Stocks Recover Losses

Stocks Recover Losses, Treasuries Pare Gain as Goldman, BP Rise

By Nikolaj Gammeltoft and Elizabeth Stanton

July 15 (Bloomberg) -- U.S. stocks recovered early losses and Treasuries pared gains as BP Plc said it halted the flow of oil from its leaky Gulf of Mexico well and investors speculated Goldman Sachs Group Inc. will settle its fraud case.

The Standard & Poor’s 500 Index rose 0.1 percent to 1,096.48 at 4 p.m. in New York, reversing a 1.3 percent slide. The two-year Treasury yield gained less than one basis point to 0.61 percent after sinking to a record low below 0.58 percent. The euro surged to a two-month high above $1.29 and Spanish bonds jumped after the nation’s sale of 15-year debt eased concern it will struggle to fund its budget deficit.

The rallies in Goldman Sachs and BP’s U.S. shares in the final half hour helped the S&P 500 erase a drop triggered by government data showing that manufacturing output is weakening. The Goldman Sachs speculation was fueled by a Securities and Exchange Commission statement that it planned a “significant announcement,” while BP said the flow of oil stopped and it may know within two days if it’s safe to leave the seal in place.

“That triggered a rally in the oils and energy stocks,” Frederic Dickson, chief market strategist at D.A. Davidson & Co., said of the BP announcement. “Equally significant was the announcement that the SEC called a conference call. The speculation is that they may have reached an agreement with Goldman Sachs. Two pieces of speculative information triggered a change in sentiment.” Davidson, based in Great Falls, Montana, manages about $19 billion.

Goldman, BP

Goldman Sachs surged 4.4 percent in regular trading as investors correctly speculated that the SEC would announce a settlement of the fraud case after markets closed. The shares rallied another 4.7 percent in extended trading after the SEC said in an e-mailed statement that Wall Street’s most profitable firm will pay $550 million to settle the lawsuit accusing it of misleading investors in securities tied to subprime mortgages.

“It’s chump change,” said Matt McCormick, a portfolio manager at Cincinnati-based Bahl & Gaynor Inc., which has $2.7 billion under management. “The case has been a stone in the shoe for Goldman and now it looks like they can get back to running.”

BP’s U.S. shares surged 7.6 percent. Oil has stopped flowing into the Gulf of Mexico for the first time in about three months as the company pressure tests its damaged Macondo well, BP said. Senior Vice President Kent Wells commented today on a conference call.

A test that will measure the pressure inside the well has begun and will last from six hours to 48 hours, BP said in an e- mailed statement today. The test will determine if BP can leave the seal in place or if it will need to let the leak resume until it can be permanently capped with a relief well.

Earnings Watch

The S&P 500 has rebounded 7.2 percent from a 10-month low on July 2 amid optimism that second-quarter results will signal a strengthening economy. Analysts predict earnings in the S&P 500 grew 34 percent last quarter, according to Bloomberg data.

JPMorgan Chase & Co. , the second-largest U.S. bank by assets, this morning joined Intel Corp. and Alcoa Inc. in posting better-than-estimated earnings in the first week of the reporting season. JPMorgan rose as much as 1.2 percent in early trading, only to follow the market’s fluctuations and drop as much as 2.6 percent before closing 0.3 percent higher.

The early slump in stocks came after government data showed manufacturing in the U.S. contracted in June by the most in a year and wholesale prices declined more than anticipated, underscoring the Federal Reserve’s reduced forecasts for economic growth and inflation.

Regional Fed Indexes

The manufacturing slowdown continued in the northeastern U.S. this month, according to regional indexes compiled by Fed banks. The Philadelphia Fed’s index, which covers eastern Pennsylvania, southern New Jersey and Delaware, fell to 5.1 this month, the lowest level since August 2009, from 8 in June. The New York Fed’s manufacturing gauge, which includes northern New Jersey and southern Connecticut, dropped to 5.1 from 19.6. In both cases, readings above zero indicate expansion.

“The regional manufacturing data were very weak and there are signs of a global economic slowdown,” said Linda Duessel, who helps oversee $390 billion as equity market strategist at Federated Investors Inc. in Pittsburgh. “The question is still whether we will have a double-dip or a slowdown in growth.”

The Stoxx Europe 600 Index slipped 1.2 percent, led by declines in banks, commodity producers and industrial companies.

Greek lenders rallied, leading the nation’s ASE index to a 2.2 percent gain, after Piraeus Bank SA offered to buy stakes in two banks. National Bank of Greece, EFG Eurobank Ergasias SA and Alpha Bank SA rallied more than 5.6 percent as Piraeus Bank submitted a bid to buy “significant stakes” in state- controlled lenders Agricultural Bank of Greece SA and Hellenic Postbank SA. Piraeus Bank jumped 13 percent.

Oil Slips

Crude oil for August delivery lost 0.6 percent to $76.62 a barrel on the New York Mercantile Exchange, erasing an earlier gain of as much as 0.8 percent.

Agricultural commodities rallied. Wheat jumped the most in 19 months, with September futures rallying 6.7 percent to $5.9625 a bushel in Chicago, on speculation that a prolonged dry spell will widen damage to crops in Russia, the world’s fourth- largest exporter. Coffee climbed to a two-week high in New York, while corn rose to a six-month high and soybeans surged on forecasts for hot, dry weather that may damage U.S. crops.

The euro rose against 15 of 16 major counterparts after the Spanish debt auction. The Australian dollar fell against 13 of 16 major currencies on concern slower growth in China will dent demand for commodities. The yen strengthened against 11.

Spanish Bonds

The yield on Spanish 15-year bonds slipped 15 basis points to 5.07 percent.

Spain sold the full 3 billion euros ($3.8 billion) of 15- year bonds planned, attracting bids for 2.57 times the securities on offer compared with 1.79 at the last auction in April. Italy, Portugal and Greece also raised funds this week after the European Union and International Monetary Fund in May approved a backstop to bolster confidence in the region’s most indebted nations.

The Shanghai Composite Index of stocks posted the biggest drop among major emerging markets, sliding 1.9 percent, after the government said gross domestic product rose 10.3 percent in the second quarter, less than the 10.5 percent median estimate in a Bloomberg News survey of 28 economists. The 21-country MSCI Emerging Markets Index fell for the first time in six days, losing 0.5 percent.

Brazilian traders are paring bets for interest rate increases at the fastest pace in two months as the economy shows signs of slowing.

Yields on rate futures contracts due in January 2011 declined 15 basis points, or 0.15 percentage point, in the past two weeks, the most since May, to 11.21 percent. The plunge puts traders’ year-end forecast for the central bank’s benchmark Selic overnight rate at 11.7 percent, below the consensus economist forecast of 12 percent for the first time since at least September, according to data compiled by Bloomberg.