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Stocks Drop on Europe, Manufacturing Data as Gold Rallies

Stocks Drop
Traders work at the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

Stocks sank, dragging the Standard & Poor’s 500 Index to a four-month low, as concern grew about the health of Spanish banks and an U.S. gauge of manufacturing trailed projections. Gold rebounded from its lowest level of the year while 10-year Treasury yields approached a record low.

The S&P 500 tumbled 1.5 percent to close at 1,304.86 at 4 p.m. New York time and the Dow Jones Industrial Average slid 156 points. The Stoxx Europe 600 Index lost 1.1 percent, while Russian and Brazilian stocks entered bear markets. U.S. notes gained as a $13 billion auction of 10-year Treasury Inflation Protected Securities drew a record low negative yield. The Dollar Index climbed for a record 14th straight day. Oil fell to a six-month low, while gold surged the most since October.

Concern about Europe’s debt crisis deepened as two people familiar with the situation said Moody’s Investors Service was set to downgrade the credit ratings of Spanish banks, with the ratings firm confirming the cuts after U.S. markets closed. The Federal Reserve Bank of Philadelphia’s general economic index decreased to minus 5.8 in May, indicating an unexpected contraction in manufacturing. The index of leading economic indicators dropped in April for the first time in seven months.

“It’s a double whammy,” James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, said in a telephone interview. His firm oversees about $333 billion of assets. “Not only do we have continued scary European news, we’ve got weak economic data in the U.S. today. We’re going to bounce around for a while.”

$3 Trillion Slump

More than $3 trillion has been erased from the value of equities worldwide this month as concern Greece will exit the euro curbed demand for riskier assets. The country faces a fresh election on June 17 that may boost parties opposed to the conditions of its international bailouts.

Other economic reports today showed U.S. jobless claims were unchanged at 370,000 in the week ended May 12, compared with the median forecast of 48 economists surveyed by Bloomberg News for a drop in claims to 365,000. The Bloomberg Consumer Comfort Index fell in the week ended May 13 to minus 43.6, a level associated with recessions or their aftermaths, from minus 40.4 in the previous period.

The S&P 500 has tumbled more than 8 percent from a four-year high in April as Greece’s failure to form a government returned investors’ focus to Europe’s debt crisis, while economic data trails estimates by the most in seven months. The Citigroup Economic Surprise Index for the U.S., which measures how much data is missing or beating the median estimates in Bloomberg surveys, slipped to minus 25.1 today and was minus 25.6 on May 10, the lowest since September 30.

Market Leaders

Caterpillar Inc., JPMorgan Chase & Co., Home Depot Inc. and Boeing Co. dropped more than 3.5 percent to lead the Dow to the lowest level since Jan. 13

Apple Inc., the world’s most valuable company, retreated 2.9 percent after hedge funds disclosed sales of the stock. SAC Capital Advisors LP and Viking Global Investors LP were among hedge funds that sold a net 6.1 million shares of Apple last quarter, taking advantage of the 48 percent jump in the iPhone maker’s stock.

Limited Brands Inc., owner of the Victoria’s Secret lingerie chain, fell 4.4 percent after forecasts disappointed investors. Wal-Mart Stores Inc., the world’s largest retailer, rose 4.2 percent after earnings beat estimates as lower prices increased customer traffic. Sears Holdings Corp., the retailer controlled by hedge fund manager Edward Lampert, climbed 3.1 percent after reporting a profit.

Facebook Prices

After the close of trading in New York, Facebook Inc. said it raised $16 billion in the biggest initial public offering by a technology company in history as it priced the shares at $38 each, the top end of an increased range. The stock is scheduled to start trading tomorrow under the symbol FB on the Nasdaq Stock Market.

Gold jumped the most since October as a four-day slump and speculation that the Federal Reserve will announce more stimulus for the U.S. economy boosted demand for the precious metal. The metal tumbled 3.7 percent in the past four sessions.

Gold futures for June delivery rose 2.5 percent to $1,574.90 an ounce. Yesterday, prices retreated to as low as $1,526.70, the lowest since Dec. 29.

The 10-year U.S. Treasury note yield decreased seven basis points to 1.695 percent, compared with a record low of 1.67 reached in September. The TIPS were auctioned at a so-called high yield of negative 0.391 percent, the Treasury said today. The U.S. first sold the 10-year securities at a negative yield in January. Five-year TIPS have also been sold at negative yields at the past five auctions of the securities.

Minutes from the last Fed meeting showed yesterday some policy makers said further easing may be needed should the U.S. economy slow.

European Shares

Almost five shares dropped for each that gained in the Stoxx 600, which extended declines to the lowest level this year. Bankia SA plunged 14 percent, bringing this week’s decline to 31 percent, as El Mundo reported that customers have withdrawn 1 billion euros from accounts at the Spanish bank since the government took over the lender on May 9.

European banks slumped 2.4 percent as a group, sliding to the lowest level since November, and were the biggest drag on the Stoxx 600 among 19 industries. Spain’s IBEX 35 Index lost 1.1 percent to a nine-year low, while Italy’s FTSE MIB Index slid to the lowest level since March 2009.

After markets closed in New York, Moody’s cut ratings on 16 Spanish banks and Santander UK Plc.

‘Fabric of the Euro’

“While the situation in Greece represents a greater short-term risk for investors, the banking and economic crisis in Spain is just as significant a threat not just to financial markets but to the fabric of the euro zone itself,” said Ted Scott, portfolio manager at F&C Asset Management Plc in London. “The Spanish government will probably be forced to pour more money into the banks,” he said, and that “will only add to the country’s deficit and debt ratios.”

The euro has a 42 percent chance of losing a member by the end of this year and 60.5 percent chance of losing one by the end of next year, according to, which offers betting on outcomes of various events.

Greek Standoff

The leaders of Greece’s two biggest parties clashed over how the country could stay in the euro, underscoring the political deadlock that triggered the decision to hold a second national vote in six weeks. The conflict between Syriza leader Alexis Tsipras, who opposes the austerity demanded by the European Union bailout, and Antonis Samaras, leader of New Democracy, sets the next June 17 vote up as a referendum on Greece staying in the 17-nation currency bloc.

German bunds rose, pushing yields on two, five and 10-year debt to record lows. Spain’s 10-year yield climbed 2 basis points to 6.31 percent and rose to 4.9 percentage points above rates on benchmark German bunds, a record on a closing basis.

Spain sold 2.49 billion euros ($3.2 billion) of debt as the yield on notes maturing in July 2015 rose to 4.876 percent from 4.037 percent when they were last auctioned two weeks ago. Prime Minister Mariano Rajoy said yesterday that Spain faces the “serious risk” of losing access to debt markets and called on European institutions for support.

Markets in Switzerland, Norway, Sweden, Denmark, Finland, Austria and Luxembourg are among those closed today for the Ascension holiday.

The MSCI Emerging Markets Index slipped 0.4 percent to a four-month low as gains in Asian markets partially offset losses elsewhere. The Shanghai Composite Index jumped 1.4 percent and Taiwan’s Taiex Index advanced 1.7 percent.

The MSCI BRIC Index fell 1.3 percent, extending its drop from this year’s high to a bear-market plunge of more than 20 percent. The gauge tracks shares in Brazil, Russia, India and China. Russia’s Micex entered a bear market as OAO Sberbank, the country’s biggest bank, tumbled after a policy maker said lending is stagnating. Brazil’s Bovespa lost 3.3 percent and extended its drop from a March peak to more than 20 percent.

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