U.S. Stocks Erase Advance as Bond Yields Rise on Rate Concern
Dec. 16 (Bloomberg) -- U.S. stocks erased most of their advance, the dollar strengthened against the yen and yields on 10-year Treasury notes rose to a four-month high on concern the Federal Reserve is preparing investors for higher interest rates next year.
The Standard & Poor's 500 Index added 0.1 percent to 1,109.18 at 4 p.m. in New York, paring a gain of as much as 0.8 percent. The dollar rose 0.2 percent to 89.78 yen. The yield on 10-year notes touched 3.60 percent, which would be the highest closing level since August. Sugar futures surged to prices last seen in 1981.
Metal producers, energy companies and banks in the S&P 500 rose more than 0.4 percent, the steepest gains among 10 industries. The Fed repeated its pledge to keep interest rates "exceptionally low" for an "extended period" and the economy is strengthening. Policy makers also restated that "low rates of resource utilization, subdued inflation trends, and stable inflation expectations" are needed for interest rates to remain at a record low.
"The fear is that the Fed may wait too long before they begin raising rates," said Joseph Veranth, chief investment officer at Dana Investment Advisors in Brookfield, Wisconsin, which manages $2.8 billion. In the S&P 500, "when you see materials, financials and energy leading, it means the market fears higher prices and inflation. Market participants are going to the sectors that will perform well in that environment."
Stronger Economy
While repeating its pledge to keep interest rates "exceptionally low" for "an extended period," the Fed said the economy is strengthening and that most of its special liquidity facilities will expire on Feb. 1, 2010.
"Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit," the Federal Open Market Committee said in a statement after meeting in Washington. "Businesses are still cutting back on fixed investment" and "remain reluctant to add to payrolls." Deterioration in the labor market is "abating."
Commodity companies and financial institutions led gains in the U.S. stock market as investors bet on higher inflation. CF Industries Holdings Inc., a fertilizer maker, jumped 4.9 percent and U.S. Steel Corp. advanced 2.9 percent in New York trading, helping lead gains by commodity companies. Range Resources Corp., an oil and gas explorer, advanced 4.3 percent. JPMorgan Chase & Co. rallied 1.2 percent.
Construction, Prices
Earlier, the S&P 500 rallied as much as 0.8 percent after government data on home construction and consumer prices signaled the economic recovery is strengthening. The benchmark index for U.S. equities has rebounded 64 percent from a 12-year low in March as manufacturing and consumer spending increased and the U.S. government lent, spent or guaranteed more than $11 trillion to end a four-quarter contraction in the economy.
Intel Corp. dropped 2.1 percent. The U.S. Federal Trade Commission accused the world's largest computer-chip maker of illegally using its dominant market position for a decade to stifle competition and bolster its monopoly. Advanced Micro Devices Inc. and Nvidia Corp., which also make semiconductors, surged 3.7 percent and 8.1 percent, respectively.
U.S. homebuilders gained after housing starts rose 8.9 percent to an annual rate of 574,000 in November, according to the Commerce Department. D.R. Horton Inc. increased 4.9 percent and Lennar Corp. gained 4.7 percent.
Sugar futures rose for a fourth time in five sessions, reaching the highest price since 1981 in New York, on speculation demand will climb while supplies drop. Output will rise less than previously forecast this year in Brazil, the world's biggest producer, after rain in major cane-growing regions cut yields, the Agriculture Ministry said today.
Raw-sugar futures for March delivery rose 4.5 percent to 25.94 cents a pound in New York. Earlier, the most-active contract reached 26.15 cents, the highest since February 1981.
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net .
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