Tuesday, September 6, 2011

U.S. Stocks Decline Amid Concern Europe Crisis Is Slowing Global Economy

U.S. stocks retreated, sending the Standard & Poor’s 500 Index lower for a third day, amid growing investor concern that Europe’s debt crisis is getting worse.

Caterpillar Inc. (CAT) and Hewlett-Packard Co. (HPQ) posted declines of at least 2.3 percent, pacing losses among companies most-tied to the economy. Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) slumped more than 4.3 percent as banks tumbled in Europe for a third straight day. Exxon Mobil Corp. (XOM) and Freeport-McMoRan Copper & Gold Inc. (FCX) decreased at least 2.2 percent as oil and copper fell on concern about slower demand.

The S&P 500 lost 2.8 percent to 1,141.32 at 10:42 a.m. in New York. The benchmark gauge for American equities slid 3.7 percent over the last two trading days. The Dow Jones Industrial Average sank 289.45 points, or 2.6 percent, to 10,950.81 today.

“It’s starting to feel 2008-ish where there are nine bad things to one good thing,” Madelynn Matlock, who helps oversee about $14.8 billion at Huntington Asset Advisors in Cincinnati, said in a telephone interview. “The dreaded uncertainty is out there. Everybody is watching what’s going on in Europe at this point. The concern about a global recession is edging higher.”

The U.S. stock market was closed yesterday for a holiday, as global equities fell, Italian bonds dropped for an 11th day and the cost of government and bank default insurance rose to records amid concern about Europe’s debt crisis. The S&P 500 slid as much as 18 percent from a three-year high on April 29 amid concern about a global slowdown.

Lower Forecast
HSBC Holdings Plc cut its forecast for global economic growth for the next two years and said the efficacy of any further stimulus measures will be limited.

The world economy will grow 2.6 percent this year and 2.8 percent in 2012, compared with estimates published in June of 3 percent and 3.4 percent respectively, London-based HSBC economists including Stephen King and Madhur Jha said in a note e-mailed to clients today. HSBC also lowered its euro-area and U.S. growth predictions, with the latter at “stall speed,” the economists said.

“Healthy economic recovery is now but a distant dream,” they wrote. “For the developed world, the downgrades are particularly aggressive whereas, for the emerging world, the reductions are more modest, helped by the ongoing support offered by China and India.”

The franc weakened the most since the creation of the euro after the Swiss central bank set a minimum exchange rate. The yield spread between Greek 10-year notes and similar-maturity German bunds widened to a euro-era high of 1,794 basis points, or 17.94 percentage points.

Greece Bailout
Ministers from Germany, Finland and the Netherlands will meet today to discuss a Finnish demand for collateral in a bailout for Greece, while the Italian Senate will debate an austerity plan amid a strike.

Benchmark gauges briefly trimmed losses as the Institute for Supply Management’s index of non-manufacturing businesses increased to 53.3 in August from 52.7 a month earlier, beating the median 51 projection by economists in a Bloomberg News survey. A reading above 50 signals expansion. The Tempe, Arizona-based group’s index averaged 56.1 in the five years to December 2007, when the last recession began.

Companies most-tied to economic growth slumped. Caterpillar fell 2.3 percent to $83.44. Hewlett-Packard decreased 5.4 percent to $23.04.

Banks Tumble
Bank of America tumbled 5.4 percent to $6.86, while JPMorgan lost 4.4 percent to $33.10. The two lenders were among 17 banks sued by the U.S. to recoup $196 billion spent on mortgage-backed securities bought by Fannie Mae and Freddie Mac.

The Federal Housing Finance Agency, on behalf of Fannie Mae and Freddie Mac, filed 17 lawsuits on Sept. 2 in New York state and federal courts and in federal court in Connecticut. The FHFA accuses the banks of misleading Fannie Mae and Freddie Mac about the soundness of the mortgages underlying the securities.

Commodity producers also retreated as the S&P GSCI index of 24 raw materials fell 1.1 percent. Exxon slid 2.2 percent to $70.55. Freeport decreased 2.9 percent to $43.64.

Temple-Inland Inc. (TIN) rallied 26 percent to $31. International Paper Co. (IP), the world’s largest pulp and paper maker, said it agreed to acquire the Austin, Texas-based company for $3.7 billion, ending a three-month battle for control of the shipping-box manufacturer.

Bearish bets by investors using futures contracts on the S&P 500 Index increased to the highest level in almost four years in the week ended Aug. 30, according to data compiled by Bloomberg and the Commodity Futures Trading Commission. Short selling involves the sale of securities borrowed from the owner, and generates profit when the trader repurchases them at a lower price and returns them to the owner.

Hedge funds and other large speculators hold a net 107,913 futures contracts wagering that the S&P 500 will decrease in value. The short position is the highest since September 2007, when bearish bets reached a record of 127,474 contracts a month before the benchmark equity gauge reached an all-time high, according to Bloomberg data going back to 1997.

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