Stocks, commodities drop as Treasuries rise on budget deadlock

U.S. stocks fell for a second day and Treasuries rose as Senate Majority Leader Harry Reid said budget talks in Washington have made little progress. The dollar strengthened while oil, gold and cocoa led commodities lower.

The Standard & Poor’s 500 Index lost 0.5 percent to 1,399.05 at 4 p.m. in New York after earlier climbing 0.2 percent. The dollar rose against 13 of 16 major peers, while crude and gold futures decreased at least 0.4 percent. The Stoxx Europe 600 Index closed up 0.3 percent. Ten-year Treasury yields were down 2.4 basis points at 1.64 percent.

Equities extended losses as Reid told reporters he was disappointed in the lack of progress in budget talks, and “we have to get away from the happy talk.” Concern about the budget deadlock overshadowed economic data showing demand for U.S. capital goods increased, home prices rose by the most since 2010 and consumer confidence reached a more-than four-year high.

“Comments from Majority Leader Reid about ‘little progress’ being made in fiscal-cliff talks, after last week’s optimism, sparked an immediate knee-jerk reaction lower,” Michael James, a managing director of equity trading at Wedbush Securities Inc. in Los Angeles, said in an e-mail.

Energy, financial and telephone companies led losses among the 10 main industry groups in the S&P 500.

Hewlett-Packard Co. slipped after saying it uncovered evidence of improper accounting at Autonomy Corp., a software company it bought last year. Seagate Technology Plc slumped after a CLSA Asia Pacific Markets analyst said the “magnitude” of the personal-computer slowdown in emerging markets was worse than previously thought. Corning Inc. jumped after forecasting stronger-than-anticipated retail demand for consumer electronics this quarter.

Two-Day Drop

U.S. stocks retreated yesterday following a 3.6 percent rally in the S&P 500 last week. The index has lost less than 2 percent since President Barack Obama’s re-election set up a budget showdown with House Republicans, paring a decline of as much as 5.3 percent through Nov. 15. The Congressional Budget Office has said a failure to avoid the so-called fiscal cliff could lead to a recession and a jobless rate of about 9 percent, compared with the October rate of 7.9 percent.

The dollar also strengthened as Federal Reserve Bank of Dallas President Richard Fisher said he advocates putting limits on U.S. quantitative easing. The Fed could announce “a limit as to how much we are going to acquire of Treasuries and mortgage- backed securities, say up to a limit of X, up to a point where our balance sheet reaches that,” Fisher said today in Berlin. “It is my personal preference to do it sooner than later, perhaps at the next meeting.”

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