Most U.S. Stocks Climb, Led by Banks, While Euro Weakens

Euro Drops to 3-Month Low, Equity Futures Fall on Election, Jobs
The euro fell 1.3 percent last week, the most in a month. Photographer: Simon Dawson/Bloomberg

Most U.S. stocks rose, led by banks, after billionaire investor Warren Buffett said American lenders are in “fine shape.” The euro slid for a sixth day and commodities fell after French Socialist Francois Hollande was elected president and Greek voters picked anti-bailout parties.

The Standard & Poor’s 500 Index added less than 0.1 percent to 1,369.58 at 4 p.m. in New York as six stocks gained for every five that fell on U.S. exchanges. The euro lost 0.3 percent to $1.3051 as the shared currency extended its longest losing streak since September. Ten-year French yields slipped three points to 2.80 percent and the CAC-40 Index of stocks rallied 1.7 percent. The S&P GSCI Index of commodities fell for a fourth day, declining 0.2 percent. Ten-year U.S. Treasury yields were little changed at 1.88 percent.

Financial shares rose 0.7 percent as a group to lead gains among the 10 main industries in the S&P 500 after Buffett said U.S. lenders have “liquidity coming out of their ears.” Speculation that European austerity measures will be curbed grew after Hollande’s victory made him the first Socialist to take the helm of Europe’s second-biggest economy in 17 years. The Greek parliament will have three new anti-bailout parties represented.

“Every time Buffett gives the seal of approval, it helps certain stocks or segments of stocks,” Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a telephone interview. “As for Europe, we’ve priced in some of what’s happened. Yet investors are not really quite sure of what to make of those trends.”

Retreat From April High

U.S. stocks rebounded from early losses, including a 1.5 percent drop in S&P 500 futures before exchanges opened in New York. The S&P 500 halted a three-day slump. The index tumbled 2.4 percent last week, its biggest drop of the year, as data on American and European labor markets boosted concern the global economy is weakening. The benchmark gauge of U.S. stocks has retreated 3.5 percent from an almost four-year high on April 2.

Walt Disney Co. rallied 2.1 percent after “Marvel’s The Avengers” set box-office records with $200.3 million in ticket sales over the weekend. Fifth Third Bancorp and Bank of America Corp. rose almost 3 percent each, pacing gains in financial shares, after Buffett said U.S. lenders have “liquidity coming out of their ears.”

“I would put European banks and American banks in two very different categories,” Buffett, Berkshire Hathaway Inc.’s chairman and chief executive officer, said May 5 at the firm’s annual meeting in Omaha, Nebraska. “The American banking system is in fine shape. The European system was gasping for air a few months back” before getting assistance from the European Central Bank.

Dow Average Retreats

Hewlett-Packard Co. and Caterpillar Inc. lost more than 1.2 percent to lead the Dow Jones Industrial Average down 29.74 points to 13,008.53. The Dow and S&P 500 drifted between gains and losses for much for much of the day. American International Group Inc. dropped 3 percent as the U.S. Treasury Department agreed to sell $5 billion of shares, with the bailed-out insurer buying $2 billion of the total.

Risk perceptions among U.S. equity and credit investors are diverging by the most since 2009 as signs of an economic slowdown spur bigger increases in prices to protect against losses in bonds than stocks. The VIX, the benchmark gauge of U.S. equity derivatives that usually rises when shares fall, closed last week at 0.032 times the level of the Markit CDX North America High Yield Index, which increases when confidence in debt issuers deteriorates, according to data compiled by Bloomberg. That’s near the 2 1/2-year low of 0.027 times reached in March.

European Markets

European stocks rose the most in more than a week as German Chancellor Angela Merkel said she will receive French president-elect Hollande with “open arms” as they work together to tackle the debt crisis. Hollande’s platform calls for policies Merkel opposes, including increased spending and a delayed deficit-reduction effort

The Stoxx Europe 600 Index reversed early losses to climb 0.7 percent, even as Greece’s ASE Index plunged 6.7 percent in its worst drop since November. National Bank of Greece SA tumbled 8.3 percent. Roche Holding AG fell 3.5 percent, the most since November, after abandoning development of an experimental cholesterol drug. CSM NV, the world’s biggest maker of bakery ingredients, jumped 19 percent after saying it will sell its U.S. and European bakery-supply units.

Benchmark stock indexes in Italy and Spain led gains, rallying more than 2.5 percent each. Among European bond markets, Italy’s 10-year yield lost three basis points to 5.40 percent and Spain’s increased two points to 5.76 percent.

Euro Weakens

The euro weakened against 14 of 16 major peers. The shared pared losses after dipping below $1.30 for the first time since April 16, and slid 0.5 percent versus the pound. The Dollar Index, which tracks the U.S. currency against those of six trading partners, advanced 0.1 percent, rising for a sixth day in the longest streak since September

“Incumbents took a beating across Europe this weekend in what has been widely interpreted as a backlash against austerity,” Michala Marcussen, global head of economics at Societe Generale SA in Paris, wrote in a report today. “Failure to secure a political majority to meet the terms of the second Greek program could see the country inch towards euro exit. This would in our opinion be seen as a negative event, even beyond Greece’s borders.”

Euro Bets

The euro is confounding bears who predicted a meltdown as it gets an unexpected boost from the economic and political turmoil gripping Europe. The 17-nation currency has risen about 1 percent against nine peers from this year’s low on Jan. 16, while the dollar slid 2.3 percent, data compiled by Bloomberg show. Futures traders are trimming bets that it will fall against the dollar, while options show investors are less bearish.

In other European elections, Merkel’s party had its worst election result in more than half a century in the state of Schleswig-Holstein. Austerity measures aimed at stemming Europe’s turmoil have driven economies from the Netherlands to Spain back into recession, emboldening politicians campaigning for growth.

A reduction in austerity could put more pressure on the European Central Bank to act, according to David R. Kotok, Cumberland Advisors’ chairman and chief investment officer.

“Political momentum moves toward more monetary ease,” Kotok wrote in a note to clients. “We expect some form of balance sheet expansion before the end of this year. We expect credit spreads of weaker sovereigns to widen until the ECB enters the market or discusses that it may do so.”

Cotton, silver and soybeans dropped at least 0.9 percent to lead the S&P GSCI index lower. Crude oil slipped 0.6 percent to $97.94 a barrel, the lowest settlement price in three months.

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