Stocks Fall on Interest-Rate, Debt Concerns

Stocks Fall on Interest-Rate, Debt Concerns; Dollar Strengthens

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By Michael P. Regan and Justin Carrigan

March 22 (Bloomberg) -- Stocks declined for a third day and the dollar rallied on concern rising interest rates and widening government deficits will hamper the economic recovery. Greek bonds and shares fell.

The MSCI World Index dropped 0.7 percent at 9:15 a.m. in New York, marking its longest losing streak in six weeks. Futures on the Standard & Poor’s 500 Index retreated 0.7 percent. The dollar strengthened against 15 of its 16 most- traded counterparts. Greece’s ASE Index sank 2.9 percent and the premium investors demand to hold the nation’s 10-year notes instead of benchmark German bunds widened 18 basis points.

India’s central bank raised interest rates for the first time in almost two years late on March 19, saying that controlling prices was imperative after inflation accelerated to a 16-month high. German Chancellor Angela Merkel told investors they shouldn’t expect this week’s European Union summit to agree on a package to help Greece tackle the region’s biggest deficit.

“There has been an uptick in sovereign-default concerns and there is uncertainty over support for Greece,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “Investors are likely to be disappointed again from the EU summit this week and that’s going to continue to weigh on the euro to the benefit of the dollar.”

Health-care stocks in the MSCI World Index slipped 0.3 percent for the second-best performance among 10 groups. The U.S. House passed the most sweeping health-care legislation in four decades, rewriting the rules governing medical industries and ensuring that tens of millions of uninsured will get medical coverage. The approval will remove a significant “overhang” from the industry and be viewed positively, Credit Suisse Group AG analyst Ralph Giacobbe wrote in a note today.

Europe, Asia

The Stoxx Europe 600 Index declined 1.1 percent while the MSCI Asia Pacific Index dropped 0.9 percent. Vedanta Resources Plc, the largest copper producer in India, led basic resources shares lower, falling 2.3 percent in London.

Royal Dutch Shell Plc slipped 0.9 percent after agreeing with PetroChina Co. to buy Arrow Energy Ltd. for A$3.5 billion ($3.2 billion). PetroChina Co., the nation’s biggest energy producer, declined 2.7 percent in Hong Kong.

U.S. Futures

The decline in U.S. futures indicated the S&P 500 may trim gains from three straight weekly advances. The Dow Jones Industrial Average snapped an eight-day winning streak on March 19 after India’s unexpected rate increase.

The Dollar Index, which tracks the currency against those of six U.S. trading partners, climbed for a third day, adding 0.3 percent. Government bonds gained, with the yield on the German bund falling 2 basis points to 3.08 percent. The yield on the 10-year Treasury note slipped 1 basis point to at 3.68 percent.

Maintaining government debt at post-crisis levels may reduce growth in advanced economies by as much as half a percentage point a year from the pace before the first global recession since World War II, John Lipsky, first deputy managing director of the International Monetary Fund, said in Beijing yesterday.

“Risk aversion has come up after developments in India and Greece,” said Henrik Gullberg, a fixed-income strategist at Deutsche Bank AG in London. “Any exiting of the current accommodative policy stance is bad for risk appetite and good for the dollar.”

Greek bonds tumbled for a third day, with the yield on the two-year note jumping as much as 38 basis points to 5.5 percent. National Bank of Greece SA, the nation’s biggest lender, led stock declines in Athens, sinking as much as 6 percent. The cost of insuring against a default on Greek government bonds rose, with credit-default swaps climbing 26 basis points to 356, according to CMA DataVision.

Default Swaps

Credit-default swaps on the Markit iTraxx Crossover Index of high-yield European corporates climbed 14 basis points to 467, according to JPMorgan Chase & Co. Credit-swap gauges in Europe rolled into their 13th series today. New series of the benchmarks are created every six months when companies are added or dropped depending on their ratings, cost of protection and ease of trading.

The MSCI Emerging Markets Index dropped 1.2 percent for a third day of declines. South Korea’s Kospi Index and Taiwan’s Taiex Index fell 0.8 percent, and India’s Sensitive Index slid 1 percent. Russia’s Micex Index lost 1.3 percent and the ruble depreciated against the central bank’s target basket for the first time in a week, slipping 0.5 percent. The rand weakened 0.9 percent against the dollar in limited trading during a public holiday today.

Copper for delivery in three months fell 1.7 percent to $7,310 a metric ton on the London Metal Exchange, retreating for a third day. Crude oil for April delivery dropped 2.4 percent to $78.76 a barrel in New York trading, falling for a third day. The April contract expires today.