Bloomberg News

Stocks, Euro, Italy Bonds Retreat as ECB Damps Debt-Buying Bets

December 12, 2011

Dec. 8 (Bloomberg) -- Stocks slid, while the euro weakened and Spanish and Italian bonds tumbled, as the European Central Bank damped speculation it would boost sovereign-debt purchases. U.S. equities extended losses amid a report Germany rejected some proposals to fight the debt crisis at a summit of leaders.

The Standard & Poor’s 500 Index lost 2.1 percent to close at 1,234.35 at 4 p.m. in New York, its worst drop in two weeks. The Stoxx Europe 600 Index sank 1.5 percent, reversing a 1 percent advance. The euro slid 0.5 percent to $1.3349. Yields on 10-year Italian and Spanish bonds jumped at least 38 basis points. The S&P GSCI Index of commodities lost 1.2 percent, erasing an early gain of 0.9 percent. Ten-year Treasury yields fell six basis points to 1.97 percent.

European equities and the euro turned lower as ECB President Mario Draghi said he did not necessarily signal the central bank would increase government bond purchases when he spoke last week, adding that the program was not eternal or infinite. Stocks also fell as the European Banking Authority said the region’s banks will need to raise 114.7 billion euros ($152.7 billion) in fresh capital, up from a previous estimate of 106 billion euros.

“The pessimism is coming from the fact that the ECB didn’t go any further on the possibility of buying debt,” Peter Jankovskis, who helps manage about $2.4 billion at Oakbrook Investments in Lisle, Illinois, said in a telephone interview. “They continue to do things to Band-Aid the banking sector, but they aren’t getting at the fundamental issue here, which is that some of these underlying countries are nearing insolvency.”

EU Summit

U.S. equities slid to their lows of the day in the final hour of trading as Reuters reported that Germany reiterated its opposition to some of the debt-crisis fighting measures being discussed at a summit in Brussels, including issuing common euro-zone debt or running the temporary and permanent bailout funds simultaneously.

Stocks and the shared euro currency had rallied earlier as Draghi said the ECB was pursuing more non-standard measures to fight the crisis, including unlimited three-year loans to banks and looser collateral criteria. The Frankfurt-based ECB also today reduced its benchmark rate by a quarter percentage point to 1 percent, matching a record low.

The S&P 500 snapped a three-day rally as concern about European efforts to fight the debt crisis overshadowed a bigger- than-forecast decrease in jobless claims. Initial claims dropped by 23,000 to 381,000 last week, the fewest since February, Labor Department figures showed. The median forecast of 47 economists in a Bloomberg News survey called for a drop to 395,000. Other data showed inventories at U.S. wholesalers rose 1.6 percent, the most in five months.

Market Leaders

JPMorgan Chase & Co., Bank of America Corp. and Alcoa Inc. led declines in 29 of 30 stocks in the Dow Jones Industrial Average, which retreated from the highest level since October with a drop of 198.67 points, or 1.6 percent, to 11,997.7.

Morgan Stanley and Citigroup Inc. fell at least 7 percent as financial shares tumbled 3.7 percent as a group, the biggest drop among the 10 main industries in the S&P 500. Hartford Financial Services Group Inc. slid 8.2 percent after the insurer said it is targeting additional cost cuts as it copes with a “fragile economic recovery.” Costco Wholesale Corp. declined 2 percent as the largest U.S. warehouse-club chain said profit margin shrank because of rising costs.

200-Day Average

The S&P 500 is more than 2 percent below its average price in the last 200 days after briefly surpassing it in each of the previous three sessions, data compiled by Bloomberg show. The index hasn’t closed above the trend line since Nov. 8, the day before a decline of 3.7 percent. It fell 5.2 percent in the two days after it rose above the 200-day average on Oct. 28.

Silver, oil and zinc slid more than 2 percent to help lead declines in 18 of 24 commodities tracked by the S&P GSCI. Crude tumbled 2.1 percent to $98.34 a barrel.

Automobile producers, banks and commodity companies led losses in 18 of 19 industries in the Stoxx 600.

Italy’s 10-year bond yield surged 47 basis points to 6.46 percent, sending their spread above benchmark German bunds up 55 basis points to 4.44 percentage points. Spain’s 10-year yield climbed 38 basis points to 5.81 percent, trading 3.80 percentage points above bunds.

‘Devious Plan’

Euro-area leaders meeting today and tomorrow in Brussels may agree to provide 150 billion euros ($201 billion) in loans through the International Monetary Fund to shore up European finances, a European Union diplomat said. Germany hasn’t taken a public stance on the proposal. Chancellor Angela Merkel has insisted that the rest of Europe first bow to tighter rules on budget deficits in order to reassure central bankers about the euro region’s longer-term economic health.

Germany is “still driving the bus and they are driving it off a cliff,” Sebastian Mallaby, director of geoeconomic studies at the Council on Foreign Relations, told Bloomberg Television. “It’s almost as though if they had a plan, a secret, devious plan to blow up Europe, this is sort of what they would be doing.”

The MSCI Asia Pacific Index retreated 0.7 percent as Australia’s S&P/ASX 200 slipped 0.3 percent and Japan’s Nikkei 225 fell 0.7 percent. Australian employment fell by 6,300 after a revised increase of 16,800 in October, compared with the median estimate of a 10,000 advance in a Bloomberg survey of 22 economists. Japanese machinery orders unexpectedly slipped 6.9 percent from a month earlier, the Cabinet Office said in Tokyo.

The MSCI Emerging Markets Index tumbled 1.4 percent, the most in two weeks. The Hang Seng China Enterprises Index dropped 0.9 percent in Hong Kong. India’s Sensex slumped 2.3 percent, the most since Nov. 21, after the central bank signaled it may not lower reserve requirements for lenders. Russia’s Micex Index rose 0.6 percent after losing more than 4 percent in the preceding two sessions following protests against the results of parliamentary elections. Brazil’s Bovespa tumbled 2.1 percent.

--With assistance from Lynn Thomasson in Hong Kong, Claudia Carpenter, Mark Gilbert, Andrew Rummer, Daniel Tilles, Jason Webb, Stephen Kirkland and Gabi Thesing in London, Simone Meier in Zurich and James G. Neuger in Brussels. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net

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


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