrator sits in front of the Greek parliament during a general strike that halted services and disrupted flights in Athens, Greece. Photographer: Milos Bicanski/Getty Images

The euro rebounded from the lowest level against the dollar since March as leaders worked to alleviate debt crises in Greece and Portugal and accelerating inflation put pressure on policy makers to boost interest rates. Stocks and commodities retreated.

The euro rose 0.4 percent to $1.4178 at 4:15 p.m. in New York after inflation in the currency bloc accelerated 2.8 percent, the fastest since 2008. The dollar fell against 10 of 16 major peers. The Standard & Poor’s Index slipped 0.6 percent to 1,329.47, extending its two-week slump, and the Stoxx Europe 600 Index fell 0.1 percent. The Thomson Reuters/CRB Index of raw materials lost 0.5 percent. Six-month Treasury bill rates were at 0.07 percent, near a record low, as the U.S. reached its federal borrowing threshold.

European finance ministers endorsed a 78 billion-euro ($111 billion) bailout for Portugal, while stepping up pressure on Greece to sell assets and deepen spending cuts in exchange for an increase in its rescue. The talks in Brussels involving the European Union and International Monetary Fund were held without IMF Managing Director Dominique Strauss-Kahn, who was detained on attempted-rape charges in New York.

“They are putting a patch on the problem,” said Matthew DiFilippo, director of research at Stewart Capital Advisors LLC in Indiana, Pennsylvania, which manages $1 billion. “I don’t really see there’s a way that they can fix it without a restructuring.”

NYSE Tumbles

NYSE Euronext slid 13 percent, its worst drop since 2008 and the biggest decline in the S&P 500, as Nasdaq OMX Group Inc. and IntercontinentalExchange Inc. withdrew their bid for the owner of the New York Stock Exchange after the U.S. Department of Justice threatened a Lawsuit. Nasdaq fell 2.5 percent and ICE rallied 3.3 percent.

Lowe’s Cos., the second-largest U.S. home improvement retailer, dropped 3.6 percent to help lead retailers lower after profit trailed estimates and the company cut its full-year earnings forecast as customers cut back on renovations.

Declines in U.S. stocks also came after the Federal Reserve Bank of New York’s manufacturing gauge for May slid amid a surge in commodity costs. The New York Fed’s general economic index fell to 11.9 from a one-year high of 21.7 in April. Economists in a Bloomberg News survey projected a reading of 19.6, according to the median forecast. Readings greater than zero signal growth.

Global demand for U.S. stocks, bonds and other financial assets fell in March from a month earlier as China trimmed its holdings of government securities, the Treasury Department reported.

Defensives Outperform

While the S&P 500 has rallied 5.8 percent since its year-to-date low on March 16, the gains have been led by so-called defensive industries that are thought to hold up better during an economic slowdown. Health-care companies, consumer firms that sell necessities, telephone operators and utilities have risen at least 9.9 percent, the most among 10 industry groups in the S&P 500. Financial and energy companies have been little changed, the worst performances.

Ten-year Treasury yields fell three basis points to 3.15 percent, near their lows for the year, as a congressional vote loomed in the next few months on raising the nation’s $14.3 trillion limit. Treasury Secretary Timothy F. Geithner said he has taken action to stave off the federal debt limit until Aug. 2, using accounting measures that involve two retirement funds.

European Shares

The Stoxx Europe 600 Index retreated 0.1 percent, a third day of losses, as about two stocks fell for every one that advanced. Unione di Banche Italiane SCPA, Italy’s fourth-largest bank, declined 1.8 percent as earnings missed estimates. Securitas AB sank 4.1 percent after the world’s biggest provider of security services offered to acquire Niscayah Group AB through a share swap.

Greece’s ASE Index slid 1.9 percent to the lowest level since 1997 as National Bank of Greece SA fell 2.7 percent. The extra yield investors demand to hold Greek 10-year bonds instead of similar-maturity German bunds, the euro-region’s benchmark government securities, increased 13 basis points to 12.50 percent.

Europe’s donor countries, led by Germany, are demanding deeper budget cuts in exchange for granting Greece extra aid or giving it more time to pay back official loans. Any extension of Greece’s bond maturities would need to prevent “the private sector steadily withdrawing from its positions” and shifting the burden to taxpayers, German Finance Minister Wolfgang Schaeuble told ARD television yesterday. “If there is an extension, then everyone has to be extended.”

Gross on Greece

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said Greece is the world’s biggest candidate for default.

“We suggest that Greece is insolvent and that at some point the can cannot be kicked down the road any further,” said Gross in an “InBusiness with Margaret Brennan” interview on Bloomberg Television. “Ultimately debt holders will have to bear some of the burden as well.”

A Greek default would be “highly destabilizing” for banks, causing losses that “far exceed” the size of their loans and investments there, according to Moody’s Investors Service. European banks would lose 34.4 billion euros ($48.6 billion) in a worst-case scenario, Moody’s said in a note, citing public and non-public data for lenders. The major risks come from plunging investor and depositor confidence, and increased concern that governments may be unwilling to support lenders, Moody’s said.

No Bail for Strauss-Kahn

As international financiers met in Brussels, the IMF chief Strauss-Kahn was ordered held without bail by a New York judge after prosecutors said he presented a flight risk. He is accused of sexually assaulting and attempting to rape a hotel housekeeper on May 14. A potential candidate for the French presidency, Strauss-Kahn, 62, has denied the charges and will plead not guilty, his lawyer Benjamin Brafman has said. The IMF named John Lipsky as acting managing director yesterday.

The yield on Portugal’s 10-year bond fell 25 basis points to 8.97 percent. Portugal followed Greece and Ireland in seeking emergency loans from the EU and IMF, bringing to 256 billion euros the aid provided to stamp out the sovereign debt crisis.

The MSCI Emerging Markets Index retreated 0.9 percent to the lowest level on a closing basis since March. The Kospi Index fell 0.8 percent in Seoul after Goldman Sachs Group Inc. cut South Korean shares to “market weight.” The Shanghai Composite Index dropped 0.8 percent as higher Chinese food prices fueled concern inflation will quicken and money-market rates rose to a record high. Russia’s Micex Index slid 0.6 percent, and the Jakarta Stock Exchange Composite Index lost 0.9 percent.

Oil futures in New York declined 2.3 percent to $97.37 a barrel, paring the 1.5 percent gain in the previous two sessions, and gasoline slipped to a two-month low after the opening of spillways reduced concern that the Mississippi River will flood refineries. Cotton, corn and sugar rose more than 1.4 percent for the biggest gains among the 19 commodities tracked by the CRB.

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