U.S. stocks fall on debt ceiling as Treasuries advance with yen

U.S. stocks fell, extending a weekly drop, amid concern a political impasse over the federal budget will hurt the economy. Treasuries rose while the yen strengthened; metals led commodities higher.

The Standard & Poor’s 500 Index fell 0.5% to 1,689.44 at 3:08 p.m. in New York while the rate on 10-year Treasury notes lost 2.5 basis points to 2.62%. The yen appreciated against all 16 major peers as Japan’s finance minister damped speculation the government will cut the corporate tax rate. The pound advanced against most major currencies as Bank of England Governor Mark Carney told a U.K. newspaper he does not support increasing asset purchases. Italian bonds and European shares slid following a debt auction.

The U.S. Senate voted to finance the government through Nov. 15 after removing language to choke off funding for the health care law, putting pressure on the House to avoid a federal shutdown set to start Oct. 1. Britain, France, the U.S., Russia and China agreed on a resolution requiring Syria to give up its chemical weapons, which the full Security Council of the United Nations will discuss today.

“The data does seem to be seeing some improvement here, but with the overhang from Washington, that clouds the outlook for the immediate future,” Derek Hamilton, a global economist at Waddell & Reed Financial Inc. in Overland Park, Kansas, said in a phone interview. His firm manages $114 billion. “If we do have an extended government shutdown, and more importantly, an inability to pass the debt ceiling raise, that will probably have a fairly significant impact on the stock market.”

Data Watch

A Commerce Department report today showed consumer spending in the U.S. rose in August for a fourth consecutive month, climbing 0.3%. A separate report showed confidence among consumers declined to a five-month low in September as Americans’ views on the economy dimmed. The Thomson Reuters/University of Michigan final index of sentiment decreased to 77.5 this month from 82.1 in August, compared with a median estimate for a drop to 78 seen by economists in a survey.

The vote in the Senate today sets up a weekend of negotiating and brinkmanship that could continue until spending authority expires on Sept. 30. House Republicans are insisting that the short-term spending bill include limits on the health- care law’s reach, a demand that Democrats say they won’t accept.

Among stocks moving in the U.S., J.C. Penney Co. slid 14% after the retailer began selling 84 million shares to raise cash. Nektar Therapeutics tumbled 20% after a study of the slow-release painkiller NKTR-181 failed to meet its goals. Nike Inc. surged 4.5% as fiscal first-quarter profit topped analysts’ estimates.

Dollar, Pound

The U.S. Bloomberg Dollar Index slipped 0.2%. The pound rose 0.6% to $1.6136, near the eight month high of $1.6163 reached on Sept. 18.

“Given the recovery has strengthened and broadened, I don’t see a case for quantitative easing and I have not supported it,” Carney said, according to the Yorkshire Post.

Italian government bonds declined, extending a weekly loss, as the nation auctioned 6 billion euros ($8.1 billion) of debt maturing in 2018 and 2024. The yield on the country’s 10-year securities climbed nine basis points to 4.42%. Italy’s Rome-based Treasury sold 3 billion euros of the 2024 bonds at an average yield of 4.5%, more than the 4.46% at a previous auction on Aug. 29.

Italy’s government bonds fell amid speculation that traders who deal directly with the Treasury had to hold on to most of the securities on offer at today’s auction as political tension deterred other buyers.

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