U.S. Stocks, Japan ETF Drop, Yen Up as Earthquake Shakes Tokyo

Stocks fell, pulling the Dow Jones Industrial Average down from an almost three-year high, equity futures slid in Tokyo and the yen rose as another earthquake shook Japan. Oil topped $110 a barrel and commodity indexes rose to the highest levels since 2008.

The Dow slipped 17.26 points, or 0.1 percent, to 12,409.49 at 4 p.m. in New York and the Standard & Poor’s 500 Index dropped 0.2 percent. The iShares MSCI Japan Index Fund, an exchange-traded security tracking the nation’s equities, lost 0.8 percent, paring a drop of as much as 1.7 percent after Japan canceled a tsunami warning. Ten-year Treasury note yields were little changed at 3.55 percent after rising earlier. The yen strengthened against 15 of 16 major counterparts.

Equities turned lower after a magnitude-7.1 aftershock, one of the strongest since the devastating earthquake March 11, struck Japan today 215 miles (345 kilometers) northeast of Tokyo. At least three nuclear facilities lost some outside power, while the damaged Fukushima Dai-Ichi plant was spared. Stocks also retreated amid growing concern an impasse over the federal budget may lead to a shutdown of the U.S. government.

“Investor pysches are a little fragile,” said James Dunigan, chief investment officer in Philadelphia for PNC Wealth Management, which oversees $108 billion. “It’s not surprising investors stepped to the sideline until they could find out whether this new earthquake would cause significant damage,” he said. “We’re working through the issues on the budget deal. That’s not a significant negative, but we’d probably like to see that resolved without a shutdown.”

Japan Futures

Nikkei 225 Stock Average futures expiring in June were at 9,520 in Chicago, down 0.8 percent from the closing level of 9,595 in Singapore. The Chicago contracts slid as low as 9,420. Japan’s currency rose more than 0.8 percent versus the Danish krone, euro and Swedish krona, the biggest gains among 16 major peers, as the earthquake caused investors to seek a haven in the currency and unwind risky bets financed with borrowed yen.

Caterpillar Inc., General Electric Co. and McDonald’s Corp. lost at least 0.9 percent to lead the Dow’s drop after the earthquake. The cost to protect Cisco System Inc.’s debt climbed as Chief Executive John Chambers reiterated that the largest maker of networking equipment needs to make a “major change” to rectify mistakes. Credit-default swaps on the company’s debt rose 3.4 basis points to 65.9 basis points as of 10:53 a.m. in New York, the highest since Aug. 31, according to data provider CMA.

The Markit CDX North America Investment Grade Index , which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 0.8 basis point to a mid-price of 93.52 basis points at 4 p.m. in New York, according to index administrator Markit Group Ltd.

Shutdown Concern

The U.S. House approved a stopgap spending bill to keep the government open through next week, although President Barack Obama said he would veto the measure and a shutdown still looms. A failure to extend the government’s spending authority, which expires tomorrow, would force the closure of national parks, monuments and museums. Federal agencies -- such as the National Labor Relations Board -- that don’t protect lives, property or national security also would be shuttered.

Earlier gains in U.S. stocks came as improving retail sales and a drop in jobless claims bolstered optimism in the economy.

Bed Bath & Beyond Inc. surged 10 percent after the home furnishings retailer forecast earnings that beat analysts’ estimates. Costco Wholesale Corp. climbed 3.8 percent as comparable-store sales at the largest U.S. warehouse club increased at almost twice the forecast rate. Newmont Mining Corp. rose 3.3 percent on plans to increase gold output and link its dividend to the price of the metal, which advanced to a record for a third straight day. Gold for June delivery climbed as high as 0.6 percent to $1,466.50.

Jobless Claims

Applications for jobless benefits fell by 10,000 to 382,000 last week, the fewest since Feb. 26, Labor Department figures showed today. Economists projected claims would be little changed at 385,000, according to the median estimate in a Bloomberg News survey.

The euro slid against 14 of its 16 most-traded peers after the European Central Bank increased its benchmark rate to 1.25 percent from a record low of 1 percent, in line with the prediction by all 57 economists in a Bloomberg survey. The shared currency weakened from its strongest level in more than a year versus the dollar, slipping 0.2 percent to $1.4305, after ECB President Jean-Claude Trichet said today’s increase wasn’t necessarily the “first of a series.”

‘Hint of Irony’

The ECB’s rate increase was its first since 2008 and came even as Portugal asked for a bailout that may be worth as much as 75 billion euros ($107 billion), two European officials with knowledge of the situation said. Record-high borrowing costs made it the third in the euro region to seek rescue funds.

“There is more than a hint of irony that Portugal has been forced to ask for a bailout on the day that the ECB is expected to hike interest rates,” Jane Foley, a senior foreign-exchange strategist at Rabobank International in London, wrote in a report before the ECB’s decision. “While it can be argued that a 25 basis-point hike will not make an enormous difference for funding costs in the region, the peripheral crisis does underline the question mark over how high the ECB can push interest rates over the next year or so.”

European Stocks

The Stoxx Europe 600 Index erased earlier gains after the earthquake, ending the session down 0.3 percent. Hochtief AG tumbled 7.9 percent after Germany’s biggest builder warned of losses at its Australian unit. Bayerische Motoren Werke AG led auto-industry shares lower. Banks limited the selloff after Portugal sought an EU bailout.

Banco Espirito Santo SA and Banco Comercial Portugues SA, Portugal’s biggest publicly traded lenders, climbed more than 4 percent each. The yield on the government’s 10-year bond rose six basis points to 8.60 percent after LCH Clearnet Ltd. planned an extra 15 percent deposit charge for clients holding “long” positions, or bets on gains, in Portuguese debt.

The MSCI Emerging Markets Index was little changed near its highest level since June 2008, after a seven-day, 5.7 percent gain. Russia’s Micex Index retreated 0.8 percent from the highest in almost three years. Egypt’s benchmark gauge lost 0.9 percent

Oil rose 1.4 percent to $110.30 a barrel, above $110 for the first time in 30 months, as a fire burned at Libya’s Sarir field, bolstering concern that unrest in North Africa and the Middle East will spread, curbing shipments.

Coffee and nickel also advanced more than 1.3 percent to lead the Thomson Reuters/Jefferies CRB index of commodities to the highest level since September 2008.