U.S. Stocks Rise, Treasuries Gain as Fed Policy Meeting Looms

  • Treasuries rise for first time in four days, dollar weakens
  • S&P 500 caps its best week since July as China turmoil eases

U.S. stocks rose amid the thinnest trading in three weeks, while Treasuries halted a three-day slump as investors remained cautious before the Federal Reserve meets to debate raising interest rates.

The Standard & Poor’s 500 ended at session highs after swinging between gains and losses throughout the day. Trading in S&P 500 stocks was 17 percent below the 30-day average as the gauge capped its biggest weekly gain since July. The Dow Jones Industrial Average claimed its best week in five months. Oil dropped below $45 a barrel, as commodities slumped.

“The market just can’t make up its mind,” Joseph Tanious, an investment strategist at Bessemer Trust in Los Angeles, said in a phone interview. The firm oversees more than $100 billion. “There is confusion around what the Fed is going to do. There is uncertainty around the future of China and where oil prices are heading. Investors are having a hard time wrapping their mind around it.”

Economists and money-market traders are split on whether the Federal Open Market Committee will raise interest rates at its Sept. 16-17 meeting. Global stocks rose this week as China was able to rein in equity-market volatility and thwart speculation of further currency depreciation, easing concern its financial-market turmoil will derail global growth.

Stocks

The S&P 500 rose 0.4 percent at 4 p.m. in New York. The gauge advanced 2.1 percent this week amid volatile trading and light volumes. The gain is the best since July. The Dow added 328 points for its best week since March 20.

Fed policy makers have already seen the major economic data available to them before their rate decision next week. Investors are also assessing the extent of impact recent market volatility will have on officials’ thinking.

The turbulence took a toll on consumer sentiment, which declined in September to the lowest level in year as Americans anticipated a weaker economy. Some 17 percent of respondents mentioned unfavorable news about equity markets, the highest share since the height of the last financial crisis in October 2008.

A separate report showed wholesale prices were little changed in August.

Energy shares led declines in the S&P 500, as oil slipped after Goldman Sachs Group Inc. said the global surplus of oil is even bigger than it thought, and that could drive prices as low as $20 a barrel. Shares of consumer-discretionary producers advanced.

“It’s normal to have volatile markets ahead of such an important decision from the Fed,” said Ralf Zimmermann, a strategist at Bankhaus Lampe KG in Munich. “It’s been such a long time -- there are a lot of traders who have never seen a rate hike in their career. Markets will have to live with uncertainty until then.”

The Stoxx Europe 600 dropped 1 percent, ending a three-day rally. The gauge advanced 0.7 percent this week, its best performance since July.

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Bonds

Treasuries rose for the first time in four days, with the 10-year note yield dropping three basis points to 2.19 percent. Treasuries also advanced as buyers piled into U.S. auctions of notes and bonds this week.

Germany’s 10-year bund yield declined four basis points to 0.65 percent and Italy’s rate slid three basis points to 1.83 percent.

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Emerging Markets

Emerging-market stocks pared their biggest weekly gain since April as conflicting speculation about the timing of Fed tightening and the magnitude of China’s economic slowdown drove volatility to the highest levels since 2011.

The MSCI Emerging Markets Index slipped 0.2 percent, trimming its five-day gain to 1.8 percent. Developing-nation stocks have slumped for four straight months amid widening price swings. Higher U.S. rates would make dollar assets more appealing to investors, spurring them to shift capital from emerging markets.

(For more news on emerging markets, click TOP EM.)

Currencies

The dollar fell against most of its major peers this week, with traders doubting the Fed will increase interest rates this month for the first time since 2006.

The Bloomberg Dollar Spot Index fell 0.1 percent on Friday, extending its its slide in the week to 0.7 percent. The euro rose 0.5 percent to $1.1336, up 1.7 percent this week, and the yen was at 120.57 per dollar. The Bank of Japan is also scheduled to meet next week.

(For more news on currencies, click TOP FX.)

Commodities

West Texas Intermediate crude fell 2.8 percent to $44.63 a barrel on the New York Mercantile Exchange. A failure to reduce production fast enough may require prices near $20 a barrel to clear the oversupply, Goldman said in a report e-mailed Friday while cutting its Brent and WTI crude forecasts through 2016. Brent was down 75 cents to end at $48.14 a barrel in London.

Corn futures rose after the U.S. government reduced its forecast for domestic production, citing lower yields after excessive rain across parts of the Midwest. The U.S. Agriculture Department unexpectedly raised its forecast for the country’s soybean crop this year as favorable weather boosted yields.

(For more news on commodities, click TOP CMD.)

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