U.S. Stocks Fall for Fifth Day, Treasuries Gain on Budget

Dollar Climbs as European Stocks Fall Before U.S. Budget Talks
The dollar strengthened the most in a week. Photographer: Kiyoshi Ota/Bloomberg

U.S. stocks slid for a fifth day and Treasuries rose amid concern lawmakers won’t reach a budget deal to avoid the fiscal cliff of spending cuts and tax increases looming in January. Commodities slipped as the dollar gained.

The Standard & Poor’s 500 Index lost 1.1 percent to close at 1,402.43, its biggest drop since Nov. 14, and S&P 500 futures extended their decline to as much as 2 percent after the close of trading. The benchmark gauge erased its gain for December and pared its 2012 advance to less than 12 percent. Ten-year Treasury yields fell four basis points to 1.7 percent while Italian 10-year rallied as demand increased at a debt auction. The dollar strengthened against most major peers.

U.S. equities sank to their lows of the session as an official familiar with today’s budget talks said President Barack Obama is seeking an up-or-down vote on his proposal to extend tax cuts for annual income up to $250,000, absent a counteroffer from congressional leaders. The report fueled concern lawmakers have moved no closer to a compromise to avert more than $600 billion in tax and spending changes in 2013.

“What the markets fear most is that we’re in this paralysis where the government is unable to govern, communicate and compromise,” Greg Peterson, director of investment research at Ballentine Partners LLC in Waltham, Massachusetts, which manages about $4.2 billion in assets, said by telephone. “There’s still hope in our minds that they can get something done but if they go off the cliff, it’s going to be serious.”

Five-Day Slump

The five-day retreat in U.S. stocks was the longest for the S&P 500 since September and the Dow Jones Industrial Average’s longest since July. The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 option prices, jumped 17 percent to 22.72 today, the highest level since June 13. The index has surged 43 percent this month, poised for its biggest increase since July 2011.

Obama met for just over an hour today with House Speaker John Boehner and Senate Minority Leader Mitch McConnell, both Republicans, and Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats. The Republican-led House called an unusual Sunday session for the evening of Dec. 30, though the leaders didn’t say what action they planned to take.

Weekly Decline

Trading volume for S&P 500 was 30 percent below the 30-day average. Stock-index futures erased early gains before the open of exchanges in New York. The index capped a 1.9 percent weekly decline and today’s drop left it down 1 percent for December.

Energy and raw-material companies led losses among all 10 of the main industry groups in the S&P 500, with Valero Energy Corp. and Peabody Energy Corp. dropping more than 2 percent to pace declines. Hewlett-Packard Co. tumbled 2.6 percent after the computer maker said the U.S. Justice Department opened an investigation relating to Autonomy Corp., the software company it bought last year.

An S&P gauge of homebuilders retreated 0.7 percent even after better-than-forecast growth in home sales. The index of pending home sales climbed 1.7 percent to 106.4, the highest reading since April 2010, after a revised 5 percent gain in October, the National Association of Realtors reported. The median forecast in a Bloomberg survey called for a 1 percent advance.

Economic Readings

Another report showed the MNI Chicago Report’s business barometer rose to 51.6 in December from 50.4 the prior month, above the reading of 50 that is the dividing line between expansion and contraction and higher than the median estimate of economists for 51.

Benchmark U.S. 10-year Treasuries capped the first weekly gain in a month. The securities lagged behind stocks this year by the most since 2009, with equities returning eight times more than bonds.

The dollar was stronger against 10 of 16 major peers, rising the most against the Mexican peso, Norwegian krone and Brazilian real. The U.S. currency strengthened to 0.1 percent to $1.3221 per euro.

The S&P GSCI Index of commodities lost 0.2 percent as zinc, cotton, aluminum and coffee led declines. Oil slipped 7 cents to $90.80 a barrel in New York.

Gold Retreats

Gold futures fell, completing the longest run of weekly declines in almost three years, as a stronger dollar curbed demand for the metal as an alternative investment. Gold for February delivery slipped 0.5 percent to $1,655.90 an ounce and capped a fifth straight weekly decline.

The Stoxx Europe 600 Index declined 0.7 percent today, trimming its 2012 advance to 14 percent, the largest annual increase since 2009. The number of shares changing hands today was 36 percent less than the 30-day average, according to data compiled by Bloomberg.

Bankia SA plunged 27 percent to the lowest price since its initial share sale in July 2011 as the bank was temporarily excluded from Spain’s benchmark IBEX 35. Porsche SE surged 6.3 percent to the highest in almost two years after an appeals court ruling dismissed a lawsuit by hedge funds that accused the German carmaker of concealing a plan to corner the market in Volkswagen AG shares.

The yield on Italian 10-year bonds fell three basis points to 4.50 percent, erasing an earlier five-point gain, as the country sold 5.9 billion euros ($7.8 billion) of five- and 10-year government securities. Investors bid for 1.47 times the amount of the 10-year debt offered, up from 1.18 times on Nov. 29. The yield had earlier increased as much as 4 basis points.

Asia, Emerging Markets

The MSCI Asia Pacific Index advanced 0.6 percent. Government reports today showed Japan’s industrial output slid 1.7 percent last month from October, worse than all 27 estimates in a Bloomberg News survey that had a median forecast of a 0.5 percent decline. The data bolstered the case for Prime Minister Shinzo Abe to push for further monetary easing. Consumer prices excluding fresh food fell 0.1 percent in November from a year earlier.

Abe’s cabinet is working on a plan to fight against a strong yen, the Nikkei newspaper said. Proposals include the use of currency intervention when needed, the paper said.

The MSCI Emerging Markets Index advanced 0.6 percent to extend this year’s increase to 15 percent. China’s Shanghai Composite Index rallied 1.2 percent to the highest since June 21. The BSE India Sensitive Index added 0.6 percent, heading for its best year since 2009. Vietnam’s VN Index jumped 0.9 percent to the highest since August, capping its largest weekly gain since February. Russia’s Micex Index fell 0.2 percent.

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