Bloomberg News

Stocks Fall on Debt Crisis Concern as Treasuries, Dollar Advance

December 27, 2011

Dec. 19 (Bloomberg) -- U.S. stocks fell, halting a two-day advance, while Treasuries and the dollar rose amid concern European officials were failing to make progress in taming the debt crisis.

The Standard & Poor’s 500 Index slipped 1.2 percent to 1,205.35 at 4 p.m. in New York and the Dow Jones Industrial Average decreased 100.13 points, or 0.8 percent, to 11,766.26. Ten-year Treasury yields fell four basis points to 1.81 percent. The euro lost 0.4 percent to $1.2995 as the dollar climbed against 13 of 16 major peers. The won sank to a two-month low and the Kospi Index slid 3.4 percent after North Korean leader Kim Jong Il died. Corn and wheat led commodities higher.

European Central Bank President Mario Draghi said substantial risks to the economy remain and the law forbids him from increasing government bond purchases to fight the crisis. Equities extended losses as Dow Jones reported that European Union finance ministers failed to agree on raising the joint ceiling of their temporary and permanent rescue funds. Banks also led declines in U.S. stocks amid concern about tighter capital requirements under proposed international standards.

“A lot of people are calling on the ECB to step in and buy more government bonds, but that’s the wrong institution to do it,” Brian Jacobsen, who helps oversee about $209 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said in a telephone interview. “They want to stay independent and if they want to retain any credibility as inflation-fighters, they need to have these countries come together and fund” Europe’s bailout programs and the International Monetary Fund, he said.

Banks Drop

The S&P 500 has fallen 4.2 percent in 2011, poised to snap a two-year rally, amid concern about slower global growth as European leaders struggle to solve the region’s debt crisis. Financial shares had the biggest decline in the benchmark measure this year, tumbling 23 percent.

Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. tumbled at least 3.7 percent to help lead losses in all 24 stocks in the KBW Bank Index today. Bank of America dropped below $5 for the first time since March 2009, closing at $4.99 a share.

Banks should be forced to reveal more data about their financial reserves so that they can’t conceal poor management decisions and excessive risk-taking, global regulators said. Lenders should “disclose the full list” of instruments that they are counting toward meeting their required minimum capital levels, the Basel Committee on Banking Supervision said in an e- mailed statement today.

The Wall Street Journal reported that the Federal Reserve is expected to accept the rules laid out by the Basel Committee. The newspaper cited unidentified people familiar with the situation.

Commodities

The S&P GSCI Index climbed 0.3 percent as 13 of 24 commodities tracked by the index advanced. Corn and wheat climbed at least 2.7 percent as adverse weather threatened crops in South America. Oil rose 0.4 percent to $93.88 a barrel on concern that geopolitical tensions will increase as the son of Kim Jong Il took power in North Korea, while the U.S. and its allies prepared to discuss stronger measures against Iran.

More than three shares retreated for every two that rose in the Stoxx Europe 600 Index. SGL Carbon SE plunged more than 9 percent after its chief financial officer said the company doesn’t expect its shareholders Bayerische Motoren Werke AG and Susanne Klatten to mount a takeover. Air Berlin Plc soared 8.3 percent after saying that Etihad Airways will increase its stake in the company to 29.2 percent.

Banks in the Stoxx 600 fell 0.2 percent as a group as National Bank of Greece SA lost 5 percent and Lloyds Banking Group Plc slid 4.2 percent.

ECB Loans

ECB Vice President Vitor Constancio said he expects “significant” demand for the central bank’s three-year loans, its latest attempt to keep credit flowing to households and businesses during the debt crisis.

“I cannot put a figure to it, but I would think that it would be significant,” Constancio told Bloomberg Television in an interview in Frankfurt today. “It’s an important instrument for banks. They face very high refinancing needs early next year related to the repayment of medium-term debt.”

IMF Loans

European finance ministers did agree to bolster their anti- crisis arsenal, channeling 150 billion euros ($195 billion) to the IMF. Four countries not using the euro -- the Czech Republic, Denmark, Poland and Sweden -- pledged to follow suit, Luxembourg Prime Minister Jean-Claude Juncker said in an e- mailed statement after chairing a teleconference of EU finance ministers today. Britain refused to commit, in a sign of the difficulty of attracting outside cash to the rescue effort.

Germany continued to oppose an early decision to raise the limit of 500 billion euros on overall emergency aid. European leaders plan to tackle that question by March. Still, the IMF infusion and jump in ECB bond purchases indicated that Europe is wielding more money instead of relying on budget cuts alone to persuade investors to return to markets scarred by two years of burgeoning debt and threatened defaults.

The ECB said it settled 3.36 billion euros ($4.4 billion) of bond purchases in the week through Dec. 16, up from 635 million euros the previous week. The central bank will take seven-day term deposits tomorrow to absorb the 211 billion euros of liquidity created since its bond program started on May 10 last year, a practice it employs to ensure the purchases don’t fuel inflation.

European Yields

Germany’s two-year bund yield touched a euro-era low of 0.207 percent.

French 10-year bonds snapped a four-day gain as yields increased four basis points to 3.10 percent. France sold 7 billion euros ($9.1 billion) of bills after Fitch Ratings last week reduced its outlook for the nation’s credit grade to negative from stable.

The Dutch 10-year yield climbed three basis points. Spain’s two-year note yields fell nine basis points to 3.37 percent. They have dropped 154 basis points in the past seven trading days, the longest run of declines since October 2010.

Belgium’s 10-year yield jumped nine basis points to 4.38 percent after the nation’s credit ranking was cut two steps at the end of last week by Moody’s Investors Service.

The MSCI Emerging Markets Index dropped 1.8 percent, sliding to the lowest level on a closing basis in three weeks. The Shanghai Composite Index lost 0.3 percent after new home prices in China dropped in 49 of 70 cities monitored by the government in November. The BSE India Sensitive Index fell 0.7 percent.

South Korea’s won depreciated 1.8 percent against the dollar, and also lost more than 1 percent against currencies including the Norwegian krone, Canadian dollar and Mexican peso as it weakened against all 16 major peers. A government statement called on North Koreans to “loyally follow” Kim Jong Il’s son, Kim Jong Un, amid concern that a power struggle may erupt in the communist nation.

--With assistance from Shiyin Chen in Singapore, Saeromi Shin in Seoul, Michael Patterson, Andrew Rummer, Daniel Tilles, Rob Verdonck and Gabi Thesing in London, Stephanie Bodoni in Luxembourg and James G. Neuger in Brussels. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net; Ksenia Galouchko in New York at kgalouchko1@bloomberg.net

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


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