Stocks Reverse Loss as Euro Pares Drop on Summit Optimism

Euro Sinks to Lowest Since 2010 as Stocks, Commodities Tumble
The euro sank to an almost two-year-low, while stocks and commodities tumbled. Photographer: Simon Dawson/Bloomberg

U.S. stocks erased losses amid optimism European leaders will do more to halt contagion from the region’s debt crisis. The euro pared its drop after sinking to an almost two-year low and U.S. Treasuries trimmed gains. Oil closed below $90 a barrel for the first time since October.

The Standard & Poor’s 500 Index rose 0.2 percent to close at 1,318.86, reversing a 1.5 percent tumble. The Dow Jones Industrial Average ended down 6.66 points at 12,496.15 after plunging as much as 191 points. The euro was down 0.7 percent at $1.2592 after dropping to as low as $1.2545. Ten-year Treasury yields lost 3.6 basis points to 1.73 percent, trimming a drop of 6 basis points. Demand for assets considered safe earlier sent German 30-year yields below 2 percent for the first time.

European leaders were meeting today to discuss the region’s debt crisis after deepening concern Greece will exit the euro wiped about $4 trillion from equity markets worldwide this month. Spain will recapitalize BFA-Bankia with as much public money as necessary, as the nationalized group needs at least 9 billion euros ($11 billion) to comply with banking rules, Economy Minister Luis de Guindos said after markets closed in Europe.

“Huge turnaround,” said Tim Ghriskey, who oversees about $2 billion as chief investment officer of Solaris Group in Bedford Hills, New York. “There’s speculation that European leaders will take action to stabilize the situation with Greece. In addition, there’s a lot of cash on the sidelines looking to get into the equity market. Certainly the decline we’ve had recently might provide an opportunity.”

1,300 Level

U.S. equities rebounded as the S&P 500 approached a four-month low below 1,300 that it reached last week. Stocks also recovered today as Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said the central bank has the tools to curb any damage from Europe’s debt crisis.

The S&P 500 rose for a third straight day as commodity producers and industrial companies reversed earlier losses to lead gains among the 10 main groups. Caterpillar Inc. rose 1.1 percent and Newmont Mining Corp. rallied 2.9 percent to pace the advance. Facebook Inc. climbed 3.2 percent in its fourth day of trading, rebounding from a 19 percent plunge over the previous two days.

Dell Inc. tumbled 17 percent, the most in more than 11 years, after the world’s third-largest maker of personal computers forecast fiscal second-quarter revenue that missed analysts’ estimates. Hewlett-Packard Co., Microsoft Corp. and Intel Corp. fell more than 2 percent to lead losses in the Dow.

Home Sales

U.S. equities maintained declines in early trading even after a U.S. government report showed new-home sales exceeded economists’ forecasts. Purchases rose to a 343,000 annual rate, up 3.3 percent from a revised 332,000 in March, the Commerce Department reported. The median forecast in a Bloomberg News survey of economists was 335,000. Data released yesterday showed sales of existing homes rose in April in every region.

The U.S. economy will probably tip back into recession next year if Congress doesn’t address an impending “fiscal cliff,” the Congressional Budget Office said yesterday.

The dollar strengthened all 16 major peers except the yen and Brazilian real. The real rallied against all major counterparts, rebounding 2.8 percent from a three-year low versus the dollar, as Brazil’s central bank auctioned currency swaps for the third day since May 18 in an effort to curb price swings.

Dollar Gains

The Dollar Index, which tracks the U.S. currency against those of six trading partners, rose 0.7 percent to 82.036, the highest level since September 2010. The pound declined 0.4 percent to $1.5695 as a report showed U.K. retail sales fell the most in more than two years in April.

The Stoxx Europe 600 Index sank 2.1 percent, reversing most of a two-day, 2.5 percent rally. Rio Tinto Group and Vedanta Resources Plc led a retreat in mining companies. London Stock Exchange Group Plc tumbled 7.3 percent, the most since 2009, after UniCredit SpA and Intesa Sanpaolo SpA sold a combined 11.5 percent stake. Burberry Group Plc slid 1.2 percent as the U.K.’s largest luxury-goods company said profitability may decline in the fiscal first half.

European banks fell 2.9 percent as a group and were the biggest drag on the index among 19 industries. Italy’s Banca Monte dei Paschi di Siena SpA tumbled 7.6 percent to lead losses.

Banks Vulnerable

While lenders have increased capital buffers, written down Greek bonds and used central-bank loans to help refinance units in southern Europe, they remain vulnerable to the contagion that might follow a withdrawal of Greece from the euro, investors say. Even with more than two years of preparation, banks still are at risk of deposit flight and rising defaults in other indebted euro nations.

French President Francois Hollande challenged Germany’s handling of the financial crisis as he headed to his first European Union summit with calls for joint borrowing and cash injections to struggling banks. Hollande teamed with Spanish Prime Minister Mariano Rajoy to press for EU leaders to break with German-dominated budget-cutting policies that have failed to stabilize the 17-nation euro area and led to speculation that Greece might be forced out.

Europe must chart a path to joint borrowing using euro bonds, should consider enabling its rescue fund to borrow from the European Central Bank and ought to let the rescue fund lend directly to troubled banks, Hollande said.

‘Under Pressure’

“The prevailing thought is that a Greek exit would be more costly than keeping Greece in,” Chris Hyzy, who helps oversee about $325 billion as chief investment officer of U.S. Trust in New York, said in a phone interview. “The market will likely force the euro zone officials, led by Germany, to create what looks like a quick movement toward fiscal union and ultimately some sort of euro-bond structure. Until the transparency of that becomes clear, we’re going to have the market under pressure.”

The yen appreciated 0.6 percent against the dollar and 1.4 percent versus the euro. Japanese Finance Minister Jun Azumi called on the central bank to further ease policy moments before the Bank of Japan refrained from adding monetary stimulus.

“The BOJ must firmly pursue monetary easing to achieve its 1 percent inflation goal,” Azumi told lawmakers in parliament in Tokyo today. The central bank left its asset-purchase and credit-loan programs unchanged, as anticipated by all 14 economists surveyed by Bloomberg News.

The German 10-year bund yield lost eight basis points to 1.38 percent and the rate on the nation’s 30-year debt dropped to 1.99 percent, crossing below 2 percent for the first time.

German Auction

Bunds rallied as Germany, the only country in the euro area with a stable outlook on its AAA rating, sold 4.56 billion euros ($5.8 billion) of two-year securities carrying a zero-percent coupon for the first time, Bundesbank data showed today. The notes were sold to yield 0.07 percent. The country offered a fixed interest payment of 0.25 percent when selling similar-maturity notes on April 18.

Rates on 10-year Italian and Spanish debt climbed at least nine basis points.

Oil declined 2.1 percent to $89.90 a barrel in New York after a government report showed U.S. crude supplies rose to a 22-year high.

The S&P GSCI gauge of commodities slumped 1.9 percent to the lowest level on a closing basis since October as coffee and cotton lost more than 4 percent to lead declines in 22 of 24 commodities tracked by the index.

The MSCI Emerging Markets Index tumbled 2.4 percent, the most on a closing basis since December. Utilities helped drag Russia’s Micex Index 3.4 percent lower as President Vladimir Putin added companies to a list of strategic assets that precludes their privatization. Benchmark gauges in Turkey and Hungary dropped more than 2 percent.

Download: Oppenheimer’s Gheit Says Oil to Fall Another $10


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