While you were sleeping: Stocks weaken, ING splits, US bond sales loom

Tuesday 27th October 2009

Stocks fell across the US and Europe amid expectations the US will phase out its tax credit for first-home buyers and amid concern banks and lenders may have to raise more capital.

The Dow Jones Industrial Average fell 1.1% to 9862.22 and the Standard & Poor’s 500 Index declined 1.3% to 10653.50. The Nasdaq Composite fell 0.7% to 2139.22.

Pulte Homes shed 3.6% to US$9.72, DR Horton declined 4% to US$11.93 and Lennar Corp. fell 2.8% to US$13.73, leading homebuilders lower after Senator Bill Nelson said the US$8,000 home buyer credit would be extended and phased out.

Analysts at ISI Group said a phase-out would disappoint investors. The credit is due to expire at the end of next month.

Bank of America declined 5.4% to US$15.34, leading the Dow lower, after Rochdale Securities analyst Dick Bove wrote in a note that the lender’s shareholders would suffer if the federal government forced it to raise more capital before redeeming preferred stock issued under the Troubled Asset Relief Program.

Fifth Third Bancorp dropped 8.9% to US$9.42 after Bove downgraded the shares. JPMorgan Chase fell 3.5% to US$43.66.

Monsanto Corp. declined 6.2% to US$70.59 after Goldman Sachs Group cut its earnings estimates on discounting of corn seed.

Miners and oil companies retreated after the US dollar strengthened, sapping demand for commodities as an alternative investment and weighing on prices of metals and crude.

Newmont Mining Corp. declined 3.8% to US$43.22 and Freeport-McMoRan Copper & Gold slid 2.1% to US$79.66. ConocoPhillips shed 2.8% to US$50.53.

New York Times Co. fell 7.3% to US$9.96 after the U.S. Audit Bureau of Circulations said weekday circulations fell for four of the five largest U.S. newspapers. The Wall Street Journal defied the trend.

In Europe, the Dow Jones Stoxx 600 Index fell 1.3% to 241.84.

ING Groep tumbled 18% after announcing it would raise 7.5 billion euros in a rights offer to and sell its 13 billion euro insurance units via initial public offerings or trade sales as it seeks the approval of the European Union for a taxpayer-funded bailout.

ING led declines among European lenders which are facing EU scrutiny. KBC Groep declined 7.5% and Lloyds Banking Group fell 7.2%.

Electrolux AB jumped 6.7% after the appliance maker posted third-quarter profit that beat estimates.

The US dollar rose against the euro as stocks weakened and as technical analysts said it failed to break through a key level of support.

The greenback rose to US$1.4854 per euro from US$1.5008 and traded at 92.18 yen from 92.06. Japan’s currency gained to 136.92 per euro from 138.15.

The Dollar Index, which tracks the greenback against a basket of six major currencies, rose 0.8% to 76.04.

Gold fell as the dollar’s rebound sapped demand for the precious metal as an alternative investment.

Gold futures for December delivery declined 1.3% to US$1,042.80 on the New York Mercantile Exchange.

Crude oil for December delivery fell 2.3% to US$78.63 a barrel.

Copper for December delivery fell 2.35 cents to US$3.01 a pound on the New York Mercantile Exchange.

US Treasuries declined as the US embarked on a record $123 billion sale of notes.

The yield on 10-year notes rose 8 basis points to 3.57% while the yield on 30-year Treasuries rose 9 basis points to 4.38%.

The Treasury sold US$7 billion of five-year Treasury Inflation Protected Securities at a yield of 0.769%. The bid-to-cover ratio was 3.1, the highest since October 1997.

Indirect bidders, which include foreign central banks, bought 47.8%, the most since 2006.

The US will offer US$44 billion of two-year notes on Tuesday, US$41 billion of five-year notes on Wednesday and US$31 billion of seven-year notes on Thursday.

Businesswire.co.nz

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