U.S. stocks rose, erasing early losses, and commodities pared declines as lawmakers said they are optimistic a budget agreement can be reached to avoid automatic spending cuts and tax increases.
The Standard & Poor’s 500 Index closed up 0.8 percent at 1,409.93 at 4 p.m. in New York after earlier slumping 1 percent. The S&P GSCI gauge of 24 raw materials was down 0.5 percent, trimming an earlier decline of 1.4 percent as oil pared losses following an unexpected decline in U.S. supplies. Ten-year Treasuries pared early gains, with rates down less than one basis point at 1.63 percent, and the Dollar Index reversed an earlier advance to fall 0.1 percent.
Equities reversed morning declines as Republican House Speaker John Boehner told reporters he is optimistic that budget talks can “avert this crisis sooner rather than later.” President Barack Obama said more Republicans are agreeing on a “balanced approach” to cut the deficit, and he hopes a deal can be reached before Christmas.
“The market is at the mercy of the fiscal cliff until we get some sort of resolution,” Liz Ann Sonders, the New York- based chief investment strategist at Charles Schwab Corp., which has $1.9 trillion in client assets, said in a telephone interview.
Obama urged Congress to extend tax cuts for the middle class, while Boehner said he continues to oppose the expiration of tax reductions for top earners and Democrats need to get “serious” on budget cuts. Obama is sending Treasury Secretary Timothy F. Geithner to meet with congressional leaders tomorrow as lawmakers debate ways to avoid the so-called fiscal cliff of more than $600 billion in automatic tax increases and spending cuts that will kick in next year if an agreement is not reached.
The U.S. economy expanded at a “measured pace” in recent weeks as gains in consumer demand and housing were tempered by a slowdown in manufacturing and the impact of superstorm Sandy, the Federal Reserve said. The report indicates the Fed is unlikely to curtail monthly purchases of $40 billion in housing debt and bolsters Chairman Ben S. Bernanke’s view that an agreement on reducing long-term federal budget deficits without abrupt tax increases and spending cuts would remove a barrier to growth.
Gauges of consumer-discretionary, energy and industrial shares rose at least 0.9 percent to lead gains in all 10 of the main S&P 500 industries today. The S&P 500 fell on the first two days of the week after optimism that a budget deal will be made sent the index up 3.6 percent last week, its biggest gain since June.
Equities extended losses earlier after Commerce Department data showed purchases of new U.S. homes unexpectedly declined 0.3 percent to a 368,000 annual pace in October, showing limited progress in the housing market recovery.
Among U.S. stocks moving today, Costco Wholesale Corp. (COST:US) advanced 6.3 percent after saying it plans to pay a $3 billion special dividend. Costco joins a growing number of U.S. companies, from Wynn Resorts Ltd. to Tyson Foods Inc., which are announcing special dividends at four times the pace of last year ahead of potential tax increases next year.
Knight Capital Group Inc. jumped 15 percent as Getco LLC submitted a proposal to buy the market maker. Principal Financial Group Inc. dropped 1.9 percent after the insurer said fiscal 2013 corporate losses could be as much as $165 million.
Natural gas, gold, lead and silver lost at least 0.8 percent to lead declines in 14 of 24 commodities tracked by the S&P GSCI Index. Oil slipped 0.8 percent to $86.49 a barrel after tumbling as much as 2.1 percent before U.S. Energy Department data showed an unexpected decrease in supplies.
The Stoxx Europe 600 Index (SXXP) rose 0.1 percent, erasing an earlier loss of as much as 0.6 percent. Celesio AG and Metro AG both dropped more than 2.5 percent after Franz Haniel & Cie. GmbH said it will reduce its stakes in the companies. Swiss Life Holding AG lost 1 percent as the life insurer took a larger- than-estimated writedown for its German brokerage. Nestle, which accounts for 3 percent of the Stoxx 600, gained 1.2 percent after saying it will form a joint venture with Hutchison China Meditech Ltd.
OAO MegaFon, Russia’s second-largest mobile-phone operator, dropped 2 percent on its debut in London after raising $1.7 billion in the biggest initial offering by a Russian company in three years. Raiffeisen Bank International AG, eastern Europe’s second-biggest lender, sank 5 percent in Vienna as third-quarter profit missed analysts’ estimates.
The yield on 10-year Treasuries fell for a third day. Volatility in U.S. government debt dropped to the lowest in five years yesterday, according to Bank of America Merrill Lynch’s MOVE index.
The yen strengthened 0.3 percent against the euro and 0.3 percent per dollar. Shinzo Abe, the front-runner to become Japan’s next prime minister, and incumbent Yoshihiko Noda debate policies tomorrow before a general election next month.
The euro weakened was little changed at $1.2940, trimming an earlier 0.5 percent decline. Italy’s 10-year bonds advanced, pushing the yield down 14 basis points to 4.59 percent, the lowest since May 2011. The rate on similar-maturity Spanish notes slid 19 basis points to 5.33 percent, the lowest on a closing basis since March.
The MSCI Emerging Markets Index (MXEF) slipped 0.5 percent as Brazil’s Bovespa added 0.5 percent and Russia’s Micex Index lost 1 percent. The Shanghai Composite Index (SHCOMP) slipped 0.9 percent. The Philippine Stock Exchange Composite Index jumped 0.9 percent to a record after the country’s growth unexpectedly accelerated last quarter at the fastest pace since 2010.
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