Bloomberg News

U.S. Stocks Advance as Euro Weakens, Treasury Notes Gain

July 06, 2011

July 6 (Bloomberg) -- U.S. stocks rose, erasing an early drop, as gains in transportation, technology and consumer- staple companies overshadowed a slowdown in service-industry growth and China’s interest-rate boost. The euro slid and Treasuries rose after Portugal’s credit rating was cut to junk.

The Standard & Poor’s 500 Index advanced 0.1 percent to 1,339.22 at 4 p.m. in New York, its sixth gain in seven days. The euro sank 0.8 percent to $1.4314 while the 10-year Treasury yield touched a one-week low. The yield on Portugal’s 10-year bond surged 204 basis points to a record above 13 percent, erasing the drop last week that followed Greece’s approval of austerity measures aimed at winning financial aid. The two-year Irish yield soared 243 basis points to 15.31 percent. Wheat, cotton and natural gas led losses in commodities.

United Parcel Service Inc. paced gains in transportation shares, while Costco Wholesale Corp. helped lead companies that sell consumer necessities higher and International Business Machines Corp. contributed the most to an advance in S&P 500 technology stocks. Investors awaited the start of the second- quarter earnings season next week and data in two days that is forecast to show U.S. payrolls grew by 100,000 jobs last month.

“We’re beginning to put the short-term economic issues behind us,” said Robert Schaeffer, a money manager at Becker Capital Management Inc. in Portland, Oregon, which oversees about $2.5 billion. “We’re likely to get better economic data over the next months and that will rally the stock market on an intermediate basis even if the long-term problems such as too much debt remain unsolved.”

Rally Resumed

DuPont Co., Intel Corp. and Caterpillar Inc. climbed at least 1.4 percent for the biggest gains in the Dow Jones Industrial Average. U.S. stocks fell for the first time in six days yesterday following a 5.6 percent rally last week, the biggest since July 2009, as the Moody’s Investors Service downgrade of Portugal reignited concern Europe’s debt crisis will hurt economic growth.

The S&P 500 has slipped almost 2 percent since its 2011 peak at the end of April. The gauge lost 1.8 percent in June as investors speculated that Greece would default on its debt.

The ISM index of non-manufacturing businesses decreased to 53.3 in June from 54.6 a month earlier. A reading above 50 signals expansion. The measure was projected to drop to 53.7, according to the median forecast in a Bloomberg News survey. Other data showed employers in the U.S. announced 5.3 percent more job cuts in June than a year earlier, according to figures from Chicago-based Challenger, Gray & Christmas Inc. The report comes two days before the Labor Department’s monthly payrolls report.

Earnings Season

Alcoa Inc. will mark the unofficial start of the earnings season on July 11 when it becomes the first Dow average company to release second-quarter results. Profits at S&P 500 companies are forecast to have increased 13 percent in the period, according to data compiled by Bloomberg, with energy and commodity producers leading the growth.

“The second quarter looks like it’s going to be good,” Howard Silverblatt, senior index analyst at S&P, told Bloomberg Television. “We’re looking for consumer discretionaries and health-cares both to set an all-time high for earnings.” Earnings estimates show increases of 4.4 percent and 1.8 percent, respectively, for those two groups.

The yield on the 10-year Treasury note slipped three basis points to less than 3.10 percent after touching 3.07 percent, the lowest yield since June 29, and two-year note rates decreased one basis point to 0.42 percent.

China Rates

China’s central bank raised benchmark deposit and lending rates by 25 basis points effective tomorrow, the People’s Bank of China said on its website today. The MSCI Asia Pacific Index climbed 0.4 percent before the announcement to the highest level in almost two months as Japan’s Nikkei 225 Stock Average rallied 1.1 percent. The MSCI Emerging Markets Index declined 0.5 percent as benchmark indexes in Hungary, Turkey and Colombia led losses with declines of at least 1 percent.

The New Zealand dollar was little changed at 82.55 U.S. cents, erasing an earlier gain of as much as 0.6 percent. A magnitude 7.8 earthquake struck 132 miles off of the Kermadec Islands region, according to a U.S. Geological Survey statement. A tsunami warning is in effect for Kermadec Islands, Tonga and New Zealand. It isn’t known that a tsunami was generated, the warning is based only on the earthquake evaluation, according to the Pacific Tsunami Warning Center.

The euro depreciated against 15 of 16 major peers, falling about 1 percent versus the Swiss franc and the yen. The Japanese currency advanced against 15 of its 16 counterparts and the U.S. dollar strengthened versus 10.

Portuguese Yields

The two-year Portuguese yield jumped 380 basis points, or 3.8 percentage points, to 16.75 percent, while the extra yield investors demand to hold the 10-year debt instead of benchmark bunds climbed above 10 percentage points, the highest on record. The Irish-German spread widened 94 basis points. The European Central Bank will raise its main interest rate by a quarter- percentage point tomorrow, according to all 55 economists surveyed by Bloomberg.

The cost of credit-default swaps insuring European government debt rose to an all-time high, with the Markit iTraxx SovX Western Europe Index climbing 20 basis points to 249.5, and contracts on Portugal surged 167 basis points to a record 937.

Portugal’s three-month bills sold today were priced to yield 4.926 percent, up from 4.863 percent at an auction on June 15. The country, which received a 78 billion-euro ($112 billion) aid package, may possibly need a second bailout, Moody’s said yesterday. European finance ministers last week authorized an 8.7 billion-euro loan payout to Greece, basing a second rescue package on talks designed to ensure that banks keep their Greek debt holdings.

The Stoxx Europe 600 Index fell 0.3 percent, halting a seven-day rally, which was the longest stretch of gains in two months. Banco Espirito Santo SA and Banco Comercial Portugues SA slid more than 5.6 percent to lead Portuguese banks lower. Spain’s Banco Santander SA sank 2.1 percent.

--With assistance from Claudia Carpenter, Abigail Moses, Andrew Rummer and Dan Tilles in London. Editor: Michael P. Regan

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To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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