Stocks, Euro Slump as Enthusiasm for Cyprus Bailout Fades

Stocks slid, erasing early gains, amid concern that Cyprus’s bank-restructuring plan will pave the way for losses on deposits in other European nations. The euro weakened against all 16 major peers while Italian and Spanish bonds erased gains.

The Standard & Poor’s 500 Index retreated 0.3 percent to 1,551.69 at 4 p.m. in New York after climbing to as high as 1,564.91, within one point of its 2007 record close. The Stoxx Europe 600 Index lost 0.3 percent, reversing a 1 percent rally. Italy’s 10-year bond yield rose 10 basis points to 4.61 percent, after decreasing eight points earlier, and Spain’s yield jumped 10 points. Ten-year Treasury rates fell one point to 1.92 percent, while oil led commodities higher.

Stocks turned lower and the euro extended losses earlier amid concern the Cyprus deal will be used as a model in other euro-area nations that need to recapitalize financial institutions in the future. Cyprus agreed to the outlines of an aid deal that imposes losses which two European Union officials said would be as much as 40 percent on uninsured depositors at Bank of Cyprus Plc, which will take over the viable assets of Cyprus Popular Bank Pcl as that bank is wound down.

“I think that there’s going to be a bitter aftertaste on the part of small depositors, not only in Cyprus but possibly in Greece and Spain,” Alan Gayle, senior strategist at RidgeWorth Capital Management, said in a phone interview. The Richmond, Virgina-based firm oversees about $48 billion. “Moving through the old high is likely to require some strong positive news. Cyprus was just not the catalyst to drive this market higher.”

‘Hard Day’s Night’

Cypriot President Nicos Anastasiades agreed to shut the country’s second-largest bank under pressure from a German-led bloc in a night-time negotiating melodrama that threatened to rekindle the debt crisis. Anastasiades said that his country will remain in the euro, despite feelings of bitterness over the treatment the country received in its request for financial aid, in comments televised on state-run CYBC.

“It’s been yet another hard day’s night,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels early today. “There were no optimal solutions available, only hard choices.”

Stocks and the euro sank to their lows of the day after Reuters reported that Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of 17 euro finance ministers, said the Cyprus bailout should be viewed as a template for solving banking problems in the region. Imposing losses on depositors and bondholders must be part of the bailout toolkit, he told Reuters and the Financial Times in comments that were confirmed today by his spokeswoman, Simone Boitelle.

‘Specific Case’

Equities pared losses after Dijsselbloem later released a statement clarifying his remarks, saying Cyprus is “specific case with exceptional challenges” which required the measures agreed upon.

“Macro-economic adjustment programs are tailor-made to the situation of the country concerned and no models or templates are used,” he said in the statement.

Among U.S. stocks, Bank of America Corp., 3M Co. and McDonald’s Corp. lost more than 1 percent to lead the Dow Jones Industrial Average down 64.28 points to 14,447.75. Industrial, commodity and health-care shares the biggest declines as all 10 of the main industry groups in the S&P 500 retreated.

Apollo Group Inc. surged 7.1 percent after the for-profit education company’s quarterly earnings topped estimates. Dell Inc. climbed 2.6 percent after saying Blackstone Group LP and activist investor Carl Icahn have submitted proposals to buy the company that may be superior to Michael Dell’s $24.4 billion buyout plan.

Euro Reverses

The euro erased an earlier gain against the dollar, triggered after the provisional agreement was struck that would make Cyprus the fifth country to get a rescue since the debt crisis broke out in Greece in 2009. The shared currency fell 0.7 percent against the dollar last week, the most since the five days ended March 1, and tumbled 1.5 percent versus the yen, the most since the week ended Feb. 8.

European banks in the Stoxx 600 erased earlier gains to slump 1.9 percent as a group to the lowest level of the year. Intesa Sanpaolo SpA and Societe Generale SA lost more than 6 percent to lead losses.

The DAX Index slipped 0.5 percent. German advisers cut the nation’s 2013 economic growth forecast to 0.3 percent, from its previous estimate of 0.8 percent, citing “the sharp decline” of gross domestic product in the fourth quarter of 2012.

Meyer Burger Technology AG fell 5 percent on a new share-sale plan. Vodafone Group Plc added 2 percent after a report said the carrier may sell its stake in its joint venture with Verizon Communications Inc. for $135 billion. Metso Oyj jumped 9.6 percent, the most in eight months, after saying it may spin off some units.

European Bonds

Italian bonds fell for the first time in four sessions. Earlier gains sent the price of the 5.5 percent securities maturing in November 2022 up as much as 0.66, or 6.60 euros per 1,000-euro face amount, to 108.755, climbing above the 108.60 closing level on Feb. 22, the last trading day before inconclusive elections sent the securities lower.

The rate on Germany’s 10-year bunds, Europe’s benchmark government bonds, declined five basis points to 1.33 percent, near the lowest level of the year. U.K. and Dutch rates also dropped, while Portugal’s increased.

The euro weakened 1 percent to $1.2856 after reaching $1.3048, the strongest level since March 15. The shared currency was down 1.4 percent against the yen, erasing an advance of as much as 0.9 percent.

Emerging Markets

China’s yuan strengthened beyond 6.21 per dollar for the first time in 19 years after the central bank raised the currency’s reference rate. The Indian rupee rose to 54.1800 per dollar after the government removed sub-limits governing foreign investment in the nation’s bonds. Overall caps of $25 billion for sovereign debt and $51 billion for corporate notes were left unchanged.

The MSCI Emerging Markets Index added 0.6 percent, rebounding from its lowest level of the year, as Malaysian and South Korean stocks led gains.

The link between risk and reward in stocks is breaking down as emerging markets post the worst first quarter since 2008 and lag behind shares of developed economies by the most in 15 years.

The emerging markets index’s 3.8 percent drop this year through last week trimmed its rebound from an October 2011 low to 22 percent. That compares with a 33 percent advance for the MSCI World Index and marks the first time since 1998 that developing-country shares have underperformed during a global rally. When adjusted for price swings, emerging market returns are 37 percent smaller than in advanced nations, data compiled by Bloomberg show.


The S&P GSCI gauge of 24 commodities added 0.4 percent, paring a gain of 1.1 percent. Oil rose 1.2 percent to $94.81 a barrel in New York.

Copper slipped 0.6 percent to $3.445 a pound in New York as speculation that China’s government will take steps to tame inflation added to concerns that global growth will slow, curbing metals demand. Hedge funds are making the biggest bet against copper on record as global inventories expand to a nine-year high, while concern that Europe’s debt crisis will spread spurred the biggest gain in gold bets since 2008.

Speculators raised net-short positions in U.S. copper futures and options by 53 percent to 25,719 contracts in the week ended March 19, according to Commodity Futures Trading Commission data that begins in 2006. A jump in bullish bets on corn, gold and natural gas boosted overall holdings across 18 raw materials for a second consecutive week.

Copper Bets

Copper prices are heading for a second consecutive monthly loss in what would be the longest slump since the end of 2011. Stockpiles monitored by exchanges in London, Shanghai and New York stand at about 873,000 metric tons, or almost five months of North American demand, and Barclays Plc is forecasting a second annual surplus. Gold climbed for three weeks, the longest rally in six months, amid turmoil in Cyprus.

Japan’s Topix Index of shares climbed 0.8 percent, rebounding after the first five-day drop in five weeks. Japanese bonds also rose, sending 10-year and 20-year yields to the lowest in almost a decade, on expectations that Bank of Japan Governor Haruhiko Kuroda will use parliament testimony tomorrow to outline new stimulus.

The Hang Seng Index gained 0.6 percent in Hong Kong, rallying from losses in the previous two weeks. Thailand’s SET Index rose 3 percent, its biggest gain since October 2011.