Stocks rebound after two-day slump while Treasuries, oil decline

U.S. stocks rebounded from a two-day slump amid optimism lawmakers will reach a deal to raise the debt ceiling and speculation Janet Yellen will not rush to withdraw stimulus when she takes over as Federal Reserve chairman. Treasuries and oil fell while the dollar strengthened.

The Standard & Poor’s 500 Index gained 0.2% to 1,659.07 at 3:41 p.m. in New York after plunging 2.1% over the previous two sessions, its worst drop since June. Rates on Treasury bills due on Oct. 17 climbed 20 basis points to 0.48% after jumping 14 basis points yesterday. Silver, copper, oil and gold lost more than 1.3% to lead declines in the S&P GSCI Index of commodities. The Bloomberg U.S. Dollar Index, a gauge of the currency versus 10 peers, climbed 0.4%.

U.S. President Barack Obama opened the door to talks with Republicans on topics from health care to entitlement programs if they end the impasse over the U.S. debt ceiling. House Republicans will send a small group of negotiators to the White House tomorrow, Brendan Buck, spokesman for House Speaker John Boehner, said in e-mail. Yellen, the Fed vice chairman and an architect of its stimulus program, was nominated to succeed Ben S. Bernanke.

“The government shutdown and the debt ceiling will continue to drive the near-term volatility,” Russell Croft, who helps manage about $850 million as a fund manager at Croft- Leominster Inc. in Baltimore, said by phone. “The appointment of Yellen relieved any uncertainty out there. For earnings, it’s important to see how they’re going to set up for 2014. They’re still going to be muted by the macro pressure out of Washington.”

Debt Ceiling

The S&P 500 slid 2.1% over the previous two days, extending its retreat from its last record on Sept. 18 to more than 4%, as concern grew that lawmakers may not raise the federal debt ceiling in time to avoid a government default. Obama told reporters in Washington yesterday the U.S. economy risks a “very deep recession” should Congress not raise the $16.7 trillion debt limit. In response, Boehner insisted on immediate negotiations with the president, rejecting Obama’s position that he’ll only talk once the partial shutdown is ended and the debt ceiling raised.

Rates surged for a second day on Treasury bills maturing on the Oct. 17 deadline projected for when the U.S. reaches its borrowing capacity as investors avoided the securities with the risk of default rising. Yields on benchmark 10-year notes increased for a second day and climbed to their highs of the session after the release of the Fed minutes, rising three basis points to 2.66%. The U.S. auctioned $21 billion of the securities at a yield of 2.657%.

Yellen Nomination

Obama today nominated Yellen, the Fed’s current vice chairman, to lead the central bank, replacing Bernanke. As a top deputy to Bernanke, whose term expires Jan. 31, Yellen supported the central bank’s bond buying programs and was a driving force behind a new strategy adopted in 2012 to commit the central bank to goals on inflation and unemployment.

Most Fed policy makers said the central bank was likely to reduce the pace of its bond purchases this year, even as they unexpectedly refrained from such a move in September, according to minutes of their last meeting, which was held about two weeks before the start of the partial government shutdown began to threaten economic growth.

Faced with a lack of economic data amid the government shutdown, investors will focus on companies’ financial results for clues on the economy’s performance.

Earnings Season

Alcoa Inc. climbed 3.4% today after the largest U.S. aluminum producer reported better-than-estimated earnings. Yum! Brands Inc. sank 6.5% after third-quarter income fell 68% on lower same-store sales in China.

Profits for companies in the S&P 500 probably increased 1.7% during the third quarter while sales rose 2.2%, according to analysts’ estimates compiled by Bloomberg. Analysts forecast earnings growth will accelerate to 8.9% in the final three months of the year.

Oil slumped 1.8% to $101.61 a barrel, after the Energy Information Administration reported a bigger-than- estimated gain in U.S. inventories. Crude supplies grew 6.81 million barrels last week to 370.5 million, the EIA, the Energy Department’s statistical arm, said. Analysts surveyed by Bloomberg had expected a gain of 1.55 million.

Copper, Gold

Copper retreated 1.9%, the most in five weeks, as the budget deadlock fueled concern a U.S. default could damage the world economy. Silver futures slipped 2.5% to $21.89 an ounce today after climbing to the highest level since Sept. 20 yesterday.

Gold fell 1.3%, the most in a week, after the dollar extended gains and as imports slumped in India, the world’s biggest consumer. The Bloomberg U.S. Dollar Index rose to a two- week high, curbing demand for the precious metal as an alternative asset.

The pound weakened against all of its 16 major counterparts. Industrial output dropped 1.1% from July, when it gained 0.1%, the Office for National Statistics said today in London. The median forecast of 30 economists in a Bloomberg News survey was for an increase of 0.4%.

The MSCI Emerging Markets Index fell from a two-week high, slipping 0.2%. The Hang Seng China Enterprises Index in Hong Kong decreased 0.3% while the Shanghai Composite Index climbed 0.6%. India’s S&P BSE Sensex increased 1.3%, reversing earlier losses after the trade deficit narrowed.

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