Stocks Retreat While Treasuries Rise on Budget Deadlock

Stocks Rise With Metals on Greece Deal as German Bunds Decline
Traders work on the floor of the Frankfurt Stock Exchange in Frankfurt. Photographer: Ralph Orlowski/Bloomberg

U.S. stocks fell for a second day and Treasuries rose as Senate Majority Leader Harry Reid said budget talks in Washington have made little progress. The dollar strengthened while oil, gold and cocoa led commodities lower.

The Standard & Poor’s 500 Index lost 0.5 percent to close at 1,398.94 at 4 p.m. in New York after earlier climbing 0.2 percent. The dollar rose against 13 of 16 major peers, while crude and gold futures decreased at least 0.4 percent. The Stoxx Europe 600 Index ended 0.3 percent higher. Ten-year Treasury yields were down 2.6 basis points at 1.64 percent.

Equities extended losses as Reid told reporters he was disappointed with the lack of progress among lawmakers in budget talks, and “we have to get away from the happy talk and start talking about specific things.” Concern about the budget deadlock overshadowed economic data showing demand for U.S. capital goods increased, home prices rose by the most since 2010 and consumer confidence reached a more-than four-year high.

“Comments from Majority Leader Reid about ‘little progress’ being made in fiscal-cliff talks, after last week’s optimism, sparked an immediate knee-jerk reaction lower,” Michael James, a managing director of equity trading at Wedbush Securities Inc. in Los Angeles, said in an e-mail.

Gauges of energy, financial and telephone companies lost at least 0.7 percent to lead declines among the 10 main industry groups in the S&P 500, with only utilities advancing.

Market Leaders

Hewlett-Packard Co. slipped 3 percent after saying it uncovered evidence of improper accounting at Autonomy Corp., a software company it bought last year. Seagate Technology Plc slumped 5.1 percent after a CLSA Asia Pacific Markets analyst said the “magnitude” of the personal-computer slowdown in emerging markets was worse than previously thought. Corning Inc. jumped 6.9 percent after forecasting stronger-than-anticipated retail demand for consumer electronics this quarter.

U.S. stocks retreated yesterday following a 3.6 percent rally in the S&P 500 last week. The index has lost 2.1 percent since President Barack Obama’s re-election on Nov. 6 set up a budget showdown with House Republicans, paring a decline of as much as 5.3 percent through Nov. 15. The Congressional Budget Office has said a failure to avoid the so-called fiscal cliff could lead to a recession and a jobless rate of about 9 percent, compared with the October rate of 7.9 percent.

Reid said that following a Nov. 16 White House meeting, Republicans backed away from earlier openness to considering new tax revenue as part of a year-end deal to avert the so-called fiscal cliff, $607 billion in tax increases and spending reductions set to begin in January.

‘Happy Talk’

“They talked some happy talk about doing revenues, but we only have a couple weeks to get something done,” Reid said. “So we have to get away from the happy talk and start talking about specific things.”

The dollar also strengthened as Federal Reserve Bank of Dallas President Richard Fisher said he advocates putting limits on U.S. quantitative easing. The Fed could announce “a limit as to how much we are going to acquire of Treasuries and mortgage-backed securities,” Fisher said today in Berlin. “It is my personal preference to do it sooner than later, perhaps at the next meeting.”

Durable Goods

In economic reports, bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, rose 1.7 percent last month, the most since May, the Commerce Department said. Orders for all durable goods were little changed, beating the median forecast of economists surveyed by Bloomberg that projected a 0.7 percent drop.

Home prices rose in the year ended in September by the most since July 2010, showing the recovery in the U.S. real estate market is a source of economic strength. The S&P/Case-Shiller index of values in 20 cities climbed 3 percent from September 2011, after advancing 2 percent in the year to August. The median forecast of 29 economists in a survey projected a 3 percent gain.

U.S. consumer confidence rose in November to the highest level since February 2008. The Conference Board’s confidence index climbed to 73.7, the highest since February 2008, from a revised 73.1 reading the prior month. The median forecast of 75 economists surveyed by Bloomberg projected a reading of 73.

European Markets

Three shares gained for every two that declined in the Stoxx 600. The gauge slipped 0.5 percent yesterday, halting a five-day advance. Germany’s 10-year yield touched a three-week high after the Greek aid deal was struck.

The euro weakened against 12 of 16 major peers, losing more than 0.3 percent versus the South African rand and South Korean won, on concern an aid deal for Greece may falter. Euro-area finance chiefs and the International Monetary Fund said they would cut Greece’s interest rates and give it more time to pay back rescue loans after the repurchase of government debt.

“Giving Greece more money is not the solution to any problem -- it’s a Band-Aid at this stage,” said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. “Any kind of rattling news that something will jeopardize the deal, or further demands, is going to have a negative effect.”

The price of Greece ’s 2 percent bonds maturing in February 2023 climbed 0.645 to 34.94 percent of face value. European finance ministers said in a statement that “any tender or exchange prices” as part of a buyback of Greek securities “are expected to be no higher than those at the close” on Nov. 23, when the price was 34.355 cents on the euro.

European Yields

Italy’s two-year yield fell two basis points to 1.97 percent after the government sold 3.5 billion euros ($4.5 billion) of 2014 notes, the maximum set for the auction, at the 1.923 percent, down from 2.397 in October. The rate on similar-maturity Spanish notes fell eight basis points to 2.92 percent.

Gold futures declined the most in a week, losing 0.4 percent to $1,742.30 an ounce, after UBS AG analysts said buying in India has retreated. Silver futures for March delivery slid 0.5 percent to $34.07 an ounce in New York while Crude oil declined 0.6 percent to $87.18 a barrel.

Speculators raised bullish commodity wagers for the first time since early October as signs of improving economic growth in the U.S. and China pushed prices higher for three straight weeks.

Hedge funds and other money managers increased combined net-long positions across 18 U.S. futures and options by 9.6 percent to 846,321 contracts in the week ended Nov. 20, Commodity Futures Trading Commission data show. That was the biggest gain since mid-August. Corn holdings rose the most since July, and those on silver reached a five-week high.

The MSCI Emerging Markets Index was little changed. Brazil’s Bovespa index erased earlier gains to fall 0.9 percent, while India’s Sensex rallied 1.7 percent. Benchmark gauges in South Korea, Thailand and the Czech Republic added at least 0.5 percent. The Shanghai Composite Index slipped below the 2,000 level to the lowest close since January 2009, and Russia’s Micex Index lost 0.7 percent.

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