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BL: Portugal, Spain Lead Rise in Sovereign Debt Risk on Budget Woes
By Abigail Moses
Feb. 8 (Bloomberg) -- Portugal and Spain led a surge in the cost of insuring against losses on sovereign debt amid mounting concern European governments will struggle to impose spending cuts to reduce budget deficits.
Credit-default swaps on Spain increased 4.5 basis points to a record 171, while swaps on Portugal climbed 15 basis points to an all-time high of 242, CMA DataVision prices show. Contracts on Greece rose 12.5 basis points to 420, after reaching a record 428 basis points last week.
Opposition to public spending cuts is growing in Greece where 600,000 public workers from teachers and hospital workers to tax collectors are planning to strike for 24 hours on Feb. 10. In Portugal, politicians are trying to push through increases in spending.
“It seems that the market won’t rest until we get what is increasingly likely to be an EU bailout,” Jim Reid, the head of fundamental strategy at Deutsche Bank AG in London, wrote in a note to investors.
European finance chiefs sought to bolster international confidence in Greece’s ability to cut its budget deficit by endorsing the country’s austerity plan last week and promising to ensure the government delivers on it. European Central Bank President Jean-Claude Trichet said the ECB is “confident” Greece will cut its deficit below the limit of 3 percent of gross domestic product in 2012 from 12.7 percent.
Corporate Debt
Concern that a sovereign debt crisis in Europe will hurt banks and companies is spurring an increase in the cost of insuring against default on corporate and financial bonds in the region.
“Concerns regarding Greece are the most immediate and most severe,” said Philip Gisdakis, a Munich-based credit strategist at UniCredit SpA. “Nobody believes they are willing and able to solve the deficit crisis on their own.”
The Markit iTraxx Crossover Index of credit-default swaps linked to 50 companies with mostly high-yield credit ratings increased 8.5 basis points to 502.5, the highest since the beginning of December, according to JPMorgan Chase & Co. A basis point on a contract protecting 10 million euros ($13.7 million) of debt from default for five years is equivalent to 1,000 euros a year.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net
Last Updated: February 8, 2010 09:04 EST
(EEM/EUO/FXE) Portugal, Greece, Spain default worries rise
By William L. Watts LONDON (MarketWatch) -- The cost of insuring Spanish and Portuguese government debt against default via credit default swaps hit new records Monday, while the cost of insurance for Greek debt also rose, according to CMA DataVision. The spread on five-year Portuguese credit default swaps rose from 227 basis points late Friday to a record 244.06 basis points Monday. That means it would cost $244,060 a year to insure $10 million of Portuguese government debt against default for five years. The five-year Spanish CDS spread rose to a record 172.9 basis points from 166.5 late Friday. The Greek CDS spread widened to 426 basis points from 407.5 Friday.
Feb. 8, 2010, 2:00 p.m. EST
>>Dartmouth and Yale to layoff, cut costs as endowments shrink:
Dartmouth Will Cut 76 Jobs to Close $100 Million Gap (Update1)
Dartmouth College is eliminating about 76 jobs to help erase a $100 million deficit during the next two years, as U.S. universities feel the effects of last year’s record endowment declines...
http://www.bloomberg.com/apps/news?pid=20601110&sid=akLyXKFPZ49c
Yale to Cut Capital Spending by 60% After Endowment Losses
Yale University, the second-richest institution of higher learning in the U.S., will cut its capital program by 60 percent to $250 million next year after endowment losses, according to bond offering documents...
http://www.bloomberg.com/apps/news?pid=20601110&sid=afc3ra1ssBAQ
>>Ex-Morgan Stanley Banker Zaoui Said to Weigh Starting Own Firm
By Jacqueline Simmons
Feb. 8 (Bloomberg) -- Michael Zaoui, a 21-year Morgan Stanley dealmaker who helped advise Arcelor SA in the takeover by Mittal Steel Co. that created the world’s largest steelmaker, may set up his own firm this year, according to people familiar with the matter.
Zaoui, 53, retired from Morgan Stanley in 2008 and maintained ties to major European clients, including Lafarge SA, the people said. He recently worked with Lafarge Chief Executive Officer Bruno Lafont on the Paris-based company’s agreement to sell its 17 percent stake in Cimpor-Cimentos de Portugal SGPS SA to Brazil’s Votorantim Cimentos SA, said one of the people, who declined to be identified because the engagement was private. Morgan Stanley advised Lafarge.
Zaoui was Morgan Stanley’s chairman of European mergers and acquisitions when he retired after working on some of Europe’s biggest deals, such as advising Arcelor in 2006. He also worked for Aventis SA in its defense against a hostile bid from Sanofi- Synthelabo SA in 2005. Zaoui’s younger brother Yoel runs European investment banking at Goldman Sachs Group Inc.
Zaoui, who has not worked at a major financial services firm since leaving Morgan Stanley, is currently involved in advising on other transactions and may create his own firm as soon as this year, the people said. He will continue to be based in London.
Lafarge spokeswoman Claire Mathieu declined to comment on Zaoui’s work for the company. Financial News earlier reported Zaoui was hired as an adviser to Lafarge’s CEO on the sale of its stake in Cimpor. Zaoui also advised Lafarge in its 2007 purchase of Egypt’s Orascom Construction Industries.
Born in Morocco, Zaoui was raised in Rome and Paris and speaks Italian and French. He attended the University of Paris, where he studied law and political science. Zaoui also went to the London School of Economics and Harvard Business School, which he graduated from in 1983.
To contact the reporter on this story: Jacqueline Simmons in Paris at jackiem@bloomberg.net
(TM) Toyota Recall Cost Will Exceed $2 Billion Estimate, Lawyers Say
By Margaret Cronin Fisk
Feb. 8 (Bloomberg) -- Lawsuits against Toyota Motor Corp., the world’s largest automaker, will push the cost of recalls linked to sudden acceleration past a $2 billion company estimate for warranty payments and lost sales, customer lawyers say.
People who purchased Toyota vehicles in the U.S. have filed at least 34 class action lawsuits against Toyota, seeking damages that range from loss of car value to a return of profits. Toyota faces at least 12 individual lawsuits claiming deaths or injuries caused by unwanted acceleration of vehicles. Customer lawyers said they’re considering filing dozens more.
In similar class actions against carmakers, some customers settled claims by taking discount coupons for future purchases, most of which were never used. Toyota customers will demand cash, said attorney Michael Louis Kelly, who has filed two such suits in California. The Kelley Blue Book, the used-auto pricing service used as a guide in private-party transactions, reported last week that values of Toyota vehicles had already suffered a loss of up to 3 percent of resale value.
“The damages could be in the billions of dollars in the loss of value alone,” Kelly said in an interview. “I don’t think we’re talking about coupons under any circumstances.”
In a Feb. 4 earnings call, Toyota, based in Toyota City, Japan, estimated it will have to spend $1.12 billion on warranty expenses and will lose as much as $895 million in lost sales over the recall. It also reported about $23 billion in cash and near cash.
Mike Michels, a Toyota vice president of corporate communications, declined to comment on the potential loss, saying the company didn’t have an estimate on potential litigation costs. He said the company had liability insurance, without elaborating on its extent, and that it did not cover warranty costs, which were budgeted before the recalls.
No Reserves Announced
In the earnings call, Toyota didn’t provide details on any reserves to cover the costs of its recalls, which affect 5.6 million vehicles in the U.S. and Canada, not including Prius and other hybrid vehicles that may be recalled to fix a company- recognized defect in their automatic-braking system.
Toyota fell 1.1 percent to 3,280 yen today in Tokyo. Toyota’s market value tumbled 19 percent through Feb. 5 from Jan. 20, just before recalls were announced to fix sticky-accelerator pedals.
Class actions claiming product defects rarely go to trial in the U.S., usually settling for cash or coupons or a combination, court records show. Coupon-only settlements frequently have little participation by consumers, reducing the ultimate cost to manufacturers, past settlements show.
Ford in 2007 settled a four-state class action offering $500 discounts to owners of the company’s Explorer sport-utility vehicles after a tire recall. By June 2009, less than 1 percent of eligible consumers used the vouchers for new Fords.
Cash Required
Toyota’s recalls won’t cover losses by consumers, requiring a cash settlement, Kelly said.
“Toyota will do what they think they should do to fix these automobiles, but I don’t expect them to reimburse for the lost value of these cars,” he said.
Lawsuits claiming personal injuries or deaths may cost the company more, said law professor Carl Tobias of the University of Richmond in Virginia.
“It’s important to distinguish the personal-injury cases from the product-disappointment or lemon cases,” he said in an interview. “The latter are worth a lot less, in terms of payment.”
The adverse publicity over recalls may also affect the attitudes of prospective jurors hearing the death and injury cases, he said. That would drive up the cost of settling or taking these cases to trial, Tobias said.
Jurors Affected
“All of this can color the juries’ view on the cases that do go to trial,” Tobias said. “The company seems less trustworthy, more worried about the bottom line than safety.”
A change in juror attitudes will affect cases that have nothing to do with unintended acceleration, said attorney John Kristensen of O’Reilly Collins in San Mateo, California.
Kristensen represents the family of Michael Levi Stewart, 18, who died when his 1991 Toyota pickup truck rolled over into a ditch in Idaho Sept. 15, 2007. The lawsuit, which claims a defect in the steering relay rod, is set for trial in November.
“I’m happy to be going to trial,” Kristensen said. Every prospective juror will have heard about the sudden-acceleration claims and may be less likely to believe Toyota, he said. “Part of it goes to their credibility. I don’t know if they can afford to take a case to trial this year.”
The class actions were spurred by multiple recalls by Toyota. Most were filed after the company’s Jan. 26 decision to stop U.S. and Canadian production and sales of eight models to fix defective accelerator pedals. Almost 8 million Toyota vehicles have been recalled worldwide.
Lawsuits Increasing
The number of lawsuits has been growing daily since. Beyond the U.S. suits, at least eight class actions have been filed by Canadian owners of Toyota and Lexus models
More than half of those suing the company allege a defect in the electronic control system, contending that company fixes -- replacing floor mats and adjusting sticky accelerator pedals with a shim -- don’t correct the defect.
These additional claims, if proven, will increase the cost to consumers and Toyota, Kelly said.
“The Kelley Blue Book has already devalued these vehicles and that was when they thought it was going to be resolved with the carpet and the shim in the pedal.”
To contact the reporter on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net.
Last Updated: February 8, 2010 14:57 EST
BL: Thirdhand Smoke Forms Cancer-Causing Residue Indoors That Lasts
By Nicole Ostrow
Feb. 8 (Bloomberg) -- Tobacco smoke contamination lingering on furniture, clothes and other surfaces, dubbed thirdhand smoke, may react with indoor air chemicals to form potential cancer-causing substances, a study found.
After exposing a piece of paper to smoke, researchers found the sheet had levels of newly formed carcinogens that were 10 times higher after three hours in the presence of an indoor air chemical called nitrous acid commonly emitted by household appliances or cigarette smoke. That means people may face a risk from indoor tobacco smoke in a way that’s never been recognized before, said one of the study’s authors, Lara Gundel.
Previous research has shown that secondhand smoke, which is inhaled by nonsmokers exposed to fumes from cigarettes, raises the risk of cancer and heart disease. More research is needed to identify the potential health hazards of thirdhand smoke, Gundel said. Overall, tobacco use causes 20 percent of all cancer deaths, according to the study published in today’s Proceedings of the National Academy of Sciences.
“We have considered that nicotine on surfaces has been pretty benign up to this point. It turns out we shouldn’t say that now,” said Gundel, a staff scientist at Lawrence Berkeley National Laboratory in Berkeley, California, in a Feb. 5 telephone interview. “People can be exposed to toxins in tobacco smoke in a way that’s never been recognized before.”
Residue Found
A spokesman for Philip Morris USA, a unit of Altria Group Inc., did not return a telephone call for comment. Spokesmen for Reynolds American Inc. and Lorillard Inc. did not respond to telephone calls for comment.
A previous study, published in the journal Pediatrics in January 2009, found residual tobacco smoke is deposited on furniture, carpeting and clothing and coined the phrase “thirdhand smoke.”
Today’s study found that when the residue from tobacco smoke settled on indoor surfaces, it mixed with indoor air pollutants to form tobacco-specific nitrosamines, or TSNAs, which are potent cancer-causing substances found in unburned tobacco and tobacco smoke.
The researchers checked for nitrosamine levels by exposing paper to smoke and then to nitrous acid, which is produced by gas ovens and burners that aren’t properly vented and by cars. They also tested the surfaces on the inside of a truck of a heavy smoker.
In both cases they found the reaction between the nicotine in thirdhand smoke and the nitrous acid produced two known and potent nitrosamines. They also found a tobacco-specific nitrosamine that is absent in freshly emitted tobacco smoke.
Children Exposed
People, particularly infants and toddlers, are most likely exposed to these carcinogens by either inhaling dust or by skin contact, the authors said. Using fans and opening a window doesn’t help eliminate the hazards because most of the nicotine and other substances from burning cigarettes aren’t found in the air, but are absorbed by surfaces, Gundel said.
“Buildings, rooms, public places should be 100 percent smoke free,” she said. “Replace nicotine-laden furniture, carpets and curtains. Nicotine absorbs into these materials. The stuff that’s imbedded can continue to come to the surface.”
The researchers are trying to determine how long these nitrosamines may last as a result of the interaction of thirdhand smoke and the indoor air pollutant, nitrous acid. They are also looking to develop ways to track exposure to nitrosamines.
“We know that these residual levels of nicotine may build up over time after several smoking cycles, and we know that through the process of aging, thirdhand smoke can become more toxic over time,” said study co-author Hugo Destaillats, a chemist with the Indoor Environment Department of the Berkeley national lab’s Environmental Energy Technologies Division, in a statement. “Our work highlights the importance of thirdhand smoke reactions at indoor interfaces, particularly the production of nitrosamines with potential health impacts.”
The study was sponsored by the University of California’s Tobacco-Related Disease Research Program.
To contact the reporter on this story: Nicole Ostrow in New York at nostrow1@bloomberg.net.
Last Updated: February 8, 2010 15:00 EST
>>VALE $25 Puts +17.65% ($.80c), EOD:
Nice recovery for these favorite puts, as well as tight bid/ask
Vol stronger than average, more to fall tomorrow? Today's selloff wasn't aggressive, as it has been.
Time for VALE, EWZ, X, FCX and other commodity related favorites to reverse soon? We're keeping our eyes open
BL: Electronic Arts Posts Third-Quarter Adj EPS 33c
By Brad Skillman
Feb. 8 (Bloomberg) -- Electronic Arts Inc., the world’s second-largest video-game publisher, posted adjusted third- quarter profit of 33 cents a share. Analysts surveyed by Bloomberg estimated average profit of 31 cents.
Last Updated: February 8, 2010 16:02 EST
>>ERTS $17 Puts -24.19% (.47c), EOD:
ERTS $16 Puts -4.76% ($.20c)
ERTS now -6.43%, $16.15, guess what these will gap to, lol?
You win some, you lose some, is why I only play tiny amounts for any earnings play, if I am ever dumb enough to play earnings, lol, $150 maximum lotto ticket
Scroll down for both screens:
...and small biz is the biggest employer in this country, not good
jmho, but what do I know?
BL: No Job Growth for Small Business Inspires Doubts Over Sustainable Recovery
By Michael McKee
Feb. 8 (Bloomberg) -- Small businesses are becoming the Achilles heel of the U.S. recovery by limiting growth and job creation.
Companies with fewer than 500 employees, such as Phoenix Technologies Ltd. and Sonic Corp., helped lead the economy out of the four recessions since 1980. This time, they continue to cut capital spending and dismiss workers, eliminating 3,000 jobs in January, according to Roseland, New Jersey-based Automatic Data Processing Inc., the world’s largest payroll processor.
Improvement in the unemployment rate, which fell to 9.7 in January from 10 percent in December, may stall later this year if these firms aren’t hiring, and growth likely won’t meet the median 2.7 percent annual rate forecast for 2010 by 67 economists in a Jan. 14 Bloomberg News survey.
“Will you have a sustainable recovery a few years down the road without getting some small-business spending? No,” Cary Leahey, senior managing director at Decision Economics Inc. in New York and a former White House economist, said in an interview. “Wall Street gets it.”
The Russell 2000 Index of small-cap stocks has risen 4 percent in the past six months, lagging behind a 6 percent increase in the Standard & Poor’s 500 Index. Coming out of previous recessions, shares of companies with market capitalization between $250 million and $1 billion generally led markets higher.
Stock Performance
The Russell Index gained 17 percent in the six months following the end of the 2001 recession, compared with 0.2 percent for the S&P 500. Futures on the S&P 500 were little changed today at 1,059.10 as of 11:09 a.m. Singapore time.
The U.S. economy expanded at a 5.7 percent annual rate in the fourth quarter, the fastest pace in six years, after a 2.2 percent increase in the third quarter, buoyed partly by capital expenditures for equipment and software by large companies such as Dallas-based Texas Instruments Inc. Growth may be difficult to sustain if smaller firms continue to pare spending and staff.
“It suggests that a V-shaped economic rebound is even more unlikely than suggested by many standard economic indicators,” said Andrew Tilton, an economist at Goldman Sachs Group Inc. in New York, which sees gross domestic product growing 2.3 percent this year.
The National Federation of Independent Business’s index of small-business optimism has been near historic lows for 15 consecutive months, declining to 88 in December from 88.3 in November, the federation reported Jan. 12. During the four prior recessions, it dipped below 90 only once.
Optimism ‘Stalled’
“It has been a very difficult year, and 2009 did not end on an uplifting note,” William Dunkelberg, chief economist for the federation in Philadelphia, said in the report. “Optimism has clearly stalled, in spite of the improvements in the economy.”
Twenty-two percent of the group’s members reduced employment in December, while 10 percent added workers. The federation will release its January data tomorrow.
Investors shouldn’t assume there’s value in small caps during this recovery, according to Robert Olstein, who manages the $14 million Purchase, New York-based Olstein Strategic Opportunities Fund, which focuses on small businesses.
“Smaller startups are having a really hard time,” Olstein said in an interview. “We’re looking for companies that have great balance sheets that have run into some kind of temporary problems.”
Portfolio Holdings
His fund, which is up 61 percent in the past year, owns shares of Indianapolis, Indiana-based shoe retailer The Finish Line Inc.; Nash Finch Co., a Minneapolis, Minnesota-based food purveyor; and surgical-instrument maker Conmed Corp. of Utica, New York.
Because few economic reports capture small-business statistics, some economists say investors are being misled about the strength of recovery from the longest, deepest recession since the Great Depression.
Recent numbers suggest “the official data are too heavily weighted towards bigger companies, which are doing better than credit-constrained smaller firms,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York. “The latter employ half the workforce.”
The Institute for Supply Management’s manufacturing report and the index of leading economic indicators are two such measures, Shepherdson said. The Tempe, Arizona-based institute’s factory gauge rose to 58.4 in January from 54.9 the previous month, the fastest pace since August 2004. The New York-based Conference Board’s index of the outlook for the next three to six months gained 1.1 percent in December, the ninth consecutive increase.
‘Spot On’
The unexpected drop in the U.S. unemployment rate during January to 9.7 percent shows those indicators “have the direction of the recovery spot on,” Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York, said in an interview. “The wheels of the economy are turning. The improvement in the employment data does match the increase in GDP the last two quarters, so it’s not a fluke.”
Rupkey’s view is seconded by Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York and the most accurate of 60 forecasters in the Bloomberg News ranking of GDP projections for the first three quarters of 2009.
Maki sees unemployment falling to 9 percent by the end of 2010, because “business-equipment spending is bouncing, signaling an expansion in the corporate sector that is starting to turn the labor market,” he said in a Feb. 5 note to clients.
Gains in Growth
The economy still needs a contribution from small companies, or growth and employment gains won’t be as fast as they could be, Rupkey said. “ISM and leading indicators are probably overestimating the recovery speed.”
The nation’s monthly payroll figures are inflated because the Labor Department model that estimates small-business hiring has overstated the number of jobs added during the recession, Shepherdson says.
According to the model, small companies created an average of 113,000 jobs a month from February through December -- a period when total employment fell by a nonseasonally adjusted 3.7 million, Labor Department statistics show.
The model “is creating jobs out of thin air that are not actually being generated,” Joshua Shapiro, chief U.S. economist at MFR Inc., an economic-consulting firm in New York, said in a Feb. 4 note to clients.
Payrolls would have contracted between 1980 and 2005 without the employment created by business startups, the Census Bureau reported this month.
‘Difficult Environment’
Small businesses “in many parts of the country, in many sectors of the economy, are still facing a very difficult environment,” Treasury Secretary Timothy Geithner told reporters in a Feb. 2 conference call.
President Barack Obama said the same day that he wants to create a Small Business Lending Fund with $30 billion transferred from the Troubled Asset Relief Program. He also has endorsed $33 billion in tax cuts for small companies and incentives for hiring and wage increases.
Small businesses are “the places where most new jobs begin” and will be at the forefront of new hiring as the economy recovers, Obama said in his weekly radio and Internet address on Feb. 6.
Consumers are cautious, and that’s keeping owners of small firms on the sidelines, said Holly Wade, a National Federation of Independent Business policy analyst, in a telephone interview from Washington.
‘Still Apprehensive’
“They’re still apprehensive about hiring people, because they’re not seeing enough customers to translate into another worker,” Wade said.
Revenue at Phoenix Technologies, a maker of computer- communications software, fell 10.3 percent to $15.6 million in the most recent quarter from the year-earlier period, the Milpitas, California-based firm reported Feb. 4. The company, which has a market value of $110 million, cut 9 percent, or about 45 people, from its workforce last year; it had 462 employees as of Sept. 30, according to data compiled by Bloomberg. Shares are down 8 percent to $2.80 since August.
Much of the U.S. economy’s improvement has been stimulated by government programs that have helped larger companies without trickling down to smaller ones, especially those in the housing and construction industries, said John Silvia, chief economist at Wells Fargo Securities, a unit of San Francisco-based Wells Fargo & Co., the largest U.S. home lender.
Traditional Recoveries
“Given that we’re not getting the traditional housing recovery, maybe we’re not getting the traditional small-business recovery,” Silvia said in a telephone interview from Charlotte, North Carolina. New-home sales fell 7.6 percent in December, according to the Commerce Department.
Red Bank, New Jersey home builder Hovnanian Enterprises Inc., with a market capitalization of $301 million, cut about 1,000 workers, or 38 percent, of its employees in the past year. Shares have fallen 20 percent to $3.55 in the past six months. Hovnanian had 1,750 employees as of Oct. 31, Bloomberg data show.
Lack of access to credit is also affecting small businesses disproportionately. The Federal Reserve reported Feb. 1 that banks were continuing to tighten standards for loans to small firms, while standards for large companies were unchanged.
Growth in 2010 “is going to be a challenge if the credit markets stay tough” and potential licensees aren’t able to borrow funds to open new restaurants, Sonic’s Chief Financial Officer Stephen Vaughan told investors in a Jan. 11 conference call.
Drive Ins
Sales at the Oklahoma City-based operator and franchisor of more than 3,500 drive-in restaurants fell 26 percent to $136.5 million in the most recent quarter, compared with the same period a year ago. The company’s stock is down 28 percent to $8.19 in the past six months. Sonic had 350 employees as of Aug. 31, according to data compiled by Bloomberg.
So far, there are few signs of improvement. PayNet Inc.’s Small Business Loan Index, which tracks loans of $1 million or less, was 8.6 percent lower in December than a year ago.
“In the first half of 2009, the average monthly decrease was about 20 to 25 percent, so it’s clearly a step in the right direction,” said William Phelan, president of the Skokie, Illinois-based company, which offers credit reports for banks that lend to smaller firms. Still, “demand for expansion loans for small businesses is 35 percent below its peak in 2006. That’s another indication of how far we have to go to climb out of this recession.”
“Things don’t seem to be getting any worse, but they aren’t getting any better,” the NFIB’s Wade said. Small businesses “are in a kind of survival mode. We just haven’t seen anything indicating a change.”
To contact the reporter on this story: Michael McKee in New York at mmckee@bloomberg.net
Last Updated: February 7, 2010 22:15 EST
BL: Stocks Drop on Concern Over European Debt; Dollar Falls, Commodities Gain
By Stuart Wallace
Feb. 8 (Bloomberg) -- Stocks fell amid concern that some European governments will struggle to fund budget deficits, while industrial metals rallied from last week’s rout and currencies of commodity producers gained.
The Dow Jones Industrial Average fell below 10,000 for a third straight day as Bank of America Corp. dropped 2.9 percent at 2:36 p.m. in New York. The Athens Stock Exchange General Index lost 3.9 percent and the MSCI Emerging Markets Index slipped 0.4 percent. The two-year Greek government bond yield climbed 24 basis points to 6.63 percent. The S&P GSCI Index of 24 commodities rose 1.1 percent, the first gain in four days. South Africa’s rand advanced against its 16 most-traded peers.
Greece needs outside help as it tackles the European Union’s largest budget shortfall, said Mohamed A. El-Erian, co- chief investment officer at Pacific Investment Management Co. French Finance Minister Christine Lagarde said at a Group of Seven meeting that Greece’s budget deficit will be “managed.”
“We’re already facing contagion,” Arnab Das, managing director of market research and strategy at Roubini Global Economics in London, said in an interview on Bloomberg Television. “It could go a lot further unless the rot is stopped.”
Losses in U.S. stocks were limited as Google Inc., Home Depot Inc. and Amazon.com Inc. advanced following analyst upgrades. Financials posted the biggest decline among the 10 main industries, losing 1.2 percent as a group. The S&P 500 has posted four consecutive weekly declines, the longest losing streak since July, amid growing concern over sovereign debt and China’s moves to slow lending.
Europe Rebounds
European stocks rebounded from the biggest weekly drop in 11 months as investors snapped up food and mining companies and a technical indicator showed equities may have fallen too far. The Dow Jones Stoxx 600 Index added 0.6 percent after its earlier intraday decline pushed the regional benchmark to an “oversold” level for the first time in 11 months, according to the so-called Relative Strength Index.
The MSCI World Index of 23 developed nations’ stocks declined as much as 0.6 percent. Stocks in Asia fell for a third day. Russia’s Micex index lost 2.5 percent.
Copper for delivery in three months rose 1.8 percent to $2.9085 a pound in New York, rebounding from a four-week slump. Aluminum, nickel and zinc also gained. Crude oil added 1 percent to $71.89 a barrel in New York. Gold for April delivery advanced 1.4 percent to $1,067.30 an ounce. March wheat rallied 2.5 percent to $4.85 a bushel in Chicago trading.
Rand, Pound
The rand strengthened 0.9 percent versus the yen and the dollar, and 0.8 percent compared with the euro. The European common currency snapped three days of declines against the dollar, gaining as much as 0.3 percent. The pound declined versus 12 of 16 of its most-traded counterparts as opinion polls suggested a growing chance no party will win a majority in elections that must be held by June.
Greece is trying to persuade investors it can restrain the budget shortfall without outside assistance, while borrowing costs are also climbing for Portugal and Spain.
A gauge of corporate credit risk climbed to the highest in more than two months amid investor concern that “contagion” from risks posed by rising deficits in Europe to government debt could spread to other assets.
Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies and used to speculate on creditworthiness or to hedge against losses, rose 1.75 basis point to a mid-price of 103.5 basis points as of 12:04 p.m. in New York, according to broker Phoenix Partners Group. The index is at its highest since 106.24 basis points on Nov. 30, according to CMA DataVision prices. The gauge typically rises as investor confidence deteriorates.
Credit-default swaps on Portugal, where politicians are trying to push through increases in spending, climbed 17 basis points to an all-time high of 244, CMA DataVision prices show. Contracts on Greece rose 21 basis points to 428, matching the record set last week.
To contact the reporters for this story: Stuart Wallace in London at swallace6@bloomberg.net
Last Updated: February 8, 2010 14:39 EST
LOL...let me know how that goes!