U.S. stocks drop on budget concern while euro, Treasuries gain

U.S. stocks fell, pulling the Standard & Poor’s 500 Index down from a two-month high, as federal budget negotiations deteriorated. Global equities reached a 17-month high and the euro rose as German business confidence grew.

The Standard & Poor’s 500 Index lost 0.8 percent to 1,435.81 at 4 p.m. in New York after yesterday closing at the highest level since Oct. 18. The MSCI All-Country World Index gained for a third day, rising 0.1 percent to the highest since July 2011. Ten-year Treasury yields decreased one basis point to 1.81 percent after reaching an almost two-month high yesterday. The euro strengthened to an eight-month high against the dollar. Energy led commodity gains after U.S. supply data.

House Speaker John Boehner’s “Plan B” would put “too big a burden on the middle class” and President Barack Obama would veto it, White House Communications Director Dan Pfeiffer said. Boehner replied that Obama will be responsible for “the largest tax increase in American history” if Democrats don’t accept the measure the House plans to pass tomorrow.

“Markets continue to be very much focused on fiscal-cliff resolution,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in an interview. His firm oversees $250 billion. “The move over the last few days has been supported by optimism that a deal will be reached by year-end. However, so far today we’re seeing a bit of caution as congressional leaders remain at different ends on several key issues.”

 Plan B’ 

The House may vote tomorrow on Boehner’s plan, which would raise tax rates on income over $1 million, rather than the $400,000 threshold the president proposed in his latest offer. Boehner is looking to pressure Obama to accept deeper spending cuts and a higher threshold for rate increases by showing how tough it will be to win Republican support for any higher taxes.

The S&P 500 snapped a two-day rally as health-care, consumer-staples, utility and telephone shares led losses in all of the 10 main industry groups. The S&P 500 has rallied 14 percent this year and is up 1.2 percent so far in December after the Federal Reserve extended its unprecedented monetary-stimulus efforts and economic data improved.

An S&P gauge of homebuilders trimmed its loss to 0.9 percent after slumping as much as 2.2 percent. Commerce Department data showed housing starts fell 3 percent to a 861,000 annual rate from a revised 888,000 annual pace in October. The median estimate of 85 economists surveyed by Bloomberg called for a drop to 872,000. Building permits, a proxy for future construction, advanced to a four-year high.

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