Bloomberg News

U.S. Stocks Fall as Greece Concerns Offset Fed Stimulus Bets

September 20, 2011

Sept. 20 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor’s 500 Index lower for a second day, as concern that Greece wasn’t closer to receiving more financial aid offset speculation the Federal Reserve will act to stimulate growth.

Alcoa Inc., Hewlett-Packard Co. and Caterpillar Inc. slid at least 1.1 percent, pacing losses among companies most-tied to economic growth. ConAgra Foods Inc. slumped 1.7 percent after posting profit that trailed analysts’ estimates as costs for raw ingredients soared. Apple Inc., the world’s largest company, advanced 0.4 percent, rising for a seventh day to a record.

The S&P 500 fell 0.2 percent to 1,202.09 at 4 p.m. in New York, dropping 1.1 percent in two days. The Dow Jones Industrial Average rose 7.65 points, or 0.1 percent, to 11,408.66.

“There’s fear of a spiral downward to a really bad situation in Europe," Malcolm Polley, who oversees $1 billion as chief investment officer at Stewart Capital in Indiana, Pennsylvania, said in a telephone interview. ‘‘Obviously, there will be concern the economy is weakening, that fiscal problems are creating issues, that there will be less flexibility and it will be hard to find a solution.’’

Stocks fell yesterday on concern Greece will fail to qualify for more financial aid. Between April 29 and Aug. 8, the S&P 500 lost as much as 18 percent amid concern about global growth. Since then, the index has rebounded 7.4 percent.

The S&P 500 reversed gains after a report from the state- run Athens News Agency said officials from the so-called troika, comprising the European Union, European Central Bank and International Monetary Fund, plan to return to Athens in early October to complete their review of the Greek economy. The report didn’t cite any sources.

‘Good Progress’

The European Commission said in an e-mailed statement after the market close that a conference call between the Greek Minister of Finance, Evangelos Venizelos, and the international officials today made ‘‘good progress.’’

The IMF cut its forecast for global growth and predicted ‘‘severe’’ repercussions if Europe fails to contain its crisis or if U.S. policy makers reach an impasse over a fiscal plan.

Stocks rose earlier today amid speculation Federal Reserve officials might propose new measures to galvanize the economy when the Fed Open Market Committee completes a two-day meeting tomorrow. Ben S. Bernanke, the central bank’s chairman, told economists Sept. 9 in Minneapolis that policy makers have measures at hand and are ‘‘prepared to employ these tools as appropriate.’’

‘Operation Twist’

One of those untested policy tools is likely to be a move known as ‘‘Operation Twist,’’ in which the Fed would replace short-term Treasuries in its $1.65 trillion portfolio with long- term bonds, according to 71 percent of 42 surveyed economists. The move, with its goal to bend the yield curve, will probably fail to reduce the 9.1 percent unemployment rate, 61 percent of the economists said.

‘‘There’s lots of hope,’’ Jason Brady, a managing director at Thornburg Investment Management Inc., who helps oversee about $76 billion from Santa Fe, New Mexico, said in a telephone interview. ‘‘In the absence of further negative news, people are trying to be hopeful. We might get more stimulus. If the Fed doesn’t do anything, people will be disappointed.’’

The Morgan Stanley Cyclical Index of companies most-tied to economic growth lost 1.6 percent. Alcoa slumped 2.9 percent to $11.25. Hewlett-Packard decreased 1.9 percent to $22.47. Caterpillar declined 1.1 percent to $83.66.

‘Severe’

ConAgra dropped 1.7 percent to $22.99. The foodmaker said its consumer foods unit, which includes Banquet frozen meals and Slim Jim snacks, is grappling with ‘‘severe’’ cost inflation. The company now projects food costs to increase as much as 10 percent this year, up from a previous estimate of a maximum of 8 percent.

Apple added 0.4 percent to $413.45, rising 9.5 percent in seven days, amid speculation that it could be added to the Dow. Richard Silverman, a spokesman for Dow Jones Indexes, declined to comment.

Putting Apple in the Dow would mean the benchmark gauge would get 22 percent of its value from the iPhone maker, too much influence even for the world’s largest company, according to Bespoke Investment Group LLC.

Apple would have the largest weighting in the 30-company measure because Dow companies are ranked by stock price, not market value. Replacing Kraft Foods Inc. with the Cupertino, California-based company would drive International Business Machines Corp. down to 9.2 percent from 11.6 percent of the Dow, Bespoke said in a report today.

‘Don’t Hold Your Breath’

‘‘Don’t hold your breath,” Bespoke, based in Harrison, New York, wrote in a note to clients, citing speculation today that Apple may enter the Dow. “If the stock were added to the index without a split in the shares, it would have a disproportionate weight in the index, making it more like the Dow Jones Industrial Apple.”

Newmont Mining Corp. jumped 5.5 percent to $69.90, its highest price since October 1987. Gold may rise to $2,000 an ounce by the end of this year and $2,300 an ounce by the end of 2012, Chief Executive Officer Richard O’Brien said. Gold futures for December delivery settled at $1,809.10 an ounce today on the Comex in New York.

PulteGroup Inc. rose 3 percent to $4.51. The largest U.S. homebuilder was raised to “buy” from “neutral” at UBS AG, which said the stock’s valuation is “attractive.”

--Editors: Jeff Sutherland, Michael P. Regan

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

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


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