Bloomberg News

U.S. Stocks Retreat Amid Greek Concern as Yield Curve Flattens

September 20, 2011

Sept. 20 (Bloomberg) -- U.S. stocks fell, erasing a 1.4 percent rally by the Standard & Poor’s 500 Index, amid concern international officials won’t make a decision on Greece’s next aid payment until October. The yield gap between two- and 30- year Treasuries narrowed to the smallest level in a year.

The S&P 500 lost 0.2 percent to 1,202.09 at 4 p.m. New York time. The difference between two- and 30-year Treasury yields fell to 304 basis points amid speculation the Federal Reserve will increase holdings of longer maturities. Credit-default swaps on Italy jumped 25 basis points to a record 514 basis points after S&P cut the nation’s rating. Oil added 1.4 percent.

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 state-run Athens News Agency reported, without citing sources. Equities rose in Europe and the U.S. earlier as investors speculated the Fed will announce steps tomorrow to shore up the economy and optimism grew that Greece will satisfy requirements for aid.

“This is all about Europe, all about Greece,” Kevin Caron, market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co., said in a telephone interview. His firm has more than $115 billion in client assets. “There’s concern the next injection would be delayed. It will take years to get a proper resolution to it.”

Operation Twist

The Fed may decide to replace short-term Treasuries in its $1.65 trillion portfolio with long-term bonds, according to 71 percent of 42 surveyed economists. Such a policy is known as Operation Twist because of the goal of bending the yield curve. Pacific Investment Management Co.’s Bill Gross, who oversees the world’s biggest bond fund manager, said in Twitter post that a further rally in Treasuries is “dependent on QE3 expansion of balance sheet or new ‘language.’”

Raw-material, industrial and energy companies posted the biggest losses among 10 S&P 500 groups, falling at least 0.6 percent. All 10 industries advanced earlier. Alcoa Inc. posted the biggest drop in the Dow Jones Industrial Average, retreating 2.9 percent. The Stoxx Europe 600 Index rallied 1.8 percent.

Italy’s 10-year bond yield rose 13 basis points to 5.72 percent. Italy was lowered to A from A+ by S&P on concern that weaker growth and a “fragile” government mean the country won’t be able to cut the euro-region’s second-largest debt load, S&P said. The FTSE MIB Index of Italian stocks climbed 1.9 percent.

The franc fell versus 14 of 16 major peers amid speculation policy makers will weaken the currency further. Turkey’s stocks and currency climbed as S&P raised its local debt rating for the nation to investment grade.

Gold, Copper

Gold rose 1.7 percent to $1,809.10 an ounce. The metal may climb to a record $2,019 an ounce by November 2012, according to the average response in a survey of attendees at the London Bullion Market Association’s annual conference in Montreal.

Copper fell, extending a slump to the lowest since November, as the International Monetary Fund lowered its forecast for the economy in the U.S., the second-biggest consumer of the metal used in wires and pipes.

The IMF said today that the U.S. economy will expand 1.5 percent this year, down from 2.5 percent projected in June. Housing starts slid 5 percent to a three-month low, Commerce Department data showed. Copper in New York has tumbled 20 percent from a record in February, entering a bear market, amid concern that European fiscal woes will damp commodity demand.

--With assistance from Agnieszka Troszkiewicz in London, Millie Munshi in New York and Joe Richter in Washington. Editors: Nick Baker, Michael P. Regan

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net

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


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