U.S. Stocks Drop While Italy, Spain Bonds Advance on Euro

U.S. stocks fell as Macy’s Inc. paced a drop in retailers after reducing its earnings forecast and economists predicted the Federal Reserve will taper asset purchases next month. Italian and Spanish bonds rose with European shares as the euro area exited its longest recession.

The Standard & Poor’s 500 slipped 0.5 percent to 1,685.39 at 4 p.m. in New York, with trading volumes about 22 percent below the 100-day average. Italy’s 10-year yield decreased five basis points to 4.18 percent and the Stoxx Europe 600 Index added 0.3 percent for a fifth straight gain. The pound rebounded from a three-day slump as U.K. jobless claims dropped more in July than analysts forecast. Treasury yields were little changed near the highest level this year. Egyptian shares and bonds slid as political violence escalated.

The Fed, led by Chairman Ben S. Bernanke, will probably reduce the central bank’s $85 billion in monthly bond purchases next month, according to 65 percent of economists surveyed by Bloomberg. Euro-area gross domestic product expanded 0.3 percent in the second quarter from the previous three months, after Germany and France earlier reported faster second-quarter growth.

“The market is scope-locked on Fed tapering in September,” Douglas Cote, chief market strategist at ING U.S. Investment Management in New York, said in a telephone interview. His firm oversees $190 billion. “Quantitative easing is creating some excess in the financial system. The last thing Bernanke wants when he finishes his term is to be responsible for the next bubble.”

Market Movers

The S&P 500 retreated for the sixth time in eight sessions. Macy’s slumped 4.5 percent for its biggest decline of the year and retailers in the S&P 500 lost 1.5 percent as group for the worst drop among 24 industries. Macy’s also posted second-quarter profit that trailed analysts’ estimates amid an unexpected sales decline after Chief Executive Officer Terry Lundgren used promotions to clear inventory.

Cree Inc., the North Carolina-based maker of energy-efficient lighting products, sank 22 percent as its earnings forecast missed analysts’ estimates. Boeing Co., Home Depot Inc. and Johnson & Johnson slid at least 2 percent for the biggest losses in the Dow Jones Industrial Average, which sank 113 points.

U.S. equities rose yesterday, halting a two-day decline, after Commerce Department data showed retail sales increased 0.2 percent in July, following a 0.6 percent gain in June that was larger than previously reported.

European Movers

About three stocks rose for every two that declined in the Stoxx 600, with trading volumes in line with the 30-day average. Swiss Life Holding AG rallied 5.3 percent as Switzerland’s largest life insurer reported first-half profit that exceeded analyst estimates. Portugal Telecom SGPS SA, the nation’s biggest phone company, fell 7.3 percent after cutting its dividend.

Spanish 10-year yields slid seven basis points to 4.42 percent, while the rate on similar-maturity Portuguese debt fell three basis points to 6.50 percent.

“The market has been underpinned by the recent better data,” said Padhraic Garvey, head of developed-market debt strategy at ING Groep NV in Amsterdam. “We’ve seen some decent buying of periphery. The trend has been pretty robust.”

The MSCI Emerging Markets Index added 0.2 percent, rising for a fifth straight day. Brazil’s Ibovespa index jumped 1.5 percent for a sixth straight gain, its longest rally since September, The Shanghai Composite Index retreated 0.3 percent while Russia’s Micex index gained 1.1 percent and India’s Sensex Index advanced 0.7 percent.

Egypt Violence

Egyptian shares fell the most in the world as police moved to disperse sit-ins where supporters of ousted President Mohamed Mursi were gathered, leaving at least 95 dead. The bourse and banks will shut tomorrow, the nation’s exchange said.

The benchmark EGX 30 Index retreated 1.7 percent, the largest drop since July 8 and the biggest among 94 benchmarks tracked by Bloomberg, to 5,549.19 at the close in Cairo. Orascom Telecom Holding fell the most in three weeks. The violence prompted London-based Noah Capital Markets EMEA Ltd. to cut Egyptian equities to sell from neutral. Yields on Egypt’s 5.75 percent eurobonds due in April 2020 soared 45 basis points to 8.78 percent at 4:24 p.m. in Cairo.

Commodity Movers

The S&P GSCI Index of raw materials added 0.4 percent as West Texas Intermediate oil erased earlier losses to settle little changed at $106.85 a barrel. Copper added 0.6 percent in London. Europe is the second-largest region for copper consumption, after China, according to Barclays Plc. Silver, lean hogs, coffee and natural gas climbed at least 1.8 percent to lead an advance among 22 of the 24 commodities in the index.

The Swiss franc declined versus 14 of its 16 major counterparts, retreating 0.2 percent to 1.2396 per euro after depreciating to 1.2427, the weakest since July 11. Switzerland’s currency dropped 0.2 percent to 93.48 centimes per dollar.

Britain’s currency appreciated 0.4 percent to $1.5511. Bank of England minutes today showed Governor Mark Carney failed to unite policy makers on implementing forward guidance. The 10-year gilt yield climbed four basis points to 2.64 percent, the highest level since October 2011.

New Zealand’s dollar strengthened 0.9 percent against the U.S. currency after retail sales jumped in the second quarter.

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