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While you were sleeping: US consumer confidence drops, stocks follow

Wednesday 24th February 2010

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US consumer confidence unexpectedly tumbled to a 10-month low, dragging down stocks on Wall Street and weighing on the greenback as Americans fretted about job security.

The Conference Board’s confidence index fell to 46 this month, from 56.5 in January. Economists had expected a reading of 55, according to a Reuters survey.

Stocks fell and Treasuries advanced after the report, which showed perceptions of current conditions in the world’s biggest economy are at the lowest in 27 years, while Americans see fewer prospects of pay increases.

The Standard & Poor’s 500 Index fell 1.2% to 1094.88, the Dow Jones Industrial Average shed 0.8% to 10296.02 and the Nasdaq Composite declined 1.5% to 2209.19.

Aluminium producer Alcoa Inc. fell 3.2% to US$13.10, leading the Dow lower. Caterpillar, the heavy earth-moving equipment maker shed about 3% to US$56.30 and Microsoft fell 2.1% to US$28.14.

The yield on 10-year Treasury bonds fell 7 basis points to 3.72 while the 30-year yield dropped 7 basis points to 4.66%.

The yen and the dollar advanced against most major currencies as the consumer report spurred investors to eschew riskier or higher yielding assets. The euro also weakened after German business confidence fell for the first time in 11 months 

“It’s an abysmal consumer confidence number and the risk trade is under pressure as a result,” Brian Dolan, chief currency strategist at, told Bloomberg.

The yen strengthened to 90.05 per dollar from 91.14 yesterday while the euro sank to 121.87 yen from 123.92. The greenback gained to $1.3523 per euro from $1.3596. Weaker US consumer confidence stoked speculation that Federal Reserve Chairman Ben Bernanke will reiterate the central bank’s intention to keep interest rates near zero for an extended period when he addresses Congress on Wednesday in the US.

Richard Clarida, global strategic adviser at Pacific Investment Management Co., the world’s biggest bond fund manager, told Bloomberg Radio he doesn’t expect the Fed to raise interest rates “until 2011.”

The Federal Deposit Insurance Corp. reported a bigger deficit for its fund that protects bank customers against failures, while noting an increase in its list of ‘problem’ lenders to the most in 17 years.

The FDIC had 702 banks with $402.8 billion in assets on its confidential list at Dec. 31, up 27% from the third quarter.

In Europe, the UK’s FTSE 100 fell 0.7% to 5315.09, Germany’s DAX 30 declined 1.5% to 5604.07 and France’s CAC 40 shed 1.3% to 3707.06.Germany’s Commerzbank shed 6.5% after reporting a fourth-quarter loss and predicting a difficult 2010.

Greece’s four largest banks had their credit ratings cut by Fitch Ratings, in the wake of the nation’s economic crisis. The long-term ratings of Alpha Bank SA, EFG Eurobank, National Bank of Greece and Piraeus Bank SA were lowered one notch to BBB with a negative outlook.

Greece is still monitoring market conditions and hasn’t yet decided on the timing of its next bond sale, Petros Christodoulou, the chief of the public debt management agency, told Reuters.

The nation has borrowed 13 billion euros out of a total 53.2 billion it will need this year to plug a budget deficit amounting to 8.7% of gross domestic product and roll over maturing debt, Reuters reported.

Copper had the biggest decline in about three weeks as the decline in consumer confidence stoked concern demand for the metal used in everything from wires to plumbing will weaken.Copper futures for May delivery fell 2.5% to US$3.2465 a pound on the New York Mercantile Exchange.

Crude oil sank more than US$2 a barrel after the Conference Board report led traders to speculate that demand for fuel will slow as the world’s biggest economy recovers at a more tepid pace.

Crude for April delivery fell 1.8% to US$78.86 a barrel in New York. Gold for April delivery declined US$11.40 to US$1,101.70 an ounce.

There were some brighter spots in U.S. markets. Home Depot Inc., the home-improvement chain, climbed 1.9% to US$30.88, the biggest gain on the Dow, after reporting an increase in quarterly same-store sales and predicting stronger full-year trading as Americans increase spending on renovations.

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