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Stocks rose, while Treasuries retreated, as an increase in U.S. service-industry growth tempered concern the largest economy was slowing and a report said Europe’s bailout fund was preparing a credit line for Spain. The yen fell as Japan’s finance minister said he’s concerned about the currency’s rise.
The Standard & Poor’s 500 Index advanced 0.6 percent to 1,285.5 at 4 p.m. in New York after earlier dipping to its lowest level since January. Treasury yields rose for a second day on speculation their slide to record lows last week won’t be sustained. The euro depreciated 0.4 percent to $1.2449 while the yen weakened against 15 of 16 major peers. Cocoa, silver and natural gas led commodities higher while oil was little changed.
The Institute for Supply Management’s index of non- manufacturing businesses, which covers about 90 percent of the economy, increased to 53.7, topping the median projection of economists for a reading of 53.4. Spain may receive a precautionary credit line from the European Financial Stability Facility, Germany’s Die Welt newspaper reported in a preview of a story that will run tomorrow, citing unidentified people familiar with talks about the possible option.
“I’d be a buyer of stocks,” John Manley, chief equity strategist for Wells Fargo Advantage Funds in New York, said in a telephone interview. His firm oversees $205 billion. “The U.S. economy is doing OK. Obviously there are lots of things that could go wrong. We’re going to have to see more agreements in Europe. Yet valuation is attractive, the market is cheap.”
The S&P 500 reversed losses yesterday as the lowest price- to-earnings multiple in six months overshadowed a drop in factory orders. The index started the week trading at 12.9 times its companies’ reported earnings, the cheapest since November. The index tumbled 9.9 percent from a four-year high in April through last week as U.S. economic data trailed estimates while concern grew about Greece’s future in the euro and Spain’s deteriorating national finances.
Financial, commodity and technology shares, the groups that led the S&P 500’s retreat since April, rose at least 0.6 percent today for the biggest gains among the 10 main groups. JPMorgan Chase & Co., Bank of America Corp. and Hewlett-Packard Co. rallied at least 2.9 percent for the best gains in the Dow Jones Industrial Average (INDU), which climbed 26.49 points to 12,127.95.
A gauge of homebuilders in S&P indexes rallied 4 percent, paced by gains of at least 6 percent in Lennar Corp. and PulteGroup Inc. Facebook Inc. retreated 3.8 percent to $25.87, extending its tumble since going public to 32 percent, following a Reuters/Ipsos poll that showed sagging interest in the site and a minority of users being influenced by ads and comments when making purchasing decisions.
While the S&P 500 is likely to find support at 1,250, further losses may extend its drop from an April peak to 15 percent in a “selling climax” that would deplete bears, according to StockCharts.com Inc.’s Arthur Hill. A “new cyclical bear market appears in place” and investors should take defensive positions, technical analyst Louise Yamada said in a report. She added that more efforts by the Federal Reserve to boost growth may stop the S&P 500 from reaching the bear market threshold, commonly defined as a drop of 20 percent from a recent peak.
John Stoltzfus, chief market strategist at Oppenheimer & Co. in New York, said that while the S&P 500 may slip as much as another 5 percent, he’s sticking with his forecast that it will reach 1,450 by the end of the year. The estimate implies a 13 percent rally from yesterday’s close.
“What will get us to 1,450 is we’ll get some better economic news as the summer comes across, we’ll get some kind of resolution in Europe, at least interim, related to Greece,” he told Bloomberg Television’s “InsideTrack” program today. “In addition to that,” he said, “we’ll find out that China is indeed headed to a soft landing rather than a hard landing.”
The euro slid against 12 of 16 major peers, with the currencies of Brazil and South Africa rallying more than 1 percent. The Dollar Index, which tracks the U.S. currency against those of six trading partners, climbed 0.3 percent to 82.77. The index had fallen for two days after last week climbing to the highest level since August 2010.
The euro slumped as a Markit Economics gauge of the region’s manufacturing and services industries shrank the most in almost three years and Spain’s budget minister called for outside help for banks as Europe’s debt crisis remained in focus.
Finance ministers and central bank governors from the world’s leading economies agreed to coordinate their response to Europe’s financial crisis on a Group of Seven nations conference call that dealt with Spain and Greece. The yen weakened 0.5 percent to 78.76 per dollar after Japanese Finance Minister Jun Azumi indicated G7 nations remain supportive of intervention to address extreme currency moves.
The yield on the two-year German note hovered near zero after falling to minus 0.012 percent at the end of last week. The yield on the Italian 10-year bond declined two basis points to 5.64 percent, erasing an earlier increase. Ten-year U.S. Treasury note rates, which slid to a record below 1.44 percent last week, rose five basis points to 1.57 percent today.
The Stoxx Europe 600 Index added 0.3 percent, rebounding from its lowest level since Dec. 19. Spanish stocks rose, sending the IBEX-35 up 0.5 percent after yesterday rallying 2.9 percent in a rebound from a nine-year low. U.K. markets were closed for holiday to honor Queen Elizabeth II’s 60 years on the British throne.
The MSCI Emerging Markets Index (MXEF) added 0.6 percent, rebounding from a six-month low. Benchmark gauges in South Korea, Indonesia and Taiwan climbed more than 1 percent. The Shanghai Composite index gained 0.2 percent, while Russia’s Micex Index fell 0.7 percent.
After 11 weeks of losses sent stocks in emerging markets to the brink of a bear market, dealers have started cutting prices of contracts to protect against declines.
Puts priced 10 percent below the iShares MSCI Emerging Markets Index Fund cost 1.34 times calls betting on a 10 percent gain, down from 1.49 times on May 1, according to data compiled by Bloomberg. The price relationship known as skew for the security, which tracks companies such as Suwon, South Korea- based Samsung Electronics Co. and China Mobile Ltd. in Hong Kong, touched its lowest level since January yesterday.
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