Stocks Drop With Euro, Commodities as Greece Opposes Oversight

Wall Street
Traders work on the floor of the New York Stock Exchange (NYSE) in New York. Photographer: Jin Lee/Bloomberg

Stocks slipped, sending the Standard & Poor’s 500 Index lower for a third day, Treasuries rose and the euro weakened as Greece tangled with European officials over terms of a second rescue package. U.S. equities pared losses as Apple Inc. led a rally in technology shares.

The S&P 500 fell 0.3 percent to 1,313.01 at 4 p.m. in New York, trimming an earlier drop of 1.2 percent. The Dow Jones Industrial Average dropped 6.74 points to 12,653.72 after losing as much as 131 points. The five-year Treasury note yield touched a record low of 0.72 percent. The euro weakened 0.7 percent to $1.3131 and the Dollar Index added 0.3 percent. Costs to protect Portuguese bonds from default rose to a record. Copper retreated 1.6 percent, the most in three weeks.

Greece’s aid won’t be finalized today because talks over debt restructuring aren’t complete, German Chancellor Angela Merkel said, while French President Nicolas Sarkozy said he expects an accord in the next few days. Greek Finance Minister Evangelos Venizelos yesterday fended off calls that a European Union commissioner be appointed to oversee the nation’s budget. EU President Herman Van Rompuy posted on Twitter that 25 EU states agreed to join a fiscal compact at a summit today and leaders endorsed the statutes of the permanent rescue fund.

“We’re working our way through the EU debt crisis, but it’s happening slowly, in fits and starts,” Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion, said in a telephone interview.

Losses Trimmed

Stocks also trimmed losses as the Federal Reserve said demand for business loans increased in the fourth quarter as economic growth accelerated. According to a survey of senior loan officers at banks, 17 of 56 banks reported stronger demand among companies with $50 million in annual sales or more, according to the survey released today in Washington, while six reported weaker demand. Demand among small businesses for loans increased by the most in any quarter since 2005.

Bank of America Corp., Procter & Gamble Co. and American Express Co. fell more than 1.4 percent to lead losses in the Dow. Financial and energy companies were the biggest drag on the S&P 500 among 10 groups. Technology and telephone shares advanced, as Apple and Verizon Communications Inc. climbed more than 1 percent to pace gains.

Bank of America decreased 3 percent after Goldman Sachs Group Inc. cut its recommendation. Halliburton Co. and Alcoa Inc. dropped more than 1 percent as commodity prices slumped. Gannett Co., the owner of 82 newspapers including USA Today, tumbled 6.9 percent after profit plunged 33 percent.

Valuation Slump

The S&P 500 retreated today after capping its fourth straight weekly gain, its longest streak since October. U.S. consumer spending stalled in December, with purchases little changed after rising 0.1 percent the prior month, Commerce Department figures showed. The S&P 500 started the session trading at 13.7 times reported earnings.

Valuations for U.S. equities have been stuck below the five-decade average for the longest period since Richard Nixon’s presidency, a sign investors don’t trust earnings even after a three-year bull market.

Analysts estimate profits in the S&P 500 will reach a record $104.78 this year after increasing 125 percent since the end of 2009, the fastest expansion in a quarter century, according to data compiled by Bloomberg. American companies are boosting income so much that even after stocks doubled, the S&P 500 hasn’t traded above its 16.4 mean ratio for 447 days, the longest stretch since the 13 years beginning in 1973.

Earnings topped analysts’ estimates at about two-thirds of the 170 companies in the S&P 500 that reported results since Jan. 9, according to data compiled by Bloomberg. Earnings-per-share have risen 3.1 percent for the group on sales growth of 6 percent.

European Shares

The Stoxx Europe 600 Index lost 1.1 percent today and has fallen 2.1 percent in two sessions, the biggest drop since November. French banks slipped as President Nicolas Sarkozy said he will unilaterally impose a 0.1 percent tax on financial transactions from August. BNP Paribas SA fell 7.1 percent and Societe Generale SA sank 6.5 percent.

Germany is proposing the creation of a commissioner, appointed by euro-member states, with power to veto budget decisions by Greece as a condition of a 130 billion-euro bailout for Athens, the Financial Times said, citing a copy of the proposal.

‘Identity and Dignity’

“Our partners acknowledge that European integration is based on the institutional equality of nation-states and on respect for their national identity and dignity,” Venizelos said in an e-mailed statement from his office in Athens yesterday. “Whoever poses a dilemma between economic aid and national dignity is ignoring basic historical lessons.”

The euro weakened against 14 of 16 major peers, depreciating 1.2 percent against the yen and slipping 0.6 percent versus the Canadian dollar.

Italian bonds decreased, sending the extra yield investors demand to hold the securities instead of benchmark bunds 26 basis points higher to 430 basis points, or 4.30 percentage points. France auctions as much as 8.3 billion euros of bills maturing from 84 to 343 days.

EU leaders gathered in Brussels today for their first summit of 2012 to put the finishing touches on a German-led deficit-control treaty and endorse a 500 billion-euro ($661 billion) rescue fund to be set up this year. Greece and its private creditors said Jan. 28 they expect to complete a restructuring deal in coming days after bondholders signaled they would accept a bigger cut in their debt holdings.

Bond Sales

European nations including Italy, Belgium and Spain sell no less than 22 billion euros of securities this week as credit-rating cuts risk upending optimism the region’s debt crisis is being contained. The Spanish two-year note yield jumped 10 basis points today to 2.63 percent, with the equivalent Portuguese yield up 383 basis points to 21.01 percent.

Portugal’s 10-year bond yield climbed 217 basis points to a euro-era record 17.39 percent. The cost of credit-default swaps insuring $10 million of Portuguese sovereign debt for five years rose to a record $4.25 million in advance and $100,000 annually, according to CMA prices at 2:30 p.m. in London, amid concern investors will have to take losses in the wake of a Greek debt deal. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed 9.4 basis points to 332.75.

Copper fell the most in three weeks, losing 1.6 percent to $3.8265 a pound in New York on speculation prices rose too high when markets were shut in China last week. China is the biggest user of the metal. Oil in New York slipped 0.8 percent to $98.78 a barrel. The S&P GSCI Index of commodities decreased 0.8 percent as cocoa slid 5.2 percent and natural gas lost 3.7 percent to lead declines among 22 of 24 commodities tracked by the index.

Emerging Markets

The MSCI Emerging Markets Index fell 1 percent, the biggest drop on a closing basis in 2012. The Shanghai Composite Index lost 1.5 percent after a week-long closure. China held off from cutting bank reserve requirements last week after Barclays Capital Asia Ltd., JPMorgan Chase & Co. and Industrial Bank Co. predicted this month that the reserve ratios were likely to fall before the holidays.

Taiwan’s Taiex Index surged 2.4 percent on its first day of trading after holidays for the Lunar New Year, as Apple Inc. suppliers surged after the maker of the iPhone reported record quarterly profit last week. The Sensitive Index, or Sensex, slid 2.2 percent in Mumbai.

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