The euro sank to a one-month low as Spanish and Italian bonds plunged, while stocks retreated, after the European Central Bank disappointed investors anticipating a more aggressive effort to fight the debt crisis.
The euro tumbled 1.1 percent to $1.2390 at 4 p.m. in New York and the Dollar Index surged the most this year. Ten-year Spanish and Italian bond yields increased at least 21 basis points. The Standard & Poor’s 500 Index lost 0.5 percent after slumping 0.8 percent earlier. The S&P GSCI Index of commodities rose 0.4 percent as crops rallied. Ten-year Treasury note rates slipped three basis points to 1.60 percent as trading resumed following the Independence Day holiday.
ECB policy makers refrained from announcing more measures to cap borrowing costs in Italy and Spain. Some “downside risks to the euro-area economic outlook have materialized,” the central bank’s president, Mario Draghi, said after policy makers lowered the main refinancing rate and the deposit rate by 25 basis points to 0.75 percent and zero respectively. In the U.S., a gauge of service-industry growth trailed forecasts, while data on employment showed improvement.
“There’s still a lot of uncertainty for peripheral bonds and Draghi made that clear today,” said Ciaran O’Hagan, head of European rate strategy at Societe Generale SA in Paris. “Draghi’s comments illustrate that the economic outlook has worsened and that details of last week’s summit accord still need to be worked out between sovereigns.”
The euro weakened against 14 of 16 major peers, with eight counterparts gaining more than 1 percent, including the Brazilian real, Australian and Singapore dollars. The U.S. dollar strengthened against 10 of 16 peers. The Dollar Index, a gauge of the currency against six major counterparts, jumped almost 1.3 percent for its biggest advance of 2012.
European stocks, S&P 500 futures and commodities rallied earlier after China cut its benchmark deposit rate by 25 basis points and lending rate 31 basis points, and the Bank of England restarted bond purchases. Equities also climbed earlier as companies in the U.S. added 176,000 workers in June, according to figures from ADP Employer Services, topping economists’ estimates for 100,000 jobs. American unemployment claims fell more than forecast to 374,000 last week, a government report showed.
U.S. Labor Department data tomorrow is forecast to show that 100,000 jobs were added to American payrolls in June, according to the median forecast of economists. The 69,000 increase in jobs in May, reported on June 1, was the weakest growth in a year. The S&P 500 tumbled 2.5 percent to a five- month low that day and 10-year Treasury yields set a record low of 1.4387 percent. The S&P 500 has rebounded 7 percent since.
The S&P 500 retreated today after closing at a two-month high on July 3. Financial and energy shares led losses among the 10 main industry groups in the index, with JPMorgan Chase & Co. (JPM:US), Bank of America Corp. (BAC:US) and Chevron Corp. (CVX:US) falling more than 1.2 percent to lead declines in the Dow Jones Industrial Average. Limited Brands Inc. and Ross Stores Inc. (ROST:US) rose more than 4.4 percent to lead a rally in retailers after reporting June sales that topped estimates.
The Institute for Supply Management’s index of U.S. non- manufacturing businesses, which covers about 90 percent of the economy, fell to 52.1 in June from the prior month’s 53.7.
Among commodities tracked by the S&P GSCI Index, wheat, corn and soybeans surged more than 3.5 percent to lead gains as hot dry weather continued to threaten production in the U.S. Zinc, cotton and silver lost at least 2.1 percent for the biggest declines.
The Stoxx 600 is on course for a fifth week of gains, the longest winning streak since January, and has rebounded more than 9 percent from its low for the year on June 4.
Banks led declines in Europe today, with Spain’s Banco Santander SA plunging 3.9 percent and Italy’s UniCredit SpA losing 5.1 percent.
Volkswagen AG jumped 5.1 percent after reaching an agreement with Germany’s tax authorities to buy the 50.1 percent stake in Porsche SE that it doesn’t already own. GKN Plc surged 13 percent as the U.K. maker of parts for Airbus SAS jetliners agreed to buy the aircraft-engine unit of Volvo AB for 633 million pounds ($987 million).
Spain’s 10-year bond yield climbed 37 basis points to 6.78 percent, the highest since June 29. The country sold 10-year securities at an average yield of 6.43 percent today, compared with 6.044 percent at a sale in June. It also sold debt maturing in 2015 and 2016. Italy’s 10-year rate climbed 21 basis points to 5.98 percent.
The yield on the 10-year U.K. gilt fell seven basis points to 1.66 percent. The Monetary Policy Committee raised its asset- purchase target by 50 billion pounds ($78 billion) to 375 billion pounds.
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