Stocks Advance, Commodities Snap Three-Day Slump as Oil Rallies
October 05, 2011, 5:50 PM EDT

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• U.S. Stocks Decline as Concern Over Europe Offsets Jobs Report
• Stocks Fall, Euro Erases Gain as Fitch Cuts Italy, Spain Ratings
• EU Leaders Under Pressure for Bank Rescue Plan Before G-20
• Stocks, Euro Advance as Treasuries Drop on Europe Debt Optimism
• S&P 500 Caps Biggest Two-Day Advance Since August on Europe

By Rita Nazareth and Mark Shenk

Oct. 5 (Bloomberg) — Stocks rallied and commodities snapped a three-day slump as U.S. economic data topped estimates and optimism grew European leaders will recapitalize banks. Energy shares helped lead gains as oil surged following an unexpected drop in supplies. Treasuries retreated.

The Standard & Poor’s 500 Index rose 1.8 percent to close at 1,144.03 at 4 p.m. New York time, adding to yesterday’s 2.3 percent surge to mark the biggest two-day gain in a month. The Stoxx Europe 600 Index climbed 3.1 percent, halting a three-day tumble. The S&P GSCI Index of commodities increased 2.8 percent as oil surged 5.3 percent to $79.68 a barrel, rebounding from a 7.9 percent plunge over the previous three sessions. Ten-year Treasury note yields climbed six basis points to 1.89 percent.

Reports depicting faster-than-forecast growth in payrolls and service industries and rising fuel demand tempered concern the economic recovery was in jeopardy. European Union officials are working on plans to boost bank capital to contain the debt crisis, the International Monetary Fund said, a day after a Financial Times report describing the discussions triggered a 4.1 percent surge in the S&P 500 in the final hour of trading.

“We are headed for the mother of all counter-trend rallies in equities into the end of the year,” said Michael A. Gayed, chief investment strategist at Pension Partners LLC in New York. “There’s likely to be some kind of reevaluation of the financial sector. It could be because of the realization that we’re going to have some sort of recapitalization in Europe. The bond market is starting to confirm the move back into risk-on.”

Producers of energy and raw materials led the S&P 500’s gain today, with gauges of both groups rising at least 3.3 percent. Chevron Corp. climbed 3.5 percent and Freeport-McMoRan Copper & Gold Inc. surged 7.1 percent to pace the rally.

Oil Inventories

Oil surged the most since May and had the biggest advance among commodities tracked by the S&P GSCI, with 20 of 24 raw materials rising. Crude supplies at Cushing, Oklahoma, the delivery point for West Texas Intermediate oil, tumbled 831,000 barrels to 30.1 million, the lowest level since March 2010. Stockpiles at the hub have dropped 10 weeks, the longest stretch since 2007. Gasoline supplies declined 1.14 million barrels to 213.7 million last week, the report showed.

“Fuel demand has been holding up better than expected in recent weeks,” said Kyle Cooper, director of research for IAF Advisors in Houston. “It does signal that demand it is holding up well and it doesn’t signal a recession.”

Yahoo! Inc. surged 10 percent, the biggest gain in three years, after Reuters reported that Microsoft Corp. was considering a bid for the Internet company. S&P 500 financial rallied for a second day, climbing 1.2 percent after earlier falling as much as 2.3 percent. The 81 banks, insurers and investment firms has led the S&P 500’s 16 percent slide from a three-year high on April 29, plunging 27 percent as a group.

Morgan Stanley Surges

Morgan Stanley climbed 3.4 percent, building on yesterday’s 12 percent surge, after Fox Business Network’s Charles Gasparino reported that Chief Executive Officer James Gorman told investors everything is “OK” and the firm’s third-quarter earnings will beat rival Goldman Sachs Group Inc. Monsanto Co. jumped 5.2 percent as the world’s largest seed company forecast higher-than-expected earnings.

U.S. stock futures gained before the open of exchanges after companies in the U.S. added 91,000 jobs in September, according to data from ADP Employer Services, topping the median forecast of economists surveyed by Bloomberg News for an advance of 75,000. A Labor Department report in two days is forecast to show a 91,000 increase in private payrolls and a net 59,000 gain in non-farm payrolls, according to the median economist estimates in a survey, with the unemployment rate projected to remain at 9.1 percent.

‘Tortoise-Like’

The Institute for Supply Management’s non-manufacturing index fell to 53 from 53.3 in August. The median forecast of 75 economists surveyed by Bloomberg News was for a drop to 52.8. A reading of 50 is the dividing line between expansion and contraction in services, which cover about 90 percent of the economy. Orders picked up, the report showed.

“Those are positive,” Abigail Huffman, who helps oversee $163 billion as director of research at Russell Investments in New York, said of today’s economic data. “It’s a slow moving economy that’s moving forward and we’re seeing good data points. With this tortoise-like economy the trends are positive but they’re just not positive enough for the market to sustain an advance.”

Bear Market Averted

The S&P 500 closed 2.3 percent higher yesterday following the FT report of discussions to recapitalize European banks. It was the 10th time since 1985 that the index posted a loss of 1 percent or more at 3 p.m. and was up when the market closed, according to data compiled by Bespoke Investment Group LLC in Harrison, New York. The rebound occurred after the index slid below 1,090.888 during the day, a level that would have marked a bear-market plunge of more than 20 percent from the April peak if breached on a closing basis.

Alcoa Inc., the largest U.S. aluminum producer, will mark the unofficial start of the earnings-reporting season when it reports results on Oct. 11. Third-quarter profits for S&P 500 companies are projected to have grown 13 percent, according to analyst forecast compiled by Bloomberg, down from an estimate of 17 percent when the index traded at a three-year high at the end of April.

‘Surprise to the Upside’

Brian Belski, chief investment strategist at Oppenheimer & Co. in New York, predicted a “nice year-end rally” in stocks after profits come in higher than analyst estimates.

“Earnings will surprise to the upside, earnings estimates have been slashed too much,” Belski said on Bloomberg Television’s “Inside Track With Deirdre Bolton and Erik Schatzker.” “Corporate America has gone through so much structural reform in the last 10 or 12 years that they continue to be positioned to under-promise, over-deliver.”

Banks in the Stoxx 600 climbed 4.6 percent as a group and contributed the most to the index’s advance. Dexia SA, the Belgian lender that has slumped 59 percent this year, snapped a four-day plunge after France and Belgium said a “bad bank” will be set up to hold its troubled assets. The shares rose 1.3 percent, paring a rally of as much as 10 percent after two people with knowledge of the talks said the plan may leave Dexia holding the worst assets.

BNP Paribas, SocGen

BNP Paribas SA and Societe Generale SA, France’s biggest lenders, climbed more than 8 percent. Rio Tinto Group led mining companies higher. European Aeronautic, Defence & Space Co. rose 5.7 percent after saying 2011 will be a “very good” year.

A measure of how much European banks pay to fund in dollars fell. The one-year cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was at 72 basis points below the euro interbank offered rate as of 5 p.m. in London, down from 75 basis points yesterday. A basis point is 0.01 percentage point.

EU ministers have a “sense of urgency” and a “shared view” of the need for a “concerted, coordinated approach in Europe,” EU Commissioner for Economic Affairs Olli Rehn said, according to the FT. “Capital positions of European banks must be reinforced to provide additional safety margins and thus reduce uncertainty,” the newspaper quoted him as saying.

Rehn “doesn’t speak of a concrete plan in hand,” his spokesman, Amadeu Altafaj, told reporters in Brussels today. “He speaks of an initiative, of discussions in progress and he pleads for a European approach.” German Chancellor Angela Merkel said that Europe’s rescue fund will only be used as a last resort to save banks and that investors may have to take deeper losses as part of a Greek rescue.

‘Gut Feel’

“My gut feel is that the European situation still might need to get worse to provoke the type of response the market really wants but such a day is no doubt getting closer,” Jim Reid, head of fundamental strategy at Deutsche Bank AG in London, wrote in a note to investors.

Ten-year Italian bond yields increased three basis points to 5.50 percent. Moody’s Investors Service cut Italy’s rating three levels to A2 from Aa2, with a negative outlook, and said other European countries rated below the top Aaa level may face downgrades. S&P lowered Italy’s grade on Sept. 20 for the first time in five years.

Signs that the region’s debt crisis is hampering growth have prompted speculation the ECB will lower borrowing costs at a policy meeting tomorrow. Eleven of 52 economists surveyed by Bloomberg said it will cut its benchmark interest rate by at least a quarter-percentage point from the current 1.5 percent. The others expect no change.

Dollar Index

The Dollar Index, which tracks the U.S. currency against those of six trading partners, fell 0.8 percent to halt a five- day increase. The euro weakened against 12 of 16 major peers and was little changed at $1.3346.

The MSCI Asia Pacific Index fell 0.3 percent and is down 6 percent in four days. Japan’s Nikkei 225 Stock Average retreated 0.9 percent, paced by a 4 percent drop in Fast Retailing Co., after Asia’s biggest apparel chain said same-store sales at its Uniqlo casual clothing stores in Japan fell 10.7 percent in September from a year earlier.

The MSCI Emerging Markets Index rose 0.8 percent, rebounding from a two-year low. Hungary’s benchmark index surged 5.7 percent and Chile’s rallied 2.6 percent.

–With assistance from Daniel Tilles, Andrew Rummer, Jason Webb, Claudia Carpenter and Michael Shanahan in London, Kaitlyn Kiernan and Jeff Kearns in New York and Shiyin Chen in Singapore. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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READER DISCUSSION

NEW YORK (Reuters) – Treasuries prices fell on Tuesday after the Federal Reserve chairman reiterated the US central bank is ready to take more steps to help the economy, reducing investor anxiety and the safe-haven allure of bonds.

Bond prices, which some analysts see as overstretched, reversed an early rise tied to a debate among European officials over making banks take bigger losses on their Greek debt holdings, as well as a delay in a vital financial payment to Athens until mid-November.

Moreover, growing tensions between China and the United States over a bill in the US Congress on forcing Beijing to let its currency rise stoked worries about a trade war. China is the biggest holder of US Treasuries.

With these issues rattling confidence, investors pinned some hopes on Fed Chairman Ben Bernankes pledge of more monetary stimulus if it needed, with expectations of the possibility of a third round of outright Treasuries purchases, dubbed QE3.

Bernanke did say that the Fed could take further action if appropriate, and given the dire tone of his outlook one could conclude that he will have the makings of such action well in hand in the near future, said David Ader, head of government bond strategy at CRT Capital Group in Stamford, Connecticut.

Bernankes testimony on the economy and Fed policy before a congressional panel touched off profit-taking on recent bond market gains tied to safe-haven demand from fears over European debt woes spiraling into a global crisis.

Treasuries extended losses late in the day as stocks reversed course from being down strongly to trading well over 1 percent higher, which further undermined the safe-haven appeal of US government debt.

Trade was volatile through the day, with benchmark 10-year Treasury notes last changing hands down 21/32 in price to yield 1.83 percent, up from 1.76 percent late Monday.

We are getting overstretched here. The easy money has been made. said George Goncalves, head of US rates strategy at Nomura Securities International in New York.

Losses on the 10-year note were curbed early in the day by the Feds purchases of eight- to 10-year Treasuries, a part of its $400 billion Operation Twist bond program. It bought $4.59 billion of these issues.

The 30-year Treasury bond traded 1-29/32 lower to yield 2.81 percent, up from 2.73 percent late Monday. Bond yields early in the day dipped to 2.69 percent, a level last seen in early January 2009.

Despite Tuesdays Treasuries price declines, fears persisted over a Greek default, which could ripple across the global banking system.

In an attempt to contain the problem, France and Belgium will guarantee the financing of Dexia (DEXI.BR) due to its exposure to Greek debt. A rescue plan could involve breaking up the bank.

Credit default swaps on banks soared while short-term funding costs among banks as gauged by interest rate swap spreads rose to their most expensive since June 2010.

Under these circumstances, Treasury yields will likely hold at the current low levels while the volatile trading pattern could continue into Fridays payrolls report, analysts said.

Treasuries are pretty expensive down here. Although most do expect yields to go lower, they may not be able to move much further right now, said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.

(Additional reporting by Richard Leong; Editing by James Dalgleish)

* Treasuries gain as hope rises for new Fed bond buying

* Benchmark 10-year note yields fall below 2 percent

* Thirty-year bonds give up most price gains
(Recasts throughout; adds comments, updates prices)

By Karen Brettell

NEW YORK, Sept 2 (Reuters) – US Treasuries prices gained
on Friday and benchmark note yields again fell below 2 percent
after a weak jobs report increased the likelihood that the
Federal Reserve would make new bond purchases.

The unexpectedly weak monthly report, showing zero
employment growth in August, fueled expectations the US
central bank would need to intervene in an effort to stop the
economy from falling back into recession.

Goldman Sachs and some other US primary dealers — big
Wall Street firms that do business directly with the Fed –
forecast the Federal Open Market Committee might extend the
maturity of the Feds $1.65 trillion Treasuries holdings after
its Sept. 20-21 policy meeting.

The worst view is confirmed on the employment front. Other
information this week was much more mixed, said Jim Golden,
head of Treasury trading at Jefferies amp; Co in New York.

I think this is going to be new wind in the sails of the
Treasury market because of the anticipation the Fed will do
further accommodation, he said.

The US economy has been weakening since the Fed completed
its $600 billion in bond purchases at the end of June, its
second program of quantitative easing.

Benchmark 10-year note yields US10YT=RR fell below 2
percent for the first time since Aug. 18, when they dropped as
low as 1.976 percent for the first time in at least 60 years.

The debt was boosted by a belief that the central bank will
sell its shorter-dated Treasuries and buy longer-dated issues
with the goal to twist the long end of yield curve lower.

There have been a lot of trades being put on as people
look to jump ahead of a move from the Fed, said Thomas Roth,
executive director of US government bond trading at
Mitsubishi UFJ Securities USA in New York.

The 10-year note yields traded as low as 1.987 percent on
Friday.

Thirty-year bonds US30YT=RR also soared more than
three-points in price on speculation over longer-dated debt
purchases. The bond yields dropped to 3.32 percent, the lowest
since Jan. 2009.

Some traders raised doubts, however, over whether the Fed
would extend that far out the yield curve in any new purchase
program. The central bank is seen as most likely to buy notes
maturing in seven- and 10-years.

Even though they are very likely to extend the duration of
their portfolio, Im not convinced that it will include the
long bond, said Anthony Cronin, a Treasuries trader at Societe
Generale in New York. Thats probably the biggest uncertainty
at this point as to what the Fed does.

Trading tapered off ahead of a three-day US holiday
weekend. The US bond market will close on Monday in
observance of Labor Day.
(Additional reporting by Richard Leong; Editing by Theodore
dAfflisio)

ECB Won’t Stop Buying Italian, Spanish Bonds, Frattini Says
September 03, 2011, 11:01 AM EDT

More From Businessweek

• Spain, Luxembourg Authorize Expanded Powers for EFSF
• Spain Sells $5.4 Billion of Bonds, Just Below Maximum Target
• Spain to Sell Government Bonds Amid Systemic-Risk Threat
• Deposit Flight at European Banks Means Risk Piling Up at ECB
• Spain Banks’ ECB Borrowings Surge to $96 Billion in August

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By Marco Bertacche and Sonia Sirletti

(Updates with comments from Frattini starting in third paragraph.)

Sept. 3 (Bloomberg) — Italian Foreign Minister Franco Frattini said the European Central Bank will continue to buy Italian and Spanish bonds to try to trim record borrowing costs.

“We’ll be insisting on the European Central Bank to continue,” Frattini told reporters today in Cernobbio, Italy. It’s a “very wise policy to support efforts of states like Italy and Spain. I exclude the ECB will stop buying” the bonds.

The Italian parliament’s “quick” approval of a government decree containing measures to balance the budget by 2013 “will reassure markets,” Frattini said. Italy’s Senate will probably approve the decree by the end of next week, followed by the lower house the following week, he said, adding that there is “no attempt” to scale back budget-cutting goals.

ECB President Jean-Claude Trichet said earlier today at the Cernobbio conference that the Italian government must “fully implement” the budget measures announced to restore the country’s creditworthiness. Frattini said a swift approval would be the best answer to the ECB’s concerns.

–With assistance from Lorenzo Totaro and Christian Vits in Cerbobbio, Italy. Editors: Jennifer M. Freedman, Peter Torday

To contact the reporters on this story: Marco Bertacche in Cernobbio, Italy, at mbertacche@bloomberg.net; Sonia Sirletti in Cernobbio, Italy, at ssirletti@bloomberg.net

To contact the editors responsible for this story: Angela Cullen at acullen8@bloomberg.net; Frank Connelly at fconnelly@bloomberg.net

READER DISCUSSION

NEW YORK (Reuters) – Government bond investors see Federal Reserve action to boost the flagging economy as practically a done deal after Fridays dismal jobs report.

Market participants now think the Fed will likely announce a plan to sell short-dated Treasury debt and use the proceeds to buy long bonds after its meeting later this month.

Government data showing the economy failed to create new jobs last month made the Feds move, about which there had been much speculation over the past two weeks, seem all but inevitable.

Known to some in financial markets as Operation Twist, the plans goal would be to flatten the yield curve, lower long-term interest rates and stimulate the economy.

The Treasury market appeared to price in greater likelihood of this after the jobs report, with US 30-year bonds surging 3 points in price.

Following todays worse-than-expected jobs report, we now look for the Federal Open Market Committee to announce a lengthening of the average maturity of the Feds balance sheet at the September 20-21 meeting, Jan Hatzius, chief US economist at Goldman Sachs in New York, wrote in a note to clients.

Some analysts said even without the dismal jobs data the Feds move would have been inevitable.

We thought they were going to do it in August, said Ira Jersey, interest-rate strategist at Credit Suisse in New York. But I guess with some of the operational issues it raises they wanted to wait.

HOW IT WORKS

Operation Twist would take some fancy footwork, Jersey said, with the New York Fed likely having to hold two auctions in a single day.

The Fed would first sell shorter-dated securities and would then hold a second auction to buy bonds of longer maturities from primary dealers. Both auctions would settle the following day.

While it would lower rates at the back end of the yield curve, Operation Twist could also nudge front-end rates higher, possibly to the benefit of money market funds scrambling for ultra-safe securities with a yield above zero.

The way we looked at it, it looks like they could sell something like $265 billion — everything they hold through June 30, 2013 — and that could be absorbed with very modest rate movement, said Thomas Simons, money market economist at Jefferies amp; Co in New York.

It might push rates a few basis points higher in shorter-dated Treasuries, he added.

Goldmans Hatzius said such an operation would ultimately remove so much longer-dated debt from the market, its effect would be almost as big as the Feds last major easing program.

Referred to by many as QE2, the Fed bought $600 billion in Treasuries. Quantitative easing has been considered an effective monetary policy tool when interest rates are near zero.

This type of operation would be the equivalent of 80-90 percent of QE2 in terms of duration risk removed from the market, Hatzius said.

Jeld-Wen Inc., Oregons largest privately held company, faces potential bankruptcy after failing to sell junk bonds needed for a rescue deal.

The Klamath Falls-based window-and-door maker, which employs 2,500 in Oregon, has closed plants, sold assets, laid off workers, cut spending and amassed debt after a body blow from the 2008 housing market crash. Now a takeover by Onex Corp., a Canadian private equity firm, appears in jeopardy because Jeld-Wen cant sell $575 million in bonds necessary for the deal.

A bankruptcy by Jeld-Wen would be a stunning turn for the family-controlled company built by Dick Wendt into a global giant that made him a billionaire long before he died last year. Managers of Jeld-Wen, led by the co-founders son, Chief Executive Rod Wendt, were in bunker mode Friday as representatives of the company and Onex did not return repeated phone calls.

Theyre faced with a good possibility theres a financial disaster in their future, said Michael Dimond, a finance expert who teaches at Portland State Universitys business school. If they cant raise money and they cant get their net income high enough to cover their financial needs moving forward, then they would have to go bankrupt.

Jeld-Wen, with six corporate jets and 20,000 employees in 22 countries, was a high flier before the real estate bust, buying up companies, sponsoring sports events and launching resort developments. The elder Wendt gave millions to charities and conservative political campaigns.

[CHF= 
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] on worries about the euro zones debt crisis and a dismal US non-farm payrolls report, as investors see the franc as a safe-haven.

But the Swiss central bank has tried to weaken the franc by injecting liquidity in the money markets, pushing short-term yields into negative territory. On Friday, top Swiss politicians spoke in favor of the measures taken by the central bank, which was criticized for its interventions in 2009 and 2010 to stem the currencys rise.

The Swiss National Bank will only buy German and French bonds because it considers them the most secure and liquid in the euro zone, the Dow Jones report said, quoting sources speaking to the Frankfurter Allgemeine Zeitung.

On Friday, talks between Greek officials and European Union and the International Monetary Fund paused for 10 days, amid disagreements over how much its plans to cut the budget deficit have fallen behind.

Earlier this month the European Central Bank started to buy Italian and Spanish bonds in the markets in a bid to stop yields on these countries sovereign debt from soaring but some analysts have doubted that such a move will be efficient in the long-term as the debt crisis is still causing ripples in the markets.

The run to the safety of the Swiss franc has sparked fears in Switzerland that the country will go through a recession because of the strength of its currency.

Excerpts from Power Breakfast on CNBC-TV18 Watch the full show »

German Chancellor Angela Merkels Cabinet on Wednesday approved a plan to beef up the Euro zones rescue fund, the first step toward its passage in Europes biggest economy.

In an interview to CNBC-TV18, Bruno Verstrate, chief executive officer of Nautilus Investment said, it was clear from the beginning that the European Financial Stability Facility (EFSF) needed more capital in order to fight off the debt crisis in the bigger countries.

However, according to him, because of the increase, a lot of political influence has been added as well. “The more influence from the political side, which is the case now, after the increase, it will definitely not have the speed of avoiding contagion in the future.”

He further said, in the end, the final solution would definitely be that there are euro bonds because then you wouldn’t see the local fluctuations and the fire power of the markets on individual bonds will be much more.

Below is the edited transcript of his interview. Also watch the accompanying video.

Q: We just heard the deputy finance minister of Germany stating that this new influx into the rescue fund of the Euro zone is going to be sufficient to tide over and contain the contagion crisis in the Euro zone. Do you agree to? If so, to what extent will this help?

A: I agree to a certain extent. It was clear from the beginning that the European Financial Stability Facility (EFSF) needed more capital in order to fight off the debt crisis in the bigger countries. However, because of the increase, a lot of political influence has been added as well.

That, I think, is a very negative because the crisis has been partially manufactured by the politicians. So, the more influence from the political side, which is the case now, after the increase, it will definitely not have the speed of avoiding contagion in the future. And that was what the market was waiting for.

We see now the ECB is the fastest in reacting and in stopping contagion from taking place. The reason for contagion having started to begin is the political slow reactions and that is going to be the case now in the new EFSF.

Q: This lack of pace from the political front is what atleast some of the smaller countries in Europe are still battling with. Take the example of Greece, it is likely to miss its budget targets in 2011, even if it fully implements painful reforms. Some news is coming out of Europe, but what is that the investors would want to see out of Europe?

A: In the end, the final solution would definitely be that there are euro bonds because then you wouldn’t see the local fluctuations and the fire power of the markets on individual bonds will be much more. Of course this is something that Germany has been against because they would lose their AAA and the yields in Germany would definitely go up. But I think in the end that is what market wants to see.

Germany has been very hostile against the European bonds. But at the same time they have not been offering any alternative. I think we slowly, but surely, see solidarity fading away in Europe. Unless there is a common front that defends all the members, I think this crisis is going to continue to linger.

(Refiles to delete repetition of paragraphs on stock
indexes)

* MSCI world stocks fall to fresh 2011 low

* Dow falls 300 points, Samp;P 500 down 2.7 pct

* Yen slides after Tokyo intervenes

* ECB in the market buying bonds – traders
(Updates to afternoon)

By Edward Krudy and Rodrigo Campos

NEW YORK, Aug 4 (Reuters) – World stocks plunged to new
lows for the year on Thursday with a sell-off in markets
accelerating sharply as investors fretted about the outlook
for the global economy and piled into safe-haven bonds.

European stocks tumbled to a level not seen since after
the financial crisis in mid-2009, with Italys equity market
firmly in bear market territory, down nearly 30 percent since
February, as investors fretted the euro-zone debt crisis was
spreading.

Italys blue-chip FTSE MIB index .FTMIB was suspended
about 30 minutes before the close. The index tumbled slightly
more than 5 percent.

With investors seemingly caught in a perfect storm,
officials around the world moved to calm markets and ease
volatility. The boldest step came from Tokyo, where the
government spent an estimated 1 trillion yen ($13 billion) to
stem the strength of its currency.

The intervention comes a day after an unexpected cut in
interest rates by Switzerland to weaken the franc, which has
spiked in recent days as investors search for safe havens. The
currency edged slightly higher in New York trade on Thursday.

Even gold, which has raced to a series of new highs near
$1,700 an ounce amid the gathering uncertainty, tumbled as
deepening losses on Wall Street prompted investors to sell the
metal and cover losses amid increasing margin calls outside of
the commodity sector.

When you get outside markets down significantly, some
investors liquidate their winning positions in the gold and
silver market longs to raise margins and support their losing
trades, Phillip Streible, senior market strategist with
Chicago-based futures broker MF Global.

The selling is across market segments in terms of
institutions, individuals, and traders, said Peter Kenny,
managing director at Knight Capital in Jersey City, New
Jersey. Everyone is leaning into it. Its a classic
capitulation.

The exodus from stocks pushed the broad Standard amp; Poors
500 Index .SPX down as much as 3.5 percent, while the clamor
for safe-haven investments drove the yield of the 10-year US
Treasury note US10YT=RR below 2.5 percent, the lowest since
early November 2010.

The Dow Jones industrial average .DJI dropped 300.69
points, or 2.53 percent, to 11,595.75. The Standard amp; Poors
500 Index .SPX fell 34.46 points, or 2.73 percent, to
1,225,88. The Nasdaq Composite Index .IXIC dropped 72.90
points, or 2.71 percent, to 2,620.17.

The MSCI world equity index .MIWD00000PUS was down 3.2
percent for the day, its largest daily fall in a year, and hit
a fresh 2011 low.

European stocks .FTEU3 lost 3.3 percent.

Safe-haven assets like the Swiss franc, the yen and gold
have spiked this week as investors fret that governments
around the world are planning spending cuts at a time of
slowing global economic growth. Government moves are seen as
just temporarily reversing the trend.

The latest spate of economic data points to slowing demand
in the United States, while the euro zone grapples with the
spread of its debt crisis to Spain and Italy, where borrowing
costs have increased sharply.

The benchmark 10-year US Treasury note US10YT=RR rose
a little more than a full point to yield 2.50 percent, a level
not seen since early November 2010.

The European Central Bank kept interest rates unchanged on
Thursday, but traders said the central bank has been buying
bonds of peripheral euro-zone countries in an effort to keep
rates lower.

German Bunds gained, while Italian and Spanish government
bond yields rose in volatile trade on Thursday, after a euro-
zone monetary source said the European Central Bank was only
planning to buy Portuguese and Irish bonds. For more see
[ID:nR1E7IF024].

Markets were unconvinced the ECB bond buying will be
effective in stopping contagion and some were disappointed
that Italian and Spanish bonds, whose yields climbed above 6
percent recently, were not the target of the purchases.

It wasnt a unanimous decision to (buy bonds). (ECB
President Jean-Claude) Trichet looked really uncomfortable
saying it, one trader said.

The market, obviously, dismissed it pretty rapidly,
another trader said.

Brent LCOc1 fell more than 3 percent and US crude
CLc1 lost 4.8 percent, or $4.51 to $87.42 a barrel. Copper
prices CMCU3 dropped 1.8 percent.
(Additional reporting by Julie Haviv, Marius Zaharia and
Emelia Sithole-Matarise; Editing by Jan Paschal)

BUENOS AIRES (Dow Jones)–Argentina’s stocks on Thursday posted their biggest drop in nearly two years and government bonds dipped amid deep losses on global financial markets.

The benchmark Merval stock index closed 6% lower at 3109.86 points, its lowest close since Jan. 1 and the biggest drop in percentage terms since late 2009. Thursday’s decline brought the Merval’s losses to 11.7% for the year.

Volume totaled 106.9 million pesos ($25.8 million), nearly double the average daily volume observed during the last 12 months.

The Global X FTSE Argentina 20 ETF, which tracks shares of Argentine companies listed on international markets, …