Stocks Drop on Budget, Apple While Treasuries Gain on CPI

Asian Stocks Halt 11-Day Rally as Won Drops After Japan Survey
Pedestrians are reflected in an electronic stock board outside a securities firm in Tokyo, Japan. Photographer: Tomohiro Ohsumi/Bloomberg

U.S. stocks fell a second day as the federal budget stalemate dragged on, while Treasuries rose after a drop in consumer prices. Commodities climbed and Chinese stocks surged on signs of manufacturing growth.

The Standard & Poor’s 500 Index dropped 0.4 percent to 1,413.58 at 4 p.m. in New York, erasing a weekly advance as Apple Inc. slid 3.8 percent and was the biggest drag on the gauge. Ten-year U.S. Treasury yields decreased three basis points to 1.70 percent after rising for three days. The S&P GSCI gauge of 24 commodities climbed 0.9 percent as oil added about 1 percent, while the dollar weakened against 13 of 16 major peers.

Senate Republicans are discussing a legislative strategy to break the budget standoff that would let Congress extend tax cuts for all except the highest income levels, said two Republican aides who spoke on condition of anonymity. President Barack Obama and Republican House Speaker John Boehner remained deadlocked yesterday after the two met to discuss the budget.

“The chances of some type of grand bargain in Washington are significantly diminishing as time passes,” said Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4.5 billion in Raleigh, North Carolina. “On a company level, investors are looking at the competitive landscape for Apple and they see threats.”

Market Movers

The S&P 500 slipped from an almost two-month high yesterday. Apple, the most valuable company, slid today as UBS AG cut its share-price estimate. The cost of Apple options relative to other technology companies has risen to a four-year high, reflecting concern the iPhone and iPad maker’s dominance may be threatened by rivals such as Google Inc. and Nokia Oyj.

Adobe Systems Inc. rallied 5.7 percent after reporting fiscal fourth-quarter sales and profit that exceeded analysts’ estimates. Smith & Wesson Holding Corp., maker of pistols and rifles, erased an early rally to fall 4.3 percent after a school shooting in Connecticut left at least 26 people dead, including 20 children. Sturm Ruger & Co., another gunmaker, tumbled 4.5 percent.

Best Buy Co. slumped 15 percent after extending founder Richard Schulze’s deadline to make an offer to take the company private. U.S. Steel Corp. surged 6.8 percent and Freeport-McMoRan Copper & Gold Inc. rallied 4 percent to pace gains in commodity shares, the only group to advance among the 10 main industries in the S&P 500.

Budget Talks

The S&P 500 tumbled as much as 5.3 percent after the Nov. 6 elections set up a budget showdown between Obama and House Republicans, then erased the drop this week before turning lower again in the past two sessions. The benchmark gauge of U.S. stocks is up 12 percent for 2012.

Obama and Boehner met for a third time at the White House yesterday to discuss averting spending cuts and tax increases before a year-end deadline. Boehner and Obama met for almost an hour yesterday, with no public announcement of progress. In January, more than $600 billion in spending cuts and tax increases, the so-called fiscal cliff, are scheduled to begin.

Under one scenario being discussed by Republicans, the House would vote on two separate bills, the aides said. One would extend tax cuts for all income levels. That would have wide Republican support though Obama has said he won’t accept it. The other bill would allow tax cuts for top earners to expire, as Obama demands. Democrats would support that plan and Republicans would be likely to provide enough votes to pass it in the House, one aide said. The Democratic-controlled Senate would pass and send that measure to Obama, the aide said.

Economic Data

The 0.3 percent decrease in the consumer-price index was the first drop since May, the Labor Department reported. The median estimate of 80 economists surveyed by Bloomberg called for a 0.2 percent drop. The core index, which excludes food and energy costs, climbed less than projected. Industrial production rose in November by the most in two years as manufacturers recovered from superstorm Sandy. Output grew 1.1 percent last month after a revised 0.7 percent drop in October that was more than initially estimated, the Federal Reserve reported.

Oil rose 1 percent to $86.73 a barrel in New York, while gasoline, heating oil, corn sugar and soybeans climbed more than 1 percent to lead gains in commodities. Nickel and zinc rose at least 0.8 percent. China is the world’s biggest buyer of industrial metals.

“The most recent China manufacturing data is indeed encouraging for commodities as China is still one of the biggest consumers for many natural resources,” said Frederique Dubrion, president and chief investment officer of Blue Star Advisors SA in Geneva. “Monetary-easing programs and the stabilizing global outlook will give more opportunity within materials.”

European Markets

More than three stocks rose for every two that fell on the Stoxx Europe 600 Index even as the regional benchmark closed about 0.1 percent lower. Akzo Nobel surged 7.1 percent, its biggest advance in 14 months, as PPG Industries Inc. agreed to buy the Dutch company’s North American paint business for $1.05 billion.

Alcatel-Lucent SA soared 7 percent after the company reached a 1.6 billion-euro ($2.1 billion) financing deal. The French phone-equipment maker’s bonds rose to the highest in eight months.

Spain’s 10-year bond yield fell one basis points to 5.39 percent, while the rate on similar-maturity Italian debt dropped four basis points to 4.60 percent.

Asian Markets

The Shanghai Composite Index gained 4.3 percent, its biggest rally since October 2009. Hong Kong’s Hang Seng Index rose 0.7 percent. Japan’s Topix Index, a broad gauge of stocks, closed above 800 for the first time since April.

The reading on the Chinese purchasing managers’ index was

50.9, according to HSBC Holdings Plc and Markit Economics, compared with the 50.8 median estimate of economists surveyed by Bloomberg News. November’s final reading was 50.5, the first time in 13 months that the gauge exceeded the 50 mark dividing expansion from contraction.

Japan’s large manufacturers became the most pessimistic since March 2010, the central bank’s quarterly survey showed. The Tankan index fell to minus 12 in December from minus 3 in September, its fifth straight negative reading. The median estimate of economists surveyed by Bloomberg News had called for a reading of minus 10. A negative figure means that pessimists outnumber optimists.

The MSCI Emerging Markets Index was little changed following a seven-day advance as China’s rally and a 3.3 percent surge in Argentina’s benchmark gauge were offset by declines of at least 0.8 percent in Taiwan, Turkey and Israel.

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