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Stocks Retreat With Euro, Oil as Spain Bond Yields Surge

Federal Reserve Bank of Philadelphia CEO Charles Plosser
Charles Plosser, president and chief executive officer of the Federal Reserve Bank of Philadelphia. Photographer: Scott Eells/Bloomberg

Stocks fell, sending Europe’s benchmark index down the most in two months, while the euro weakened and Spain’s 10-year yield topped 6 percent as protests against austerity measures fueled concern the debt crisis will worsen. Treasuries extended the longest rally since 2008.

The Standard & Poor’s 500 Index slipped 0.6 percent to 1,433.32 at 4 p.m. in New York after tumbling 1.1 percent yesterday, the most in three months. The Stoxx Europe 600 Index lost 1.8 percent in its biggest drop since July 23. The euro fell 0.3 percent to $1.2866 and Spain’s 10-year yields jumped as high as 6.07 percent. Treasuries rose for an eighth day, with the 10-year yield down five basis points to 1.62 percent. Oil slid below $90 a barrel for the first time since August.

Germany, the Netherlands and Finland said late yesterday Spain should bear the cost of problems in their banks, with the European Stability Mechanism assuming only a limited burden in recapitalizations. The Bank of Spain said the economy kept falling at a “significant pace” in the third quarter. Reports showed new U.S. home sales trailed the median economist estimate, French consumer confidence dropped for a third month in September and Italian retail sales declined in July.

“There’s an ongoing drip feed of negative news,” said Richard McGuire, a fixed-income strategist at Rabobank International in London. The ESM announcement “appears to cast some doubt as to whether Spain will be able to disburden itself of the liabilities it will assume via its banking bailout.”

QE3 Rally Fades

The S&P 500 has rallied 5.2 percent so far in the third quarter and pension funds may need to sell stocks this week to rebalance asset allocations, according to UBS AG strategist Boris Rjavinski. U.S. pensions, which UBS estimates hold about 55 percent of their $5 trillion in stocks, may pull as much as $36 billion from equities and put as much as $19 billion into fixed income, Rjavinski wrote in a note dated Sept. 24. The largest outflows will be from stocks of large U.S. companies, with as much as $21 billion being sold, the strategist projected.

The S&P 500 fell for a fifth straight day, the longest losing streak since July, and has erased its gain since the Federal Reserve announced a third round of quantitative easing on Sept. 13. Stocks slid yesterday as Fed Bank of Philadelphia President Charles Plosser said yesterday more bond purchases probably won’t boost growth or create jobs.

‘Too Many Eggs’

“There are too many eggs in the Fed basket,” Eric Thorne, who helps oversee about $6 billion at Bryn Mawr Trust Co. in Bryn Mawr, Pennsylvania, said in a phone interview. “The Fed cheerleading and stimulus has lulled investors into a sense of complacency that the Fed can keep the economy afloat and growing. We worry that the reality of the situation is that the Fed can only do so much.”

American Express Co., Walt Disney Co. and Bank of America Corp. lost more than 1 percent to lead declines in the Dow Jones Industrial Average. Jabil Circuit Inc. tumbled 9.9 percent, the biggest drop in the S&P 500, following an earnings forecast that trailed analysts’ estimates.

PulteGroup Inc., Lennar Corp. and D.R. Horton Inc. slid at least 3.9 percent to pace losses in all 11 stocks in an S&P gauge of homebuilders. New-home sales decreased 0.3 percent to a 373,000 annual pace following a revised 374,000 rate in July that was higher than previously estimated and the strongest since April 2010, figures from the Commerce Department showed. The median estimate of 71 economists surveyed by Bloomberg called for a rise to 380,000.

European Leaders

Banks and automakers led losses on the Stoxx 600, as all 19 industry groups retreated. ICAP Plc fell 3.3 percent after the world’s largest broker of transactions between banks forecast first-half revenue will declined 14 percent. Imagination Technologies Group Plc, a U.K. designer of parts for Apple Inc.’s iPhone, sank 9.6 percent as Reuters reported that Texas Instruments Inc. will shift the focus of its wireless investment away from smartphones.

The euro fell against 12 of its 16 major peers, dropping as much as 0.7 percent versus the yen.

The dollar strengthened against 14 of 16 major peers. Options traders are boosting bullish wagers at the fastest pace in three years on an exchange-traded fund that tracks the U.S. dollar, betting the currency will continue its rebound from a four-month low.

The ratio of outstanding calls on the PowerShares DB US Dollar Index Bullish Fund versus puts has more than doubled since its Sept. 11 low to 3.41-to-1 at the end of last week, data compiled by Bloomberg show. That was the largest increase for any comparable period since November 2009. The ETF climbed 0.9 percent from a 10-month low on Sept. 14.

Spanish Yields

Spain’s 10-year yield rose 32 basis points to 6.06 percent and the two-year note yield jumped 29 basis points to 3.46 percent. The yield on two-year Italian debt climbed 13 basis points to 2.45 percent. Ten-year German yields slid 13 basis points to 1.46 percent.

Madrid faces a second night of protests after the anarchist union CNT called for a demonstration tonight, coinciding with a general strike in Greece. Catalan President Artur Mas yesterday called early elections to push for “self-determination” for the country’s largest region, another setback as Prime Minister Mario Rajoy attempts to get public backing for the deepest budget cuts on record.

The Markit iTraxx SovX Western Europe index of credit-default swaps on 14 governments increased 12 basis points to 148, the highest level in a week.

Oil fell 1.5 percent to $89.98 a barrel. Prices dropped for the seventh time in eight days after the Energy Department said total U.S. fuel use decreased 1.1 percent in the four weeks ended Sept. 21 and inventories remained at the highest level for this time of the year since 1990.

The S&P GSCI Index declined 1 percent as zinc, corn and coffee lead losses in 20 of 24 commodities in the gauge.

The MSCI Emerging Markets Index dropped 1.1 percent, the most since July 23. The Hang Seng China Enterprises Index of mainland companies traded in Hong Kong and the Shanghai Composite Index both fell 1.2 percent. Russia’s Micex Index lost 2.5 percent and India’s Sensex slipped 0.3 percent. Benchmark gauges in South Africa, Hungary, Thailand and Indonesia lost at least 1 percent.

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