Treasuries, U.S. stocks climb on housing report; oil, gold rally

Treasuries and U.S. stocks rose as a report showing a plunge in home sales eased concern the Federal Reserve will cut stimulus efforts next month. Gold and oil rallied while the dollar weakened. Emerging-market equities gained for the first time in seven days.

The 10-year Treasury yield dropped seven basis points to 2.82% at 4 p.m. in New York, after reaching a two-year high yesterday. The Standard & Poor’s 500 Index rose 0.4% for the first back-to-back advance in three weeks. The MSCI Emerging Markets Index climbed 1.4%, trimming this week’s loss to 2.4% as currencies from India’s rupee to Brazil’s real strengthened. Gold rallied 1.8%. The Bloomberg U.S. Dollar Index fell for the first time in three days.

Fed officials met today at a conference in Jackson Hole, Wyoming, to discuss monetary policy. Purchases of new U.S. homes plunged in July by the most in more than three years, a sign that growth in the industry may be taking a pause as mortgage rates rise. Countries from India to Indonesia signaled they will take steps to support financial markets and Brazil announced a $60 billion intervention program involving currency swaps and loans.

“The new home-sales data tells us that all is not well with the economy, and the Fed needs to continue to support growth,” Tom Power, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview. “The housing recovery is an important thing that the Fed will be looking at when it makes its decision on the timing of the tapering.”

Home Sales

U.S. sales of newly built homes declined 13% to a 394,000 annualized pace, the weakest since October, following a 455,000 rate in the prior period that was lower than previously estimated, Commerce Department figures showed today in Washington. The median estimate of 74 economists surveyed by Bloomberg called for a decrease to 487,000. Last month’s decline was the biggest since May 2010.

“The fact that there are rising interest rates looks like it may be starting to bite into new home sales,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees $180 billion, said in a phone interview. “That’s probably going to cause the economy be a little softer in the second half.”

Benchmark 10-year yields had touched the highest level since July 2011 after Fed minutes released this week showed most officials are comfortable with a plan to start reducing bond purchases if the economy improves.

September Move

Three Fed regional bank presidents, speaking in interviews today at Jackson Hole, differed over the timing for reducing the Fed’s $85 billion in monthly bond buying, with one backing a tapering next month if the economy remains strong and two others saying policy makers should take time to assess economic data.

“We can take our time” on slowing purchases, St. Louis Fed President James Bullard, who holds a vote on policy this year, said in a Bloomberg Radio interview from Jackson Hole. San Francisco’s John Williams told CNBC he wants to “taper our purchases later this year” if the economy doesn’t flag, while Atlanta’s Dennis Lockhart said he “would be supportive” of slowing purchases next month if the expansion holds up.

Microsoft Inc. rallied 7.3% today after Chief Executive Officer Steve Ballmer said he would retire within 12 months. PulteGroup Inc. sank 1.6% to pace declines in an index of homebuilder stocks.

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