Stocks Gain as Russell 2000 Erases Loss; Treasuries Drop

U.S. stocks gained as the Russell 2000 Index erased a loss and data showing growth in housing starts overshadowed a drop in consumer confidence. Treasuries fell for the first time in four days amid speculation their rally went too far amid a strengthening economy.

The S&P 500 added 0.4 percent at 4 p.m. in New York, erasing a loss for the week. The Russell 2000 of small-cap stocks added 0.6 percent, reversing a drop of as much as 0.7 percent earlier in the day. Yields on 10-year Treasuries rose three basis points to 2.52, climbing from the lowest level since October. India’s rupee rallied 1.6 percent against the dollar as results showed Narendra Modi’s main opposition bloc will take power. Nickel rebounded 1.5 percent after tumbling 6.4 percent yesterday, the most since 2011.

The pace of U.S. home construction jumped in April to its highest level since November, Commerce Department figures showed today. Consumer confidence fell in May from a nine-month high, signaling Americans are being shaken by rising grocery bills and elevated fuel costs. Stocks retreated yesterday and bonds rose following an unexpected drop in U.S. industrial production and less-than-forecast growth in the euro-area economy.

“When you have sharp sell-offs, you have a lot of buyers on the sidelines waiting for that weakness,” James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $357 billion in assets, said by phone. “Certainly the housing numbers calmed a fair number of fears. People feel secure after a 1 percent sell-off and want to go long into the weekend.”

Extending Gains

The S&P 500 fluctuated throughout the day, extending gains in afternoon trading after falling to its average price over the past 50 days, a level technical analysts consider significant. The S&P 500 is up 3.4 percent from a two-month low on April 11, climbing this week to a record 1,897.45.

The Russell 2000 pared its loss for the week to 0.4 percent. The gauge slid 3.3 percent over the previous three sessions.

Housing starts climbed 13.2 percent to a 1.07 million annualized rate following March’s 947,000 pace, the Commerce Department reported. Starts exceeded all analysts’ forecasts, with the median estimate of 79 economists surveyed by Bloomberg calling for 980,000. A surge in construction of multifamily dwellings helped overcome slack demand for single-family homes.

A separate release showed consumer confidence fell this month after reaching a nine-month high in April. The preliminary reading of the Thomson Reuters/University of Michigan index of sentiment dropped to 81.8 from 84.1, economists surveyed by Bloomberg said.

Yellen Speech

Federal Reserve Chair Janet Yellen said the U.S. economy has further to go to achieve full health and predicted small businesses will play a vital role in the recovery.

Job creation is “crucial to this process,” and small companies “are responsible for a large share” of new employment, Yellen said yesterday in Washington.

Fed policy makers said last month the economy is showing signs of picking up and the job market is improving. The central bank pared its monthly asset-buying and said further reductions in “measured steps” are likely. Interest rates will probably remain low until mid-2015.

Three rounds of monetary stimulus have helped fuel economic growth, sending the S&P 500 surging as much as 180 percent from its 2009 low.

Treasuries fell for the first time in four days as traders speculate that the rally that pushed 30-year bonds to the best start of a year in almost two decades was too far too fast with the economy strengthening.

The yield on 30-year Treasuries rose 2 basis points to 3.34 percent.

European Stocks

The Stoxx Europe 600 Index was up 0.1 percent after slipping 0.9 percent yesterday. It ended the week with a gain of 0.1 percent. Banco Espirito Santo SA tumbled 5.5 percent today after the Portuguese lender reported a wider first-quarter loss than a year earlier and said it will issue new shares. Bouygues SA gained 4.4 percent after a report that Orange SA has studied buying Bouygues Telecom and after reporting that quarterly revenue beat analysts’ estimates.

China’s small-company stocks fell, dragging the benchmark index down more than 20 percent from its February peak, on concern valuations are too high as the economy slows and new share offerings divert funds. The ChiNext index lost 2.2 percent today in Shenzhen.

The rupee reached an 11-month high against the dollar. The Bharatiya Janata Party and its allies were leading in 335 of 543 seats up for grabs, more than the 272 needed for a majority. Rahul Gandhi, who led the Congress campaign, conceded defeat with his bloc leading in 59 seats.

Russia’s ruble was little changed against the dollar and Ukraine’s hryvnia declined 1.2 percent.

Ukraine Offensive

Ukraine continued its offensive against separatists in the east, as the U.S. and U.K. warned Russia against undermining the former Soviet republic’s upcoming election. Russia is the world’s largest energy exporter and producer of palladium. It is No. 2 for refined nickel production and the fifth-largest producer of wheat, followed by Ukraine.

Nickel rose for the first time in three days, narrowing this week’s decline to 4.4 percent after rallying 9 percent last week. Indonesia banned ore exports in January.

The euro slipped 0.1 percent to $1.3696, after falling to $1.3648 yesterday, the least since Feb. 27. The common currency declined 0.1 percent to 139.09 yen and reached 138.78, a level unseen since Feb. 12. Japan’s currency was little changed at 101.55 per dollar after appreciating to 101.32 yesterday, the strongest level since March 19.

West Texas Intermediate crude rose for the fourth time in five days, climbing 0.5 percent to $102.02 a barrel.

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