S&P 500 Extends Record High While Euro Slumps on Economy

Stocks rose, sending the Standard & Poor’s 500 Index to another record, as weakness in manufacturing and a drop in wholesale inflation fueled bets the Federal Reserve will be in no rush to scale back stimulus. The euro slid as the region’s recession deepened.

The Standard & Poor’s 500 Index increased 0.5 percent to 1,658.78 at 4 p.m. in New York, reaching an all-time high for the ninth time in 10 days. The yield on 10-year Treasuries slid three basis points to 1.94 percent, retreating from a two-month high. The Dollar Index jumped to the highest level since July as the euro slid to a six-week low. Gold and silver tumbled more than 2 percent to help lead commodities lower.

U.S. industrial production slid in April by the most in eight months and manufacturing in the New York region unexpectedly shrank in May as factories received fewer orders and sales stagnated. The U.S. producer-price index declined 0.7 percent, the biggest decrease since February 2010, after falling 0.6 percent in March, according to a Labor Department report. The euro-area’s recession extended into a record sixth quarter.

“We’re certainly seeing slowing manufacturing growth in the U.S. that parallels very weak growth overseas,” Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said by phone. “At some point the market has to decide whether the enthusiasm over the Fed’s continued easing is truly offsetting all the signs of economic weakness that we continue to see.”

U.S. Markets

Among U.S. stocks, American Express Co., Procter & Gamble Co. and JPMorgan Chase & Co. rose more than 1.5 percent to lead the Dow Jones Industrial Average up 60.44 points, or 0.4 percent, to a record 15,275.69.

Deere & Co. lost 4.4 percent as the world’s biggest agricultural-equipment maker cut its equipment-sales forecast. Macy’s Inc. rose 2.5 percent after reporting profit that beat estimates and increasing its share buyback program.

The S&P 500 is up 16 percent so far this year and has surged 145 percent from a 12-year low in 2009, driven by better-than-estimated corporate earnings and three rounds of bond purchases from the Federal Reserve.

About 91 percent of S&P 500 stocks traded above their average prices from the past 50 days as of yesterday, according to data compiled by Bloomberg, approaching the two-year high of 93 percent reached January.

Stocks rallied yesterday after David Tepper, the billionaire who runs hedge-fund firm Appaloosa Management LP, said he remains optimistic about markets as the U.S. budget deficit eases.

Shrinking Deficit

The U.S. budget deficit will shrink by the end of fiscal 2013 to $642 billion, the smallest shortfall in five years, according to the nonpartisan Congressional Budget Office.

The agency yesterday reduced its estimate of the likely shortfall by more than $200 billion compared with its February projections. The agency cited stronger-than-expected tax receipts as well as payments to the Treasury by government-owned Fannie Mae and Freddie Mac as major reasons for the change.

Thirty-year Treasury bonds also rose for the first time in five days, sending yields down three basis points to 3.16 percent after they reached the highest level since March 20 yesterday. Two-year note yields lost one basis point to 0.24 percent.

The Dollar Index, which tracks the currency against six major peers, rose 0.2 percent to 83.78, the highest since July 25. The dollar strengthened versus 10 of 16 major peers.

Factory Output

Output at factories, mines and utilities fell a more-than-forecast 0.5 percent after a revised 0.3 percent gain in the prior month that was weaker than previously reported, a Fed report showed. The median forecast in a Bloomberg survey called for a 0.2 percent decline. Manufacturing, which makes up 75 percent of total production, unexpectedly fell 0.4 percent, the third drop in four months.

The Fed Bank of New York’s general economic index declined to minus 1.4 this month from 3.1 in April, compared with an increase to 4 predicted in a Bloomberg survey of analysts.

More than two shares advanced for each that dropped in the Stoxx Europe 600 Index, which climbed 0.8 percent to close at the highest level since June 2008. Commerzbank AG surged 12 percent, rebounding from a record low, on the first day of a rights offer to raise about 2.5 billion euros ($3.3 billion).

EasyJet Plc rallied 8.3 percent as Europe’s second-largest discount airline reported a narrower first-half loss. London Stock Exchange Group Plc rose 5.3 percent as profit topped estimates.

Emerging Markets

The MSCI Emerging Markets Index was little changed as Russia’s Micex index slid 1 percent, while the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong added 0.5 percent.

India’s Sensex jumped 2.5 percent, the most since June on a closing basis, after Reserve Bank of India Governor Duvvuri Subbarao said yesterday that he would “take note” of softening inflation at next month’s policy review.

The pound strengthened against 14 of 16 major peers as Bank of England Governor Mervyn King predicted a U.K. recovery is now “in sight.” The U.K. economy may expand 0.5 percent this quarter from 0.3 percent in the first three months of the year, according to the central bank.

The euro weakened against 14 of its 16 counterparts. Gross domestic product fell 0.2 percent after a 0.6 percent decline in the previous three months, the European Union’s statistics office said today. The median of 39 estimates in a Bloomberg News survey was for a 0.1 percent contraction.

Forint Rallies

Hungary’s forint strengthened against all 16 major peers after the economy recorded its first quarterly growth in more than a year, beating estimates.

In European bond markets, rates on 10-year Swiss, Swedish and U.K. securities rose, while Portugal’s and Greece’s declined.

Greece’s 10-year government bonds advanced, pushing the yield below 9 percent for the first time since October 2010, after Fitch Ratings yesterday raised its grade one level to B-, citing “clear progress” on rebalancing the economy. The yield fell 53 basis points to 8.78 percent.

Commodities Fall

Commodities retreated after Bank of America Corp. and JPMorgan Chase & Co. this week cut 2013 growth estimates for the world’s second-biggest economy to 7.6 percent after April industrial production and fixed-asset investment trailed forecasts.

Gold fell for a fifth day, the longest slump since February, losing 2 percent to $1,396.20 an ounce, and silver dropped 3.1 percent. Copper declined 0.7 percent in London and nickel retreated 1.3 percent. China is the biggest buyer of industrial metals.

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