U.S. stock futures fall; S&P 500 poised for seven-day slump

Posted 11/25/11

LONDON - U.S. stock futures declined, indicating the Standard & Poor’s 500 Index will drop for a seventh day, as the euro area’s leaders grappled with how to contain their region’s debt crisis.

Citigroup Inc. lost 1.4 percent and Bank of America Corp. slid 0.4 percent in early New York trading.

Futures on the S&P 500 expiring next month slid 0.7 percent to 1,152 at 7:10 a.m. in New York. Dow Jones Industrial Average futures expiring the same month lost 66 points, or 0.6 percent, to 11,168. U.S. equity markets will reopen today after yesterday’s Thanksgiving break. Trading will end at 1 p.m. today. The S&P 500 has declined 4.4 percent so far this week.

“Over the next weeks and months, we are likely to see the future of the euro zone taking shape,” said Thomas Beevers, a fund manager at Newton Investment Management Ltd. in London, which has about $73 billion in client assets. “There is a chance that some countries, such as Greece, may choose to either default on their debts or leave. The remaining countries are likely to be forced, by pressure stemming from Germany, to enact fiscal-austerity measures and implement economic reforms. A much stronger union will emerge from the current crisis.”

German Chancellor Angela Merkel yesterday repeated her opposition to joint euro-area bonds, damping optimism that politicians will agree to use a potential remedy for the region’s woes. The S&P 500 has fallen 7.6 percent over the past six trading days, its longest slump since August.

Italian Bond Yields

Yields on two-year Italian notes rose to a euro-era record of 7.88 percent today. Spanish two-year notes slid, pushing the yield to more than 6 percent for the first time since the euro was created in 1999. The rate climbed as high as 6.09 percent.

“Nothing has changed in my position,” Merkel said yesterday at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France.

Fitch Ratings lowered Portugal’s long-term rating to BB+ from BBB- with a negative outlook, while Moody’s Investors Service cut Hungary’s foreign- and local-currency bond ratings to Ba1 from Baa3 yesterday.

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo urged euro-area politicians to take bold steps toward fiscal union to end the debt crisis, and said they should not rely on the ECB. European Union Economic and Monetary Affairs Commissioner Olli Rehn said it looks like contagion is spreading to core countries. S&P said yesterday Japan hasn’t made progress in tackling its debt load.

Bank Risk Soars

Debt-insurance costs for European financial companies jumped to the highest ever, with the Markit iTraxx Financial Index of default swaps linked to the senior bonds of 25 banks and insurers increasing 14 basis points to 359.

In China, a Dec. 1 report from the statistics bureau and the China Federation of Logistics and Purchasing will probably show manufacturing contracted in November for the first time since February 2009. The median estimate of economists polled by Bloomberg is for a reading of 49.8, compared with 50.4 in October, and below 50 which is the dividing line between expansion and contraction.

JPMorgan Chase & Co. strategist Thomas J. Lee yesterday lowered his estimate for where the S&P 500 will end the year by 8.5 percent, citing the recent decline in stocks. The median forecast still calls for an 8.9 percent climb to 1,265 from Nov. 23’s close, according to 12 strategists surveyed by Bloomberg News.

Barton Biggs, the hedge fund manager who reduced U.S. equity investments in September before the biggest monthly rally since 1991, said this week that he has cut bullish bets again on concern that the likelihood of a U.S. recession has increased.

Citigroup slid 1.4 percent to $23.18. Bank of America lost 0.4 percent to $5.12. Morgan Stanley slipped 0.6 percent to $12.95 in early New York trading.

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