Stocks Drop on Growth Concern as Gold at Record; Franc Weakens

Wednesday, 03 Aug 2011 06:24 AM

 

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Aug. 3 (Bloomberg) -- Stocks fell for a sixth day, the longest stretch of losses since November, amid concern the U.S. recovery is faltering. The franc weakened after Switzerland unexpectedly cut its interest rate and gold rose to a record.

The MSCI All-Country World Index lost 0.6 percent at 10:10 a.m. in London. Standard & Poor’s 500 Index futures increased 0.5 percent after a seven-day drop that erased the U.S. gauge’s 2011 gains. The franc depreciated against its 16 major peers. The cost of insuring against Spanish and Italian defaults climbed to all-time highs. Turkey’s lira, the world’s worst- performing currency, strengthened 0.2 percent.

The U.S. economy is “balanced on the edge,” said Harvard University professor Martin Feldstein, who sees a 50 percent chance of another recession. Moody’s Investors Service and Fitch Ratings warned of possible U.S. credit downgrades yesterday. The Swiss National Bank said it will increase the supply of francs to stem a surge in the currency, while Finnish Prime Minister Jyrki Katainen said yields for Italian and Spanish bonds had risen to an alarming level.

“Global growth concerns and renewed cracks in Europe are starting to overwhelm markets,” Jim Reid, a strategist at Deutsche Bank AG in London, wrote in a research note. “We really are in dangerous territory at the moment.”

The Stoxx Europe 600 Index retreated 0.9 percent, extending an 11-month low. Societe Generale SA slid 7.1 percent as France’s second-largest bank said it may miss its 2012 earnings target after second-quarter profit fell.

ADP Jobs

The gain in S&P 500 futures indicated the gauge will rebound from its biggest loss in a year. A report today may show U.S. factory orders declined 0.8 percent in June, following a 0.8 percent increase the previous month, while ADP Employer Services data might show companies added 100,000 workers last month, slowing from 157,000 in June, according to separate surveys by Bloomberg.

The franc depreciated 2.5 percent to 1.10971 per euro after strengthening to a record, and sank 2 percent versus the dollar, tumbling from an all-time high. The SNB lowered its target for the three-month Libor to “as close to zero as possible” from 0.25 percent. The Zurich-based central bank said it will also expand banks’ sight deposits to 80 billion Swiss francs ($103 billion) from 30 billion francs and repurchase outstanding SNB Bills, according to a statement today.

The euro strengthened 0.4 percent to $1.4257 and advanced 0.5 percent versus the yen, snapping a five-day decline. The Dollar Index, which tracks the U.S. currency against those of six trading partners, dropped 0.3 percent, erasing a gain of as much as 0.2 percent. The Swedish krona strengthened against all 16 of its most-active counterparts, rising 0.2 percent versus the 17-nation euro.

Default Insurance

Credit-default swaps insuring Spain’s debt rose 26 basis points to 433, contracts on Italy climbed 18 basis points to 378, while France was six basis points higher at 139, all records, CMA prices show. The cost of U.S. Treasury default protection increased 2 basis points to 56.

Gold climbed as much as 0.7 percent to a record $1,672.80 an ounce. West Texas Intermediate crude fell 0.4 percent to $93.42 a barrel on the New York Mercantile Exchange. The S&P GSCI index of 24 commodities dropped 0.3 percent, the sixth decline and the longest losing streak since May 2010.

The MSCI Emerging Markets Index sank 1.7 percent, set for the lowest close since June 23. South Korea’s Kospi Index slumped 2.6 percent, completing its largest two-day plunge since November 2009. Benchmark indexes fell more than 1 percent in Russia, Turkey, Taiwan and South Africa.

Turkey’s lira gained 0.2 percent, reversing a 0.8 percent decline, as inflation accelerated in July and the central bank announced an unscheduled meeting of its rates-setting committee tomorrow. Hungary’s forint strengthened 1.1 percent against the franc, rebounding from its weakest level on record. Almost two- thirds of Hungarian household mortgages are denominated in foreign currencies, most of them in francs, according to central bank data as of June 30.

--With assistance from Shiyin Chen in Singapore, Claudia Carpenter, Mark Gilbert, Abigail Moses, Andrew Rummer, Daniel Tilles and Jason Webb in London. Editors: Stephen Kirkland, Stuart Wallace

To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net

To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net

© Copyright 2014 Bloomberg News. All rights reserved.

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