Euro Drops as Spain, Italy Rates Rise; S&P 500 Fluctuates

U.S. Stocks Rebound
Traders work on the floor of the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

U.S. stocks rose, with benchmark indexes rebounding from two-week lows, as consumer, energy and financial shares led gains. The euro reversed an earlier drop versus the dollar triggered by a surge in yields at auctions in Italy and Spain. Corn and coffee led commodities higher.

The Standard & Poor’s 500 Index advanced 0.5 percent to close at 1,319.99 at 4 p.m. in New York. The euro was little changed at $1.2496 after slumping 0.5 percent. The Spanish two-year note yield added 37 basis points to 5.22 percent and rates on two-year Italian debt jumped 34 basis points. Corn surged as dry weather hurts U.S. crops. Oil rose, while remaining below $80 a barrel for a fourth day. Natural gas climbed 2.7 percent.

Homebuilder shares helped lead gains in the U.S. after a report showed house prices decreased at the slowest pace since 2010, tempering concern about a drop in the Conference Board’s consumer confidence index to a five-month low. Stocks retreated earlier as investors watched European headlines before a summit of leaders this week. German Chancellor Angela Merkel reiterated her opposition to a shared debt burden in the region.

“The good news is that housing is not a headwind to the economy,” Hank Smith, chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania, said in a telephone interview. His firm manages about $6.5 billion. “Yet we cannot say it’s a tailwind. Data will be choppy and concern about Europe is still there.”

Homebuilders Rally

The S&P 500 rebounded after tumbling 1.6 percent yesterday amid concern European leaders will fail to make progress on halting the debt crisis at this week’s summit.

An index of U.S. homebuilders surged 3.8 percent today as PulteGroup Inc. and Toll Brothers Inc. rallied more than 5 percent to pace gains in all 11 companies. The S&P/Case-Shiller index of property values in 20 cities dropped 1.9 percent in April from 2011, the smallest decline since November 2010, and increased 0.7 percent from the prior month.

News Corp. rallied 8.3 percent to a four-year high after the media company confirmed it’s considering a split into two units. Apollo Group Inc., the largest U.S. for-profit college chain, surged 10 percent after boosting its full-year forecast for operating earnings. Seagate Technology Plc increased 3.7 percent as the world’s largest maker of computer disk drives was named to replace Progress Energy Inc. in the S&P 500.

JPMorgan Chase & Co. rose 1.1 percent after Goldman Sachs Group Inc. analysts upgraded the bank to buy and put it on its “Americas conviction list” of highly recommended stocks. The analysts said the stock’s 13 percent drop since disclosing a trading loss of at least $2 billion last month was “drastic” when set against the bank’s total profitability.

Earnings Season

Alcoa Inc., the largest U.S. aluminum producer, is scheduled to report second-quarter results on July 9 to start the earnings season for Dow Jones Industrial Average companies. Profits at S&P 500 companies fell 1.1 percent in the April-June period, according to analyst estimates compiled by Bloomberg. That would mark the first year-over-year decrease since 2009.

The yield on the 10-year U.S. Treasury note rose three basis points to 1.63 percent. The note’s rate has increased after tumbling to a record of 1.4387 percent on June 1, the day the S&P 500 slid to a five-month low when Labor Department data showed U.S. employers added the fewest jobs in a year. The stocks index has rebounded 3.3 percent since then, while still up less than 1 percent in June after two straight monthly declines.

‘In Limbo’

“We’re caught in this limbo,” said Brian Jacobsen, who helps oversee $204 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin. “People are waiting to see what comes out of the European Union summit this week.”

More than two shares fell for each that gained in Europe’s Stoxx 600. Bankia SA of Spain dropped 8.7 percent and Italy’s Banca Monte dei Paschi di Siena SpA slipped 5.3 percent. Moody’s Investors Service downgraded 28 Spanish banks yesterday.

Byron Wien is “still an optimist” and doesn’t anticipate a severe European recession, the vice chairman of Blackstone Group LP’s advisory service unit said in a “Bloomberg Surveillance” radio interview with Ken Prewitt and Tom Keene. “I know that every day the evidence piles up against me, but I still think the European Union is going to survive, the euro is going to survive, and at least for this year, all the members will stay.”

Merkel’s Stance

Germany’s Merkel told lawmakers of her ruling coalition she “doesn’t see” shared debt happening in the euro area, according to Steffen Seibert, her chief spokesman.

“The chancellor made it clear that even within Germany after 60 years there isn’t joint liability, and that she doesn’t see it in Europe either,” Seibert said in a text message today after Merkel briefed lawmakers in Berlin behind closed doors.

Lawmakers were told that the matter of preferred creditor status relating to the European Stability Mechanism will be discussed at the summit, the official said, without saying who briefed on the matter. Neither Merkel nor Finance Minister Wolfgang Schaeuble took a position on whether seniority should be changed, the official said. Germany faces pressure to surrender preferred status on rescue loans to Spain’s banks.

Italy has approved a decree to help banks boost capital through the sale of bonds to the government, as Monte dei Paschi prepares to raise at least 1 billion euros using the securities, said a government official who asked not to be identified because the matter isn’t public yet.

Spain sold 3.08 billion euros ($3.85 billion) of bills, with the three-month note yielding 2.362 percent, compared with 0.846 percent at the previous auction.

Demand for Spain’s three-month securities was 2.6 times the amount sold, compared with 3.95 times in May, while the bid-to-cover ratio for the six-month bills was 2.82 compared with 4.3. Spain’s 10-year bond yield rose 24 basis points to 6.87 percent, widening the yield spread with the benchmark German bund by 19 basis points to 537 basis points, the most in a week.

‘Very Focused’

“The market is very focused on the spread so is taking this negatively,” said Arnaud Scarpaci, a fund manager at Agilis Gestion SA in Paris. “It’s difficult to appreciate that yield.”

The yield on Germany’s 10-year bund jumped four basis points to 1.51 percent after the rate slid 12 basis points yesterday. The yield on Italy’s 10-year bond rose 17 basis points to 6.18 percent. The government sold 2.99 billion euros of zero-coupon 2014 notes at a yield of 4.712 percent, up from 4.037 percent at the previous auction.

Commodities Gain

The S&P GSCI Index of commodities was up 0.9 percent even as half of the 24 materials tracked by the index declined, with silver, cotton and zinc losing more than 1.5 percent for the biggest losses.

Corn extended gains after the U.S. Department of Agriculture said 56 percent of the U.S. crop was rated good to excellent, down from 63 percent last week. Corn for delivery after the harvest jumped to the highest in more than nine months, with December futures touching $6.2375 a bushel.

Temperatures as much as 10 degrees Fahrenheit above normal and dry weather over the next three days will increase stress on Midwest crops that have received less than 25 percent of normal rain since May 1, John Dee, the president of Global Weather Monitoring, said in a telephone interview. While scattered showers are expected beginning June 29, the weather will be mostly dry in the first week of July, damaging corn plants that will be pollinating, Dee said.

Cattle futures rose amid concern that hot weather in the U.S. will limit weight gains for animals before they are sent to meat-packing plants, reducing beef supply. Natural gas surged 7.3 cents to a five-month high of $2.767 per million British thermal units as forecasts for hot weather signaled increased demand for the power-plant fuel.

The MSCI Emerging Markets Index rose 0.5 percent, snapping a three-day decline. Benchmark gauges in Russia, Turkey and Poland climbed more than 1 percent. The MSCI Asia Pacific Index lost 0.2 percent. South Korea’s Kospi Index slipped 0.4 percent. The Shanghai Composite Index declined less than 0.1 percent.

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