Thursday, October 1, 2009

U.S. Markets Wrap: Stocks Tumble as Treasuries, Dollar Rally

By Matt Townsend

Oct. 1 (Bloomberg) -- U.S. stocks fell the most in three months as Treasuries and the dollar rallied after a decline in a gauge of manufacturing and an increase in jobless claims spurred concern over the strength of a recovery from the recession.

JPMorgan Chase & Co., DuPont Co. and American Express Co. fell at least 4.2 percent to lead all 30 stocks in the Dow Jones Industrial Average lower. Treasury 30-year bond yields fell below 4 percent for the first time since April as a report showed inflation remains subdued. The dollar rallied against most of its major counterparts. Crude oil was little changed.

“The market had gotten a little ahead of the economy,” said Wayne Wilbanks, chief investment officer at Wilbanks, Smith & Thomas in Norfolk, Virginia, which manages $1.3 billion. “For the month of October we are on alert for a correction driven by the acknowledgment of a weak economic recovery.”

The Standard & Poor’s 500 Index slid 2.6 percent to 1,029.85 at 5:22 p.m. in New York a day after capping its biggest back-to-back quarterly rally since 1975. The Dow sank 203 points, or 2.1 percent, to 9,509.28. Both gauges lost the most since July 2. About 18 stocks fell for each that rose on the New York Stock Exchange, the broadest sell-off since April.

Benchmark indexes opened lower after the number of Americans filing first-time claims for unemployment benefits climbed by 17,000 to 551,000 last week. Stocks extended losses after the Institute for Supply Management said its manufacturing index dropped to 52.6 in September, lower than the reading of 54 projected by economists in a Bloomberg survey.

Not Double-Dip

Bonds rallied as signs recovery from the worst slump since the Great Depression will be slow prompted traders to reverse bets that yields would increase before tomorrow’s monthly employment report. The Labor Department may say that job losses last month totaled 175,000, according to a Bloomberg survey. The Treasury announced plans to sell $78 billion of notes and bonds over four consecutive days next week.

“We are not in the double-dip camp, but there are still headwinds for the economy,” said Kevin Flanagan, a Purchase, New York-based fixed-income strategist for Morgan Stanley Smith Barney. “There is a ton of money on the sidelines. Investors are feeling more comfortable with interest-rate risk and are moving out on the curve.”

The yield on the 30-year bond fell nine basis points, or 0.09 percentage point, to 3.97 percent, according to BGCantor Market Data. The yield touched 3.93 percent, the lowest level since April 29. The 4.50 percent security due in August 2039 rose 1 18/32, or $15.63 per $1,000 face amount, to 109 1/4.

The 10-year note yield touched 3.17 percent, the lowest level since May 21.

Prices Rise

The Fed’s preferred price measure, which excludes food and fuel, climbed 0.1 percent from the previous month and was up 1.3 percent from a year earlier, the smallest year-over-year gain since September 2001. Spending by U.S. consumers climbed 1.3 percent in August, Commerce Department figures showed in Washington.

The dollar gained much as 0.8 percent to $1.4517 versus the euro as Federal Reserve Chairman Ben S. Bernanke said he doesn’t see an “immediate risk” to the dollar’s status as the world’s main reserve currency.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency versus six counterparts including the euro and yen, rose as much as 0.8 percent to 77.231 today.

“We’ve seen hiccups in consistent improvement to data,” said Todd Elmer, currency strategist at Citigroup Inc. in New York. “The underlying uptick in risk aversion lent the dollar some support ahead of the payroll report.”

Gold prices fell for the first time this week as the dollar’s rebound eroded the precious metal’s appeal as an alternative investment. Silver also dropped.

‘Problem For Gold’

“It’s all dollar-related,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “If we do see a significant rally in the dollar, that’s a problem for gold.”

Gold futures for December delivery fell $9.50, or 0.9 percent, to $999.80 an ounce on the Comex division of the New York Mercantile Exchange.

Oil for November delivery rose 12 cents to $70.73 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Futures are up 59 percent this year.

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