U.S. Stocks Extend Drop on Debt-Rating Concern

U.S. stocks extended the worst weekly slump since November 2008 as stronger-than-forecast jobs growth was overshadowed by concerns that America may lose its top credit rating and Europe’s debt crisis will spread. Treasuries and the dollar fell, while commodities erased gains.

The Standard & Poor’s 500 Index reversed an early 1.5 percent rally and lost 1.3 percent at 1,184.29 at 11:46 a.m. in New York. The benchmark gauge for U.S. stocks is down more than 8.4 percent over the past five days. Ten-year Treasury yields rose seven basis points to 2.47 percent after climbing as much as 12 points earlier. The S&P GSCI Index of commodities declined 1 percent as lead and zinc tumbled more than 5 percent. The Dollar Index decreased 0.2 percent.

The S&P 500 surged in the first five minutes of trading after the jobless rate dropped to 9.1 percent in July as the nation added 117,000 jobs and wages climbed, then the index took less than 20 minutes to erase its advance. S&P spokesman John Piecuch said in an e-mail that the ratings company won’t comment on speculation the U.S. rating will be cut. Moody’s Investors Service and Fitch Ratings this week affirmed their AAA ratings on the U.S.

“The jobs report was surprisingly good, the economy is still growing, but that doesn’t mean that you won’t have challenges to overcome,” Bruce McCain, who helps oversee $22 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a telephone interview. “The fear of a downgrade will be with us for a while. It’s time to become more cautions, not defensive, but cautious.”

$4.5 Trillion Slump

A global slump has erased more than $4.5 trillion from the value of equities worldwide since July 26. The S&P 500 erased its gain for 2011 this week and is now down almost six percent for the year.

Bank of America Corp., Caterpillar Inc. and Alcoa Inc. lost more than 2 percent to lead losses in 27 of 30 stocks in the Dow Jones Industrial Average, which reversed a 172-point advance and dropped 102.40 points, or 0.9 percent, to 11,281.28. The 30- stock gauge tumbled 512.76, or 4.3 percent, yesterday. Nine of ten industry groups in theS&P 500 retreated, led by technology and financial shares.

Two-year Treasury yields increased after reaching a record low yesterday, gaining three basis points to 0.28 percent. Credit-default swaps protecting U.S. government debt for five years rose to 55.36 basis points from 54.88 yesterday, still down from a two-year high of 64.37 on July 28.

European Shares

European equities erased losses after the U.S. jobs data, only to resume declines as concern about the American debt rating spread. The Stoxx Europe 600 Index sank as much as 3.3 percent before trading 1.6 percent lower.

Royal Bank of Scotland Group Plc tumbled 7.5 percent after posting a wider-than-expected first-half loss. Allianz SE, Europe’s biggest insurer, lost 3 percent after reporting second- quarter net income that missed analysts’ estimates.

The Stoxx 600 has lost almost 10 percent over the past five days, headed toward the worst week since 2008.

European leaders hunted for solutions to the debt crisis, helping Italy and Spain gain a respite from the market turbulence after the resumption of the European Central Bank’s bond-buying program. German Chancellor Angela Merkel and French President Nicolas Sarkozy plan to speak by phone later today, their offices said. The European Commission called for an expansion of the European Financial Stability Facility, the 440 billion-euro ($623 billion) rescue fund, earning a rebuke from Germany.

Source:Bloomberg