Stock Commodity Prices Fall as Dollar Rally and Treasury Drop in US

Stocks and commodities fall in US, while the dollar rallied and Treasuries dropped for a sixth day, amid speculation any Federal Reserve program to boost the economy will be gradual.

The Standard & Poor?s 500 Index lost 0.3 percent to 1,182.45 at 4 p.m. in New York, paring losses as technology companies rallied. Ten-year Treasury yields rose eight basis points to 2.72 percent and the Dollar Index climbed 0.5 percent. The Thomson Reuters/Jefferies CRB Index of commodities fell 0.7 percent as cotton retreated from a record. Argentine stocks trading in New York and the nation?s bonds rallied as the death of ex-president Nestor Kirchner triggered speculation the next leader will reverse debt-management policies.

The Fed may limit its plan for bond purchases to a few hundred billion dollars and adjust the policy over time to gauge its effects, the Wall Street Journal reported, without saying where it got the information. Estimates for the size of the program had ranged from $1 trillion at Bank of America-Merrill Lynch Global Research to $2 trillion at Goldman Sachs Group Inc., with economists at both firms agreeing the Fed will likely begin with a $500 billion plan after the Nov. 2-3 meeting.

?Investors? disappointment seems to be myopic,? said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York. ?It?s common sense that the Fed wouldn?t be taking any aggressive step right now because that could cause serious damage for the economy in the long-run. However, the short-term reaction is straightforward -- the dollar rises, sending commodity and stock prices lower.?

European Debt

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments increased 4 basis points to 145, the highest since Oct. 12, CMA data show.

The Portuguese-German 10-year yield spread widened 16 basis points to 329 after the nation?s government and the Social Democrats, the country?s biggest opposition party, broke off talks on the 2011 budget proposal.

Basic-resource companies were the worst performers in Europe?s Stoxx 600, falling 2.1 percent collectively and tracking declines in everything from nickel to oil. Rio Tinto Group, the world?s third-largest mining company, slid 2.6 percent and oil producer BP Plc lost 1.7 percent. Nickel fell 2.1 percent in London, while crude oil dropped 0.7 percent to $81.94 a barrel in New York. Cotton slumped the exchange limit 6 cents, or 4.6 percent, to $1.2359 a pound in New York.

European Stocks

SAP AG, the biggest maker of business-management software, slumped 2.8 percent after earnings fell short of analysts? estimates. Heineken NV tumbled 4.3 percent after reporting beer sales that missed estimates.

The dollar appreciated against all 16 of its major counterparts, gaining 0.7 percent to $1.3766 per euro and 0.3 percent to 81.69 yen.

?Although the scope of any further Fed easing remains a significant unknown, consecutive days of decent U.S. data have probably encouraged investors? to reduce bets the dollar will weaken, Gareth Berry, a currency strategist in Singapore at UBS AG, wrote in a report today.

The Australian dollar slumped against 15 of 16 of its most traded peers after a report showed inflation accelerated less than forecast last quarter. The Aussie tumbled 1.4 percent to 97.14 U.S. cents.

The MSCI Emerging Markets Index lost 1.7 percent, falling for the first time in three days. The Shanghai Composite Index slipped 1.5 percent, the most in more than a month.

The Korean won tumbled 0.8 percent against the dollar after Bank of Korea Governor Kim Choong Soo said measures to limit capital inflows could be ?useful.? South Africa?s rand depreciated 1.5 percent on speculation Finance Minister Pravin Gordhan will announce measures to weaken the currency at a mid- term budget speech later today.

--With assistance from Susanne Walker and Ye Xie in New York, Eduardo Thomson in Santiago and Matthew Brown, Claudia Carpenter, David Merritt, Michael Shanahan, Daniel Tilles and Jason Webb in London. Editors: Michael P. Regan, Joanna Ossinger

Earnings Season

The S&P 500 retreated from an almost six-month high and snapped a five-day winning streak, its longest since July. The gauge rallied 13 percent from the end of August through yesterday amid improving earnings and speculation the Fed will pump more money into the economy by buying Treasuries.

About 85 percent of the companies in the S&P 500 that have reported earnings since Oct. 7 topped analysts? predictions, according to data compiled by Bloomberg.

Commodity producers and industrial companies fell the most among 10 groups in the S&P 500 today. Chevron Corp., Alcoa Inc. and United Parcel Service Inc. slumped at least 1 percent each. Broadcom Corp. surged 12 percent and led a rally in technology stocks after the chipmaker reported third-quarter results that beat analysts? estimates.

Economy Watch

Economic data showing a bigger-than-forecast increase in new home sales today and higher-than projected consumer confidence yesterday may give the Fed reason to scale back on potential quantitative easing.

Commerce Department data showed sales of new houses rose 6.6 percent last month to a 307,000 annual rate, exceeding the median forecast in a Bloomberg survey of economists. Another report showed orders for U.S. non-military capital equipment excluding airplanes dropped in September, indicating gains in business investment will cool. Bookings for goods including computers and machinery meant to last at least three years fell 0.6 percent after a 4.8 percent gain in August. Total orders climbed 3.3 percent last month as aircraft demand doubled.

The yield on the 30-year Treasury bond climbed six basis points to 4.06 percent, paring an earlier gain of as much as seven basis points. The five-year note yield advanced six basis points to 1.31 percent after the government sells $35 billion of the securities.

Bill Gross, manager of the world?s largest bond fund at Pacific Investment Management Co., said a renewal of asset purchases by the Fed will likely signify the end of the 30-year bull market in bonds.

?Ponzi Scheme?

?Check writing in the trillions is not a bondholder?s friend,? Gross wrote in his monthly investment outlook posted on Newport Beach, California-based Pimco?s website today. ?It is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme. It raises bond prices to create the illusion of high annual returns, but ultimately it reaches a dead end where those prices can no longer go up.?

A gauge of Argentine stocks that trade in New York rose to the highest since at least December 2001 after former President Nestor Kirchner was reported dead. The Bank of New York Mellon Argentina ADR Index rallied 8.2 percent. Grupo Financiero Galicia SA, the South American country?s biggest consumer lender, surged 8.7 percent.

Yields on dollar-denominated bonds due in 2033 dropped 42 basis points, or 0.42 percentage point, to 8.99 percent as of 4 p.m. in New York.

?Kirchner Era?

Kirchner, who handed power to his wife Cristina Fernandez de Kirchner in 2007, died after suffering a heart attack, according to the presidential website. Investors are buying America depositary receipts of Argentina companies on prospects that ?the Kirchner era? will end, said Greg Lesko, who helps manage about $750 million at Deltec Asset Management in New York.

The former president was seen as an obstacle to investment, according to Guillermo Mondino, head of Latin American research at Barclays Capital and a former Argentine secretary of economic policy. Argentina?s markets were closed today.

Greek 10-year bonds tumbled, with the yield jumping 73 basis points to 10.39 percent. Last year?s budget deficit will be revised above 15 percent of gross domestic product by the European Union, Finance Minister George Papaconstantinou said today in Limassol, Cyprus. The nation has serious tax compliance issues, he said.