U.S. Stock Futures Tumble as Italian Bond Yields Rise to Euro-Era Record

U.S. stock futures slumped, following a two-day advance in the Standard & Poor’s 500 Index, as a surge in Italian bond yields to euro-era records bolstered concern that Europe’s sovereign debt crisis is worsening.

Bank of America Corp. (BAC) and Morgan Stanley tumbled at least 3.2 percent, following losses in European lenders, after LCH Clearnet SA raised the extra charge it levies on clients for trading Italian government bonds and index-linked securities. Adobe Systems Inc. (ADBE) sank 9.4 percent after saying it will cut jobs as it lessens its focus on older products. Alcoa Inc. (AA) and Chevron Corp. (CVX) slid more than 2.2 percent as commodities fell.

S&P 500 futures expiring in December sank 2 percent to 1,247.50 as of 8:07 a.m. New York time. The benchmark gauge rose 1.8 percent over the previous two days. Dow Jones Industrial Average futures lost 187 points, or 1.5 percent, to 11,936 today. The Stoxx Europe 600 Index decreased 1.6 percent, erasing an earlier advance, as the 10-year Italian note yield topped 7 percent for the first time in the euro era.

“Italian bonds are within a very, very dangerous zone,” said Alberto Espelosin, head of analysis at investment company Ibercaja Gestion SGIIC SA in Zaragoza, Spain. “Any country paying more than 6.5 percent, it just boosts financing costs and makes it hard to reduce deficits. There is high risk aversion and equity markets will reflect this.”

The so-called deposit factor for Italian bonds due in seven-to-10 years will be raised to 11.65 percent, the French unit of LCH Clearnet said in a document on its website dated yesterday. That compares with a charge of 6.65 percent announced on Oct. 7.

Protect Against Losses
Clearing houses guarantee investors’ trades are completed by standing in the middle of two counterparties, and raise margin requirements to protect themselves against losses should one side of the trade fail.

Stocks rose yesterday after Prime Minister Silvio Berlusconi’s offer to resign boosted optimism Italy would appoint a new leader who can tame the debt crisis. Greek Prime Minister George Papandreou’s talks on forming an interim government dragged into a third day as a near-agreement with the biggest opposition party stalled on European demands for written commitments.

American banks tumbled as a gauge of European lenders sank 3.6 percent. Bank of America lost 3.2 percent to $6.32. Morgan Stanley (MS) retreated 4.5 percent to $16.54.

Adobe Tumbles
Adobe slumped 9.4 percent to $27.55. The reduction of 750 jobs, mostly in North America and Europe, will cost $87 million to $94 million before taxes, the company said. After the costs, net income will be 30 cents to 38 cents a share, compared with a previous forecast of 41 cents to 50 cents. The largest maker of graphic-design software is facing an industry shift away from its Flash technology for Internet programming.

Energy and raw material producers dropped as the dollar rose, reducing the appeal of commodities as an alternative investment. Alcoa slid 3 percent to $10.46. Chevron fell 2.2 percent to $106.50.

Yahoo! Inc. rallied 1.4 percent to $16.19. Alibaba Group Holding Ltd. and Softbank Corp. (9984) are talking with private-equity funds about making a bid for all of the company without its blessing, people with knowledge of the matter said.

Alibaba and Softbank, in an effort to buy back stakes owned by Yahoo, have grown impatient with a lack of progress in direct talks with the company, said the people, who asked not to be named because the negotiations are private. Representatives of Sunnyvale, California-based Yahoo, China-based Alibaba and Tokyo-based Softbank declined to comment.

‘Bear Mode’
The S&P 500 may halt its biggest gain in 20 years, according to two indicators studied by technical analysts at UBS AG. October’s 11 percent rally, which was the biggest monthly advance since 1991, failed to leave the S&P 500 above its 200- day average, limiting the potential for a rally, the Zurich- based analysts wrote in a report yesterday. The team also said their model for moving average convergence-divergence, or MACD, is heading into “bear mode.”

“We see the risk of more near-term weakness into next week,” Marc Muller and Michael Riesner wrote in the report. “Given the high volatility, we would see a pullback into next week still as a trading opportunity for aggressive traders, whereas, on the upside, we wouldn’t chase the market.”