Most U.S. stocks fell for a third day, the longest slump of the year for the Standard & Poor’s 500 Index, as Cyprus rejected a bank-deposit levy needed to secure European bailout funds. Treasuries rallied and the euro traded at a four-month low versus the dollar.
The S&P 500, which climbed to within two points of its 2007 record last week, lost 0.2% as of 4 p.m. in New York as almost three U.S. stocks fell for every two that rose. Ten-year Treasury yields slid five basis points to 1.91% and Europe’s 17-nation common currency weakened as much as 0.9% to $1.2844, the least since November. Indian stocks sank the most this month as the government’s biggest ally pulled out of the ruling coalition. Oil and gasoline slumped more than 1% to lead commodities lower.
Equities briefly pared losses after the European Central Bank said it will provide liquidity to Cyprus within existing rules. Cyprus President Nicos Anastasiades failed to secure Parliament’s support for imposing losses on depositors, a key demand of European officials in return for rescue funds. Concern about the Mediterranean island nation overshadowed growth in new U.S. home construction and a surge in building permits to the highest level in almost five years.
“Obviously the situation in Europe is not what we want it to be,” John Manley, who helps oversee about $223.6 billion as chief equity strategist for Wells Fargo Advantage Funds in New York, said in a phone interview. “The next couple weeks will be more periods of chopping around. I don’t think it’s more than 2% to 4% in terms of risk on the market,” he said. “The housing market does seem to be on a bit more steady ground and that helps U.S. consumer.”
The S&P 500 has declined about 1% in three sessions after climbing to within two points of a record last week. Caterpillar Inc., Alcoa Inc. and American Express Co. were among the biggest declines in the Dow Jones Industrial Average, while Coca-Cola Co. and Hewlett-Packard Co. led gains. Commodity, consumer and financial shares led losses among the 10 main groups in the S&P 500.
Cliffs Natural Resources Inc. tumbled after Goldman Sachs Group Inc. reduced its forecast for iron-ore prices. AmerisourceBergen Corp. surged and Walgreen Co. jumped after agreeing to a partnership. Electronic Arts Inc. slid after the second-largest U.S. maker of video games said John Riccitiello is stepping down as chief executive officer. Lululemon Athletica Inc. tumbled after lowering its sales forecast because of a pants shortage following shipments of yoga slacks that were too sheer to wear.
An S&P index of homebuilders advanced, with KB Home and Toll Brothers Inc. pacing gains. Builders broke ground on 917,000 homes at an annual rate, up 0.8% from a revised 910,000 pace in January that was higher than initially estimated, the Commerce Department reported today. Building permits, a proxy for future construction, advanced 4.6% to 946,000, the strongest since June 2008.
The dollar strengthened versus 14 of its 16 major peers as the Federal Reserve starts a two-day meeting today. Ben S. Bernanke is tightening his control of Fed communications to ensure investors hear his pro-stimulus message over the cacophony of more hawkish views from regional bank presidents.
The chairman, starting tomorrow, will cut the time between the release of post-meeting statements by the Federal Open Market Committee and his news briefings, giving investors less opportunity to misperceive the Fed’s intent. In recent presentations, he has pledged to sustain easing, defending $85 billion in monthly bond purchases during congressional testimony last month and warning that “premature removal of accommodation” may weaken the expansion.
The S&P 500 rallied as much as 131% from its 2009 bear-market low through March 14, coming within two points of its 2007 record close of 1,565.15, as the Fed’s programs suppressed borrowing costs and helped stoke three straight years of profit growth. The equity index’s dividend yield, currently at 2.1%, has been above the rate on 10-year Treasuries for almost a year.
This bull market “is getting time-wise a bit extended,” Jim Welsh, who helps oversee $6 billion at Forward Management LLC in San Francisco, said in a phone interview. “Could there be a little bit more life in this thing? Of course, there can be. The central bank obviously has the foot pressed to the metal. People have a lot of faith that that’s going to prevent anything bad from happening. I don’t believe Fed is going to change anything any time soon. They’re going to keep rates low.”
The yen strengthened against 15 of 16 major peers before a change of leadership at the Bank of Japan tomorrow.
The Stoxx Europe 600 Index lost 0.4% today and has retreated about 1% from last week’s 4 1/2-year high.
Parliament began debating the deposit tax about 6 p.m. in the Cypriot capital, Nicosia, after President Anastasiades told German Chancellor Angela Merkel in a phone call that he doesn’t have the support to pass the measure. Lawmakers “feel and think it isn’t just and that it’s against the interest of Cyprus,” he told Sweden’s TV4 channel in an interview today.
The Mediterranean island nation’s banks and stock exchange will remain closed at least through tomorrow as the new Cypriot president seeks backing for the 5.8 billion-euro ($7.5 billion) levy on bank deposits, a measure needed to win 10 billion euros in international aid. Finance chiefs from the 17-member euro area urged Cyprus late yesterday to spare small-scale savers, as they maintained the size of their demand on account holders.
The potential unprecedented tax on deposits is raising concern among holders of senior bank bonds that they’ll be made to take losses should another country need rescuing. The Markit iTraxx Financial Index of credit-default swaps insuring senior debt of 25 banks and insurers rose as much as 19 basis points to 162 basis points yesterday, according to prices compiled by Bloomberg. That’s the biggest jump since Aug. 2, before the European Central Bank steadied markets by announcing its bond- buying program, and the gauge is now at the highest in almost three weeks.
Banks in the south of Europe, whose governments are most in need of international cash to meet their debt obligations, bore the brunt of the increase in swap prices. Contracts on Milan- based UniCredit SpA climbed as much as 23 basis points yesterday and were up 13 basis points today at 353, the highest since March 4, prices compiled by Bloomberg show. Banco Santander SA, Spain’s biggest lender, surged as much as 21 basis points yesterday and today rose 13 to 279.
The “one-off” tax on deposits is a situation unique to Cyprus, Simon O’Connor, spokesman for European Union Economic and Monetary Affairs Commissioner Olli Rehn, told reporters.
Spain’s 10-year bond yield rose eight basis points to 5.04% and Italy’s added nine points to 4.73%. While the five-day decline in Spanish bonds is the longest run since July, yields climbed no higher than 5.04% today, after reaching 5.08% yesterday. Yields surged 74 points in Greece and 21 points in Portugal, while falling at least two points for Switzerland, Germany, Denmark and the U.K.
“The risks over the coming days still merit caution, given the potential for the Cyprus mess to shortly morph into wider concerns,” Ciaran O’Hagan, head of European rates strategy at Societe Generale SA in Paris, said in an e-mailed note. “The euro area has created new precedents that are inconsistent with its aspirations for banking, and monetary, union.”
Rio Tinto Group sank 5.2%, leading basic-resources producers lower, as Goldman Sachs downgraded the world’s second- biggest mining company. ThyssenKrupp AG plunged 5.5% after Handelsblatt reported the German steelmaker is considering raising capital. Cie. Financiere Richemont SA fell 4.3% as an investor sold a stake of about $570 million in the second- largest maker of luxury goods.
Greece’s ASE Index tumbled 3.9% to its lowest level of the year, with National Bank of Greece SA sliding almost 15%, as the market opened following yesterday’s national holiday. Equity trading in Cyprus won’t start until the day after tomorrow.
The S&P GSCI gauge of 24 commodities dropped 1.1%, extending yesterday’s 0.3% decline. Gasoline fell 2.2% to $3.0597 a gallon and crude oil slid 1.7% to $92.16 a barrel. Corn and wheat futures rose as cold, wet weather in the U.S. Midwest hindered fieldwork prior to crop planting..
The MSCI Emerging Markets Index fell 0.5% for a seventh straight loss, the longest losing streak in four months. Benchmark gauges in Brazil, the Philippines, Thailand and Poland dropped more than 1%, while stocks rebounded in Shanghai, Taiwan and South Korea. Vale SA, the world’s biggest iron-ore producer, fell to a six-month low Goldman Sachs lowered its estimate for the value of the material and cut the price target on the company’s American depositary receipts.
India’s Sensex index sank 1.5%. The Dravida Munnetra Kazhagam, the largest of the nine partners in the ruling alliance, said it would end backing for the federal government following a dispute over alleged war crimes in Sri Lanka.