Tuesday, August 3, 2010

Stocks, Dollar Retreat on Economy Concern

Stocks, Dollar Retreat on Economy Concern; Treasuries Rally

By Kelly Bit and Stephen Kirkland

Aug. 3 (Bloomberg) -- Stocks fell, dragging the Standard & Poor’s 500 Index down from a 10-week high, while Treasuries rallied and the dollar declined as weaker-than-estimated data on home sales, factory orders and consumer spending cast doubt on the economic recovery.

The S&P 500 lost 0.4 percent to 1,121.89 at 1:37 p.m. in New York and the yield on the two-year Treasury note slipped as much as 4 basis points to 0.5143 percent, a record low. The yen appreciated 0.9 percent to 85.80 per dollar, the strongest since Nov. 27. The Dollar Index, which gauges the U.S. currency against six major trading partners, dropped to the lowest since April. Copper fell for the first time in a week.

The S&P 500 retreated for the first time in three days after reports showed pending home resales and factory orders dropped in the U.S. and consumer spending and personal incomes were unchanged. Federal Reserve Chairman Ben S. Bernanke said the economy is expanding at a moderate pace, while traders speculated the Fed will boost stimulus measures to buoy growth before data this week forecast to show higher unemployment.

“You’d have to paint today’s numbers as a whole as disappointing,” said E. William Stone, who oversees $104 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “Incomes, spending, pending home sales, factory orders -- it’s on the whole disappointing. We know we’re in a soft spot. The Fed wants to continue to show they want to keep their options open and come back into the fray if needed.”

Losses Limited

Procter & Gamble Co. and Dow Chemical Co. lost at least 3.6 percent after earnings trailed estimates, helping lead the S&P 500 lower after yesterday’s 2.2 percent rally.

Losses in U.S. stocks were limited as Pfizer Inc. led gains in health-care companies after reporting better-than-estimated earnings and energy companies advanced as oil climbed above $82 a barrel.

The S&P 500 has surged more than 9.5 percent from a 10- month low on July 2 amid optimism about earnings growth. With the second-quarter earnings season more than two-thirds complete, about 76 percent of companies in the S&P 500 that have reported since July 12 have beaten analysts’ estimates, according to data compiled by Bloomberg.

The 10-year Treasury note yield dropped 7 basis points to 2.9 percent, and the yield on the similar-maturity German bund slipped 9 basis points to 2.61 percent.

Home Resales Drop

Pending home resales unexpectedly dropped 2.6 percent from the prior month, National Association of Realtors data showed, in a sign demand kept decreasing after a homebuyer tax credit expired. Economists projected a 4 percent gain, according to the median forecast in a Bloomberg survey. Orders placed with U.S. factories dropped 1.2 percent in June, more than double the decline projected in a survey of economists.

Consumer purchases were unchanged after a 0.1 percent gain the prior month that was smaller than previously estimated, Commerce Department figures showed. Incomes didn’t increase for the first time since September and the savings rate increased to the highest level in a year.

The cost to protect against defaults on U.S. corporate bonds rose, trading in a benchmark credit derivatives index shows.

The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 1 basis point to a mid-price of 100.11 basis points, according to Markit Group Ltd. The index typically rises as investor confidence deteriorates and falls as it improves.

Yen Appreciates

The yen appreciated against all of 16 of its most-traded peers, strengthening at least 0.8 percent against the Mexican peso, Australian dollar and Brazilian real. The Dollar Index, a measure against the euro, yen, pound, Swiss franc, Swedish krona and Canadian dollar, slumped 0.4 percent to 80.623 and traded below its 200-day moving average for the first time since January.

In Europe, media stocks led declines, as ITV Plc, the U.K.’s largest commercial broadcaster, fell 3.6 percent after saying the outlook is “uncertain.” Sky Deutschland AG, 45.4 percent-owned by Rupert Murdoch’s News Corp., tumbled 26 percent after predicting a loss. Declines were limited as Bayerische Motoren Werke AG led automakers higher, rallying 3.1 percent after posting profit that beat estimates, while Deutsche Post AG climbed 3.7 percent as it boosted its forecast.

Asian Shares

The MSCI Asia Pacific Index climbed 0.9 percent to a three- month high, tracking yesterday’s gains in Europe and the U.S. Toyota Motor Corp., which gets 28 percent of its sales in North America, rose 1.1 percent, while Mitsubishi Corp., Japan’s largest commodities trader, rallied 4.7 percent.

The MSCI Emerging Stocks Index slipped 0.2 percent after the gauge’s relative strength index closed yesterday at 74, above the 70 level that signals a security is poised to decline, according to technical analysts. The Shanghai Composite Index fell 1.7 percent on speculation Chinese policy makers will maintain lending curbs. The Jakarta Composite Index slid 2.8 percent on concern Indonesia will raise its main interest rate after inflation accelerated.

Copper for delivery in September dropped 0.9 percent to $3.3595 a pound in New York after rallying 5.7 percent since July 27. Wheat fell for the first day in six sessions on bets that a rally to a 22-month high was overdone. Crude oil for September delivery rose 1 percent to $82.13 a barrel on the New York Mercantile Exchange.

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