Euro retreats with Italy, Spain bonds as U.S. stocks decline

July 5 (Bloomberg) -- The euro sank to a one-month low as Spanish and Italian bonds plunged after the European Central Bank disappointed investors anticipating a more aggressive effort to fight the debt crisis. U.S. equities fell as investors awaited tomorrow’s jobs report.

The euro tumbled 1.1 percent to $1.2388 at 3:01 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 0.2 percent after slumping 0.8 percent earlier. The S&P GSCI Index of commodities rose 0.2 percent as crops rallied. Ten-year Treasury note rates slipped four basis points to 1.59 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.”

Euro Weakens

The euro weakened against 14 of 16 major peers, with 10 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 95,000 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 more than 7 percent since.

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