Stocks fell and the euro weakened to a four-month low against the dollar, while Treasuries rallied and Italian and Spanish bonds slumped, as concern about Europe’s debt crisis deepened.
The Standard & Poor’s 500 Index slipped 0.2% at 12:18 p.m. in New York after rising to within two points of a record yesterday. The Stoxx Europe 600 Index slid 0.4%. The euro fell below $1.28 for the first time since November while the pound erased gains versus the dollar as a report confirmed U.K. gross domestic product shrank in the fourth quarter. Brazil’s real halted a six-day slump as the central bank took steps to stem the currency’s slide. Italy’s 10-year bond yield rose 18 basis points to 4.75%.
The S&P 500 trimmed its March gain to 3% and the Stoxx 600 pared its to less than 1%. The leader of Italy’s Democratic Party ruled out the possibility of a broad coalition government, while Cyprus prepared to publish details of capital controls it will apply to prevent deposit flight when banks reopen after being shut for almost two weeks. Fewer Americans signed contracts to purchase previously owned homes in February as limited inventory and access to credit held back a more robust recovery in housing.
The events in Cyprus are “a reminder that Europe has still very slow growth and the banking system has a lot of issues,” John Fox, a Cobleskill, New York-based fund manager and director of research at Fenimore Asset Management Inc., which manages about $1.5 billion, said over the phone. “Stocks aren’t going to go up 7% a month,” he said. “We really came out of the gate fast. There’s going to be corrections.”
Financial firms helped lead losses in U.S. stocks, with JPMorgan Chase & Co. and Citigroup Inc. pacing declines. Cliffs Natural Resources Inc. tumbled 15% after Morgan Stanley downgraded the shares. Dollar General Corp. slumped 1.9% after it said 30 million shares will be sold in a secondary offering.
The U.S. economy is facing the heaviest burden yet from federal spending cuts and tax increases, Federal Reserve Bank of New York President William C. Dudley said yesterday.
“Over the next three-to-six months, if the U.S. economy continues to show signs of improvement that will be very, very important,” Dudley said in an interview with CBS News that was posted today on its website. “The fiscal drag is at its most intense point today. If the economy can sort of power through that, I would actually think the second half of the year and 2014 would be better.”