Bloomberg News

Stocks Decline After Economic Reports; Gold Jumps, Yen Weakens

February 27, 2012

Feb. 22 (Bloomberg) -- Stocks fell worldwide for a second day and U.S. Treasuries rose after reports on the European and Chinese economies spurred concern about growth. Gold jumped, and the yen fell to a seven-month low versus the dollar.

The MSCI All-Country World Index of equities retreated 0.4 percent to 329.17 at 4:08 p.m. New York time. The Standard & Poor’s 500 Index decreased 0.3 percent to 1,357.66. Yields on 10-year U.S. Treasuries declined six basis points to 2 percent. Gold futures climbed to $1,783.40, the highest price since Nov. 16. The yen weakened to 80.40 per dollar.

European services and manufacturing output shrank in February, according to Markit Economics, while another report showed Chinese manufacturing may shrink a fourth straight month in February. The S&P 500 slumped after rallies in six out of the past seven weeks put it within 0.1 percent yesterday of 1,363.61, its highest closing level since 2008.

“We have a trifecta of worrisome news,” Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion, said in a telephone interview. “The softness in economic data suggests that global momentum remains muted. We have slower earnings growth and the market is facing some technical resistance.”

Dell Inc. retreated 5.8 percent. Its first-quarter sales forecast missed analysts’ estimates, dragged down by lackluster personal-computer demand from consumers and governments.

Homebuilders Drop

KB Home and Toll Brothers Inc. slumped at least 4.1 percent in U.S. stock trading. The National Association of Realtors said sales of previously owned houses reached a 4.57 million annual pace in January, missing the median economist projection of 4.66 million in a Bloomberg News survey. The December figure was cut to 4.38 million from 4.61 million.

Futures traders are pricing in the biggest increase in U.S. equity hedging costs since 2010 after the S&P 500 rose within 2 points of erasing last year’s slump. April futures on the Chicago Board Options Exchange Volatility Index settled at 25.15 yesterday, or 6.96 points higher than the level of the gauge. The gap widened to 7.02 points on Feb. 17. The last time two- month futures were that high in relation to the index known as the VIX was July 2010.

Energy companies helped limit the S&P 500’s loss today. Nabors Industries Ltd. rallied 7 percent and Range Resources Corp. gained 2.9 percent after they reported higher-than- estimated profit. The S&P 500 Energy Index rose 0.2 percent.

Crude oil futures advanced to $106.28 a barrel, the highest settlement price since May 4.

Treasury Auction

Treasuries rose for the first time in four days after the U.S. sold $35 billion of five-year notes. They drew a yield of 0.900 percent, compared with a forecast of 0.901 percent in a Bloomberg News survey of seven of the Federal Reserve’s primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.89, compared with an average of 2.9 for the previous 10 sales.

Leon Cooperman, founder of equity hedge fund Omega Advisors Inc., said buying U.S. Treasuries is the least attractive investment in a world of “financial repression.” Bonds will be the worst place for investors to put their money for the next three years, Cooperman said in an interview today on Bloomberg Television’s “InsideTrack” with Erik Schatzker.

The yen fell for a fifth day, the longest streak since April. It has weakened 3.7 percent since the Bank of Japan on Feb. 14 unexpectedly expanded its asset-purchase program. Norway’s krone rallied against all its major counterparts as investors pared bets the central bank would cut interest rates after unemployment unexpectedly declined.

--With assistance from Allison Bennett, Cordell Eddings, Susanne Walker, Devin Banerjee and Erik Schatzker in New York. Editor: Nick Baker

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; 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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