U.S. Stocks Fall on Debt Ceiling as Treasuries, Yen Rise

U.S. stocks fell, extending a weekly drop, amid concern a political impasse over the federal budget will hurt the economy. Treasuries rose and the yen strengthened while metals rallied.

The Standard & Poor’s 500 Index fell 0.4 percent to 1,691.75 at 4 p.m. in New York while the rate on 10-year Treasury notes lost 2.5 basis points to 2.62 percent. The yen appreciated against all 16 major peers as Japan’s finance minister damped speculation the government will cut the corporate tax rate. The pound advanced against most major currencies as Bank of England Governor Mark Carney told a U.K. newspaper he does not support increasing asset purchases. Italian bonds and European shares slid following a debt auction.

The U.S. Senate voted to finance the government through Nov. 15 after removing language to choke off funding for the health care law, putting pressure on the House to avoid a federal shutdown set to start Oct. 1. Federal Reserve Bank of New York President William C. Dudley said budget battles in Washington are among risks to the economic outlook.

“The data does seem to be seeing some improvement here, but with the overhang from Washington, that clouds the outlook for the immediate future,” Derek Hamilton, a global economist at Waddell & Reed Financial Inc. in Overland Park, Kansas, said in a phone interview. His firm manages $114 billion. “If we do have an extended government shutdown, and more importantly, an inability to pass the debt ceiling raise, that will probably have a fairly significant impact on the stock market.”

Data Watch

The S&P 500 extended its weekly decline to 1.1 percent, snapping a three-week rally. The benchmark index is up 5.3 percent in the third quarter and 19 percent in 2013.

Treasuries have lost 0.7 percent in the quarter, according to data compiled by Bloomberg and Bank of America Corp. Investors should expect $23.5 billion in selling of equities and buying of bonds as pension fund managers rebalance their portfolios at the end of the third quarter, Ramon Verastegui, head of engineering and strategy at Societe Generale SA in New York, wrote in a Sept. 25 note.

A Commerce Department report today showed consumer spending in the U.S. rose in August for a fourth consecutive month, climbing 0.3 percent. A separate report showed confidence among consumers declined to a five-month low in September as Americans’ views on the economy dimmed. The Thomson Reuters/University of Michigan final index of sentiment decreased to 77.5 this month from 82.1 in August, compared with a median estimate for a drop to 78 seen by economists in a survey.

‘Creates Uncertainty’

The Fed’s Dudley said he wants to see more momentum in the economy before paring the pace of the central bank’s bond buying. Debates in Congress on how to fund the government for the next fiscal year and raising the debt ceiling “creates uncertainty about the fiscal outlook and may exert a restraining influence on household and business spending,” Dudley said today in the text of remarks in Syracuse, New York.

The vote in the Senate today set up a weekend of negotiating that could continue until spending authority expires on Sept. 30. House Republicans are insisting that the short-term spending bill include limits on the health-care law’s reach, a demand that Democrats say they won’t accept.

Among stocks moving in the U.S., J.C. Penney Co. slid 13 percent after the retailer began selling 84 million shares to raise cash. Nektar Therapeutics tumbled 24 percent after a study of the slow-release painkiller NKTR-181 failed to meet its goals. Nike Inc. surged 4.7 percent as fiscal first-quarter profit topped analysts’ estimates.

Dollar, Pound

The U.S. Bloomberg Dollar Index slipped 0.2 percent. The pound rose 0.6 percent to $1.6136, near the eight month high of $1.6163 reached on Sept. 18.

“Given the recovery has strengthened and broadened, I don’t see a case for quantitative easing and I have not supported it,” Carney said, according to the Yorkshire Post.

Italian government bonds declined, extending a weekly loss, as the nation auctioned 6 billion euros ($8.1 billion) of debt maturing in 2018 and 2024. The yield on the country’s 10-year securities climbed nine basis points to 4.42 percent. Italy’s Rome-based Treasury sold 3 billion euros of the 2024 bonds at an average yield of 4.5 percent, more than the 4.46 percent at a previous auction on Aug. 29.

Auction ‘Weak’

Italy’s government bonds fell amid speculation that traders who deal directly with the Treasury had to hold on to most of the securities on offer at today’s auction as political tension deterred other buyers.

“The Italian auction was weak,” said Harvinder Sian, a senior fixed-income strategist at Royal Bank of Scotland Group Plc in London. “The issue is that it was a dealer-led affair and there wasn’t much real money buying. That -- allied to the political concerns -- means that sentiment toward Italian debt is poor.”

Yields on German 10-year bunds fell five basis points to 1.78 percent, their lowest level in six weeks.

Italy’s FTSE MIB Index dropped 1.3 percent. UniCredit SpA and Intesa Sanpaolo SpA, Italy’s two largest lenders, declined more than 1 percent to pace losses among lenders. Telecom Italia SpA retreated 2.6 percent.

The yen strengthened 0.8 percent to 98.24 per dollar.

Japanese Finance Minister Taro Aso told reporters today that reducing the corporate tax rate needs to be considered over a medium- to long-term perspective.

‘Little Avenue’

“The market is obviously looking at the comments by minister Aso,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London, in a telephone interview. “If you are concerned about shutdown risks then it probably does provide a little avenue of opportunity just to see the yen make some gains.”

West Texas Intermediate oil slipped 16 cents to $102.87 a barrel, capping a third straight weekly loss.

The five permanent members of the UN Security Council agreed on a resolution to find and destroy Syria’s chemical weapons. The agreement does not specify how the UN will determine whether Bashar al-Assad’s regime has complied.

Gold for immediate delivery rose 1 percent to $1,337.38 an ounce. Silver for immediate delivery gained 0.2 percent to $21.77 an ounce in London trading, paring its loss this month to 7.5 percent. Copper added 0.7 percent to $7,300 a metric ton on the London Metal Exchange.

The MSCI Emerging Markets Index slipped 0.4 percent, trimming the gain since June to 6.3 percent, its best quarterly performance in a year. Turkey’s Borsa Istanbul National 100 Index fell 1.1 percent for a sixth straight loss. Argentina’s Merval Index tumbled 2.5 percent.

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