U.S. stocks retreat while euro weakens on comments from Draghi

U.S. stocks fell following a two-day gain amid disappointing earnings and economic data as the euro sank after European Central Bank President Mario Draghi said the currency’s strength could hamper the economic recovery. European shares erased early gains. Treasuries rose.

The Standard & Poor’s 500 Index, which last week reached a five-year high, slipped 0.2% at 4 p.m. in New York while the Stoxx Europe 600 Index closed down 0.2% after earlier rising 0.6%. The euro weakened 0.9% to $1.3398 after touching a 14-month high last week. Ten-year Treasury yields lost two basis points to 1.94%. The pound strengthened as the future central bank chief discussed exiting unconventional policies. Natural gas led commodities lower.

U.S. worker productivity fell more than projected in the fourth quarter as the economy shrank, pushing labor expenses up and showing companies are approaching the limit of how much efficiency they can wring from employees. Jobless claims decreased less than economists estimated last week. Draghi told reporters growth risk continues to be on the “downside,” accommodative ECB policy will support the economy and the recent strength of the euro creates risks that inflation will slow.

“This is a week that’s more overseas-focused,” John Canally, investment strategist at Boston-based LPL Financial Corp., which has $373 billion in advisory and brokerage assets, said in a telephone interview. “Markets are pinned up at the top of this range, close to all-time highs. We’re not so overbought anymore, so they’re waiting for the next catalyst to push it. There isn’t enough of one today.”

Approaching Record

The S&P 500 has rallied almost 6% in 2013 as U.S. lawmakers reached a budget compromise and companies reported better-than-estimated earnings. The benchmark equity gauge is about 4% below its record high reached in October 2007 after more than doubling since bottoming in March 2009.

Draghi said an economic recovery should begin later this year as an absence of inflation risks allows the ECB to maintain record-low interest rates. The euro weakened against 14 of 16 major peers.

“The exchange rate is not a policy target, but it is important for growth and price stability,” Draghi said at a press conference in Frankfurt today after the ECB kept its benchmark rate at a record low of 0.75%. “We want to see if the appreciation is sustained, and if it alters our assessment of the risks to price stability.”

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