By Stephen Kirkland and Rita Nazareth
Jan. 23 (Bloomberg) -- U.S. stocks fell, erasing early gains, as investors weighed developments in Europe’s efforts to tame its debt crisis and debated whether a three-week rally in equities was warranted. The euro approached its strongest level of 2012, while Treasuries fell and commodities advanced.
The S&P 500 fell 0.3 percent to 1,311.79 at 12:29 p.m. in New York after rallying as much as 0.5 percent. The Dow Jones Industrial Average erased gains after earlier rising above its highest closing level since May. The Stoxx Europe 600 Index added 0.5 percent and the euro appreciated 0.6 percent to $1.3012. The Greek two-year note yield dropped to 176 percent after surging to more than 200 percent. Oil added 1 percent and copper advanced 1.4 percent. Ten-year U.S. Treasury note yields increased three basis points to 2.06 percent.
U.S. equities turned lower after rallying in the first hour of trading amid optimism European finance ministers will make progress in debt-crisis discussions. Germany and France said talks between Greece and bondholders were making progress, while a government official in Berlin said Germany may be open to combining Europe’s two bailout mechanisms and boosting their funding limit.
“It’s been a brisk run in risk assets this year,” Stephen Wood, who helps oversee $137.6 billion as the New York-based chief market strategist for Russell Investments, said in a telephone interview. “The question is: would the degree of market movement be consistent with fundamentals? On the U.S. side, you have an improving economy. That is competing with the other side of the Atlantic, which is a source of volatility and uncertainty.”
The S&P 500 turned lower today after reaching 1,322.28, a level close to a trendline drawn from the index’s all-time high in 2007 and its peak last year in April, as well as a “downtrend” connecting its May and July highs, according to Ari Wald, a New York-based technical strategist at Brown Brothers Harriman & Co.
The index’s 14-day relative strength index, which measures the degree that gains and losses outpace each other, has stayed above 65 since Jan. 17, matching the longest streak since February, according to Bloomberg data. Some technical analysts consider RSI readings above 70 a sign that stocks have risen too far, too fast.
“Overextended conditions leave the index vulnerable to short-term consolidation,” Wald said in a note today.
The S&P 500 has climbed 4.3 percent in 2012, the best start to a year since 1997, after companies from Goldman Sachs Group Inc. to Union Pacific Corp. and EBay Inc. topped analysts’ profit projections.
Procter & Gamble Co., Cisco Systems Inc. and McDonald’s Corp. lost at least 1.4 percent to lead the Dow’s decline today.
Barton Biggs, who increased bets on U.S. equities before the Standard & Poor’s 500 Index rallied last month, said he remains bullish even amid concerns over progress in solving Europe’s debt crisis.
Two Types of Terror
“I’m terrified I’m not long enough if we’re going to have a strong rally here, which we could,” he said during an interview on Bloomberg Television’s “In the Loop” with Betty Liu today. Biggs said his net-long position in equities is 65 percent. At the same time, “I’m terrified I’m too long if the apocalypse is coming in Europe,” he said.
Minefinders Corp., operator of the Dolores gold and silver mine in Mexico, jumped 25 percent after Pan American Silver Corp. agreed to acquire the company for about C$1.5 billion.
European Stocks, Euro
Two shares gained for each that fell in the Stoxx 600. Outokumpu Oyj, Finland’s biggest producer of stainless steel, jumped 18 percent as it held discussions that may lead to a merger with a unit of ThyssenKrupp AG.
The euro advanced 0.5 percent against the yen. Negotiators for Greece and the Institute of International Finance broadly agreed on the terms of a debt swap over the weekend, FT Deutschland says, citing unidentified government officials.
IMF Managing Director Christine Lagarde said that efforts to secure additional IMF resources of $500 billion are “on the optimist side.” Lagarde made her comments during a panel discussion in Berlin today.
The yield on the 10-year Greek bond dropped 59 basis points to 33.57 percent. The German 10-year bund yield rose five basis points to 1.98 percent as the government sold 2.54 billion euros ($3.29 billion) of 12-month bills.
The 10-year U.S. Treasury note yield rose four basis points to 2.06 percent before the government auctions $56 billion of three- and six-month bills.
Oil rose to $99.41 a barrel. Dutch Foreign Minister Uri Rosenthal said EU foreign ministers adopted sanctions that will ban imports of crude and oil products from Iran as of July 1. The S&P GSCI gauge of 24 commodities increased 0.9 percent. Nickel, used to make stainless steel, climbed 1 percent in London, the third consecutive gain.
The MSCI Emerging Markets Index rose 0.5 percent, advancing for a fifth day, the longest run of gains in seven weeks. Markets including China, South Korea and Taiwan were shut today for the Lunar New Year holiday.
--With assistance from Lynn Thomasson in Hong Kong and Claudia Carpenter, Andrew Rummer, Daniel Tilles and Sarah Jones in London. Editors: Stephen Kirkland, Michael P. Regan
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