US stocks slip after 4-year high; euro soars on ECB

Aug 21, 2012, 5:16 PM EDT
REUTERS/Brendan McDermid

* Global stock index at 3-1/2 month peak * S&P 500 slips after hitting 4-year intraday high * Euro rallies to seven-week peak versus dollar * Spain, Portugal bond yields fall; ECB quells speculation By Wanfeng Zhou NEW YORK, Aug 21 (Reuters) - U.S. stocks fell on Tuesday asinvestors cashed in gains after driving the S&P 500 index to itshighest in four years, but the euro rallied against the dollaron hopes the European Central Bank will soon start buyingSpanish and Italian bonds to contain the debt crisis. Spanish borrowing costs fell and Portuguese government bondyields slid to levels reached before Lisbon agreedto a bailout deal in May 2011, with traders citing media reportsthat the ECB was drawing up detailed plans about bond-buying. The perception of declining risks from the euro crisis hasbeen a major factor behind stocks' recent gains. Earlier in thesession, the broad Standard & Poor's 500 Index climbed toits strongest intraday level since May 2008, before surrenderinggains ahead of technical resistance. "It's not uncommon that you run into some resistance at newhighs," said Jim Paulsen, chief investment officer at WellsCapital Management in Minneapolis. "Traders sort of play for awhile to see which way the market is ultimately going to resolveitself." Uncertainty remained high and investors were concerned thatthe ECB's requirement that troubled countries ask for help fromthe euro zone's rescue funds before turning to the central bankmay mean that the Spanish crisis could get worse before it getsbetter. Still, optimism over eventual ECB action bolsteredsentiment. "The market has moved to the belief that (the ECB) is goingto do whatever it takes," said William Larkin, fixed-incomeportfolio manager at Cabot Money Management in Salem,Massachusetts. The Daily Telegraph, a British newspaper, supported a reportover the weekend in a German magazine that the ECB planned toput a hard cap on Spanish and Italian bond yields. An ECB spokeswoman, asked about the Telegraph story,referred to the ECB's statement on Monday, when it said it wasmisleading to report on policy decisions that had not been made. U.S. stocks closed lower. The Dow Jones industrial average ended down 68.06 points, or 0.51 percent, at 13,203.58.The S&P 500 Index closed down 4.96 points, or 0.35percent, at 1,413.17. The Nasdaq Composite Index fell8.95 points, or 0.29 percent, to 3,067.26. The S&P 500 has risen 2.4 percent so far in August. Volumehas been light as investors wait for central banks' meetingsnext month, where policymakers are expected to take action toease Europe's debt crisis and boost the economy. The MSCI global share index gained 0.3percent to 326.34 after hitting an intraday high at 328.21, itshighest level since early May. The FTSEurofirst 300 index ofEuropean shares gained 0.4 percent to end at 1,109.55. Yields at a Spanish short-term debt auction fell on Tuesday,while Europe's VSTOXX volatility index hit a one-monthlow, signaling a steady rise in investors' appetite for risk. Spanish 10-year bond yields fell 10 basispoints to 6.24 percent, with shorter-dated yields down as much16 basis points. Italian bond yields also dropped. Portuguese 10-year yields fell 30 basis pointson the day to 9.40 percent, the lowest level since April 20.Portugal's original request for a bailout was on April 6, 2011;the deal was announced on May 3 of last year. EURO RALLIES Financial markets have been on a red-hot run on hopes thatthe new urgency in Europe to overcome the 2-1/2-year debt crisismay let Greece remain in the euro zone and keep the 17-memberbloc from unraveling. Greek Prime Minister Antonis Samaras will meet GermanChancellor Angela Merkel, French President Francois Hollande andEurogroup chief Jean-Claude Juncker in the coming days to try tosecure more help from the European Union, International MonetaryFund and ECB, even though Greece has fallen behind on itsdebt-cut targets. Samaras is expected to lobby for a two-year extension ofausterity measures to soften their impact, though he is unlikelyto win major concessions. The euro climbed 1 percent to $1.2462, while thedollar slipped 0.2 percent to 79.24 yen. U.S. Treasury debt prices erased losses as the major U.S.stock indexes gave up early gains. The benchmark 10-year U.S.Treasury note was up 2/32 in price to yield 1.8036percent. Brent crude oil rose 94 cents to settle at $114.64 abarrel. It has jumped from below $90 at the end of June,propelled higher by maintenance in the North Sea and increasedfear of military conflict between Iran and Israel. U.S. crude added 71 cents to settle at $96.68 perbarrel. Gold rallied to a 3-1/2 month high as the U.S. dollarweakened, while platinum hovered just below a two-monthpeak hit in the previous session as concerns over supply fromtop producer South Africa festered. Spot gold hit a high of $1,641.20 an ounce. It waslast at $1,637.70 an ounce.

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