U.S. stocks erase losses as economic data offset spending cuts

U.S. stocks erased losses, after an early decline in the Standard & Poor’s 500 Index, as better-than-estimated data on consumer confidence and manufacturing tempered impending federal spending cuts.

Groupon Inc. rallied 5.8% after firing its chief executive officer. Raw-material companies fell as commodities tumbled after a report showed China’s manufacturing slowed. Freeport-McMoRan Copper & Gold Inc. lost 1.2%.

The S&P 500 slipped less than 0.1% to 1,514.47 at 10:43 a.m. in New York, after declining as much as 0.9% earlier. The Dow Jones Industrial Average rose 5.45 points, or less than 0.1%, to 14,059.94. Trading in S&P 500 companies was in line with the 30-day average at this time of day.

“Many market observers have been expecting that the budget cuts will take effect,” said Andreas Nigg, head of equity and commodity strategy at Vontobel Asset Management in Zurich. “It appears that the U.S. economy has enough momentum, but a weakening macro backdrop just at the point when sequestration starts would be cause for concern.”

Stocks pared declines today after the Institute for Supply Management said its factory index rose to 54.2 in February from 53.1 a month earlier. Economists projected the gauge would ease to 52.5, according to the median forecast in a Bloomberg survey. A reading greater than 50 signals expansion.

Consumer spending in the U.S. rose in January even as incomes dropped by the most in 20 years, showing households were weathering the payroll-tax increase by socking away less money in the bank. Outside the U.S., data showed China’s manufacturing slowed for a second month while factory output in the euro area contracted for the 19th straight month.

Spending Cuts

U.S. stocks erased gains in the final minutes of trading yesterday after a Senate vote kept automatic spending cuts in place. Democrats and Republicans are in a standoff over how to replace the cuts totaling $1.2 trillion over nine years, $85 billion of which would occur in this fiscal year. President Barack Obama’s meeting with congressional leaders today won’t yield a breakthrough, members of both parties say.

Federal Reserve Bank of Chicago President Charles Evans said the Fed should press on with $85 billion in monthly bond buying, warning that a premature withdrawal of stimulus risks hobbling the recovery the biggest industrial metals user..

“We need to be careful not to undermine our own policies and remove accommodation prematurely, as the Japanese did,” Evans said yesterday in a speech in Des Moines, Iowa.

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