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U.S. Stocks rebound as economy offsets Fed; dollar strengthens

By Joseph Ciolli and Susanne Walker
Bloomberg News

U.S. stocks rose, rebounding from yesterday’s loss, as better-than-forecast economic data overshadowed concern interest rates may rise in the middle of next year. Emerging markets tumbled and the dollar strengthened.

The Standard & Poor’s 500 Index rose 0.6 percent at 4 p.m. in New York. The 10-year Treasury yield was little changed at 2.78 percent, after yesterday’s jump of 10 points. The dollar gained against 14 of its 16 major peers, strengthening 0.4 percent against the euro. The MSCI Emerging Markets Index dropped 1.1 percent and copper fell 2 percent as Chinese shares in Hong Kong entered a bear market. Gold lost 0.8 percent, capping the biggest four-day decline since November, and oil slid 0.9 percent.

U.S. stocks reversed early losses as an index of U.S. leading indicators rose 0.5 percent in February, a sign the economy will strengthen after a weather-induced slowdown in the first quarter. Federal Reserve Chair Janet Yellen said yesterday interest rates could rise as soon as six months after the Fed ends its bond-buying program. President Barack Obama said the U.S. is imposing sanctions on a wider swath of Russian officials and a Russian bank.

“The market has digested and even discounted a bit what Yellen said, and put things into perspective,” Stephen Carl, principal and head equity trader at New York-based Williams Capital Group LP, said in a phone interview. “We have to see how the economy continues to move along. People are back focusing on signs of economic growth.”

The S&P 500 fell 0.6 percent and Treasury yields jumped yesterday after Yellen said the central bank’s stimulus program could end this fall and benchmark interest rates could rise about six months later. The Fed had previously said it would not raise rates for a considerable period, without specifying a time frame.

Fed Forecasts

Quarterly Fed forecasts also showed more officials predicting that the benchmark rate, now close to zero, will rise to at least 1 percent at the end of 2015 and 2.25 percent a year later. Money market rates show traders see a 62 percent chance of an interest-rate increase by June 2015, up from 57 percent two days ago.

The central bank said it would trim its monthly bond purchases by $10 billion to $55 billion. Three rounds of Fed stimulus and low interest rates have helped boost the equity gauge as much as 178 percent from a 12-year low as U.S. stocks enter the sixth year of a bull market. The S&P 500 has climbed back to within six points of a record close reached March 7.

Yellen also said harsh winter weather was a significant reason for weakness this year in economic data from housing to jobs.

Economic Data

Among U.S. data today, the Conference Board’s gauge of the outlook for the next three to six months climbed 0.5 percent, the biggest gain since November.

Other reports showed the number of Americans filing applications for unemployment benefits held last week near the lowest level in almost four months, a sign the labor market continues to strengthen. The Philadelphia Fed’s manufacturing gauge rose to 9.0 in March from minus 6.3 the prior month, while purchases of previously owned homes declined in February to the lowest level since July 2012.

The difference between yields on 10- and 30-year U.S. Treasuries narrowed to the least since 2010 after the Fed indicated interest rates may rise faster than anticipated.

Two-year notes were little changed after yesterday’s drop, the most since 2011, with yields climbing less than one basis point to 0.43 percent. Benchmark 10-year notes erased this week almost all of last week’s gains, the most since January, amid turmoil in Crimea.

’Generally Good’

“Inflation is low and now you have a Fed telling you they may raise rates earlier than the market had thought,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc., one of 22 primary dealers that trade with the Fed. “That’s generally good for bonds. If you believe the statement moved up the first rate hike, 30-years will outperform 10- years.”

European and Asian bonds slid, with Germany’s 10-year yield jumping five basis points to 1.65 percent, the biggest increase in yields since Feb. 28. Britain’s 10-year yield rose seven basis points to 2.77 percent and Australian 10-year government bond yields climbed six basis points to 4.13 percent.

Russia Sanctions

The Micex Index added 0.1 percent in Moscow, reversing earlier declines of 1.2 percent, and the ruble fell 0.6 percent against the dollar. Obama announced the U.S. is imposing sanctions on more senior Russian officials. He also signed an executive order authorizing, though not implementing, economic sanctions affecting parts of the Russian economy, which he didn’t specify.

Germany and France said the European Union won’t rush to impose economic sanctions on Russia for the annexation of Crimea. Obama is set to travel next week to Europe, where he’ll consult with EU officials about coordinated action.

The Stoxx Europe 600 Index was little changed, erasing losses of as much as 1 percent in the final minutes of trading. GlaxoSmithKline Plc lost 1.6 percent after saying its experimental lung-cancer drug failed to meet its objectives in a clinical study.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rose 0.1 percent after jumping 0.8 percent yesterday, its biggest one-day advance since August. The U.S. currency appreciated 0.4 percent to $1.3780 per euro and gained 0.1 percent to 102.44 yen.

Asian Currencies

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 major currencies excluding the yen, fell as much as 0.5 percent to the lowest since Sept. 5. The U.S. currency strengthened 1.2 percent against the rupiah.

The Hang Seng China Enterprises Index of mainland stocks traded in Hong Kong dropped 1.7 percent, bringing losses from its Dec. 2 high past the 20 percent threshold that some investors consider a bear market as the yuan sank to a one-year low amid deepening concern the world’s second-largest economy is slowing. The Shanghai Composite Index fell 1.4 percent to its lowest since Jan. 20.

China’s yuan weakened as much as 0.6 percent to 6.2334 per dollar in Shanghai. The People’s Bank of China lowered the daily fixing today to the weakest level since Nov. 6. The yuan has dropped 1.3 percent this month, after February’s record 1.4 percent slide. Goldman Sachs Group Inc. cut its first-quarter growth outlook for Asia’s largest economy to 5 percent from 6.7 percent, citing disappointing trade and consumption data.

Copper, Gold

Copper futures declined 2 percent as the prospect of higher borrowing costs next year spurred concern that the economy will slow and metals demand will wane.

Gold dropped 0.8 percent to $1,330.50 an ounce, capping a 3.5 percent loss over four days. Bullion, which slid the most since 1981 last year as some investors lost faith in the metal as a store of value, rebounded 15 percent this year through last week amid faltering U.S. economic growth and escalating tensions in Ukraine. Silver slipped 1.9 percent today.

West Texas Intermediate crude fell 0.9 percent, its first decline in three days, as the dollar strengthened and U.S. stockpiles grew for a ninth week.

U.S. natural gas futures slumped 2.6 percent to a nine-week low after a government report showed stockpiles dropped less than forecast last week.

--With assistance from Jonathan Burgos and Masaki Kondo in Singapore, Emma O’Brien in Wellington, Candice Zachariahs in Sydney, Zahra Hankir, Shelley Smith, Claudia Carpenter, Will Hadfield, Abigail Moses and Paul Dobson in London, Yudith Ho in Jakarta, Jon Morgan in Washington and Nick Gentle in Hong Kong.


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