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S&P 500 Has Biggest Drop of 2012 as Treasuries Advance

Stocks Fall for Third Day as Yen Strengthens
Traders on the floor of the New York Stock Exchange on March 2, 2012. Photographer: Jin Lee/Bloomberg

Stocks fell a third day, with the Standard & Poor’s 500 Index posting its worst drop of the year, and commodities slid after a report showed Europe’s economy contracted and as investors watched developments in a Greece debt-swap deal. U.S. Treasuries and the yen gained.

The S&P 500 slid 1.5 percent, the most since Dec. 8, to 1,343.36 at 4 p.m. in New York, while the Dow Jones Industrial Average tumbled 203.66 points to 12,759.15. Gold, silver and copper futures lost at least 1.9 percent. The yen gained versus all 16 major peers and 10-year Treasury note yields fell six basis points to 1.95 percent.

Europe’s economy shrank 0.3 percent last quarter, the European Union’s statistics office said, and the central bank’s balance sheet surged to a record 3.02 trillion euros ($3.96 trillion) last week amid crisis-fighting efforts. The Greek government said it will use collective action clauses to compel bondholders to accept its debt restructuring if it receives sufficient consents from investors.

“I’m watching this market suffer,” Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion, said in a telephone interview. “The market has more questions than answers right now. The attention is turning internationally as investors focus on economic concerns and the possibilities of success or failure of the Greek bond swap. That makes investors nervous at these relatively lofty index levels.”

Highest Since 2008

Financial, industrial and commodity companies helped lead declines in all 10 of the main industries in the S&P 500, retreating more than 1.6 percent. Citigroup Inc. and Morgan Stanley paced losses among financial companies, falling at least 4.6 percent. Freeport-McMoRan Copper & Gold Inc. and Alcoa Inc. retreated as the S&P GSCI gauge of commodities slid as much as 1.6 percent, with 22 of 24 materials declining.

The S&P 500 slipped for a third day after last week closing at its highest level since 2008. At the start of today’s session, the index was up 24 percent from last year’s low in October and 8.5 percent higher in 2012.

Before today, the S&P 500 hadn’t retreated at least 1 percent and the Dow hadn’t fallen 100 points or more for 45 days, the longest streaks since 2006, according to data compiled by Bloomberg.

“You’ve got to believe stocks are not going straight to the skies,” Philip Orlando, chief equity market strategist at Federated Investors Inc., which oversees about $370 billion, told Bloomberg Television. “We’re not going to have a year with no pullback in the middle of the year. So it’s perfectly reasonable that we could have a moderate correction, let’s call it 5 percent.”

European Markets

The Stoxx 600 Europe Index slid 2.7 percent today, its biggest loss since November, as all of its 19 industry groups declined. PSA Peugeot Citroen dropped 3.5 percent as Europe’s second-biggest carmaker announced plans to sell 1 billion euros of shares. Cable & Wireless Worldwide Plc slid 6.7 percent as the Telegraph in London said Vodafone Group Plc may not make a takeover offer.

The yield on the 10-year German bund fell five basis points to 1.78 percent, leaving the difference in yield between Europe’s benchmark government securities and Spanish debt 22 basis points wider at 3.37 percentage points as the spread increased for the third straight day. Italy’s 10-year yield rose 14 basis points to 5.07 percent.

Greece Swap

Societe Generale SA, France’s second-biggest bank, Assicurazioni Generali SpA and UniCredit SpA joined firms saying they would participate in Greece’s debt swap as the country threatened to compel holdouts to take part.

They join more than a dozen banks, insurers and hedge funds that said they plan to accept the deal, accounting for at least 45 billion euros ($59 billion) of bonds, based on data compiled by Bloomberg from the companies and their reports. About 206 billion euros of Greek bonds are eligible for the swap.

The Greek set a 75 percent participation rate as a threshold for proceeding with the transaction. The goal of the exchange, which runs through March 8, is to reduce by 53.5 percent the total of privately held Greek debt, helping avert an uncontrolled default that could roil markets and fuel contagion.

Greece sold 1.137 billion euros of 26-week Treasury bills today with a uniform yield of 4.8 percent with investors bidding for 2.63 times the securities offered, the debt management agency said. The European Financial Stability Facility sold 3.44 billion euros of three-month debt at an average yield of 0.0516 percent.

Default Swaps

The cost of insuring European sovereign bonds rose for a third day, with the Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments climbing 9.7 basis points to 356, the highest since Jan. 18.

The yen climbed 1.8 percent against the euro and advanced 1 percent versus the dollar. The euro depreciated 0.8 percent to $1.3114. Australia’s dollar dropped 1.2 percent versus the greenback after the nation’s central bank kept interest rates unchanged and said it has scope to ease policy if needed.

The MSCI Emerging Markets Index fell 2.3 percent, taking its two-day drop to 3.6 percent. Russia’s Micex Index slid 3.9 percent, the most this year, after more than 200 people were detained in protests against Vladimir Putin’s presidential election victory yesterday. The ruble declined versus 10 of 16 major peers, tumbling 1 percent against the dollar.

“We do not expect today’s outsized declines in Russian assets to be the start of a trend,” Ilan Solot, London-based emerging markets currency strategist at Brown Brothers Harriman, wrote in a note to clients. Higher oil prices should help Russian assets, he wrote, and the ruble should benefit “in the short term from the gradual pricing out of the political risk premium and maybe even a reversal of some outflows as the country gets back to business as usual.”

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong sank 3.1 percent, the most in almost three months. The BSE India Sensitive Index slipped 1.1 percent and the FTSE/JSE Africa All Share Index fell 1.9 percent in Johannesburg as industrial metals prices declined.

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