By Agency Reporter

Thursday, 10 Feb 2011

Stocks fell, sending emerging markets down for a fifth day, amid concern that accelerating inflation would push up borrowing costs.

Bloomberg News reported that the MSCI Emerging Markets Index lost 1.4 per cent in New York to extend its longest slump since November.

The Standard & Poor’s 500 Index decreased by 0.4 per cent in a retreat from its highest close in about two years, while European shares extended losses as Ireland said it would postpone planned capital injections into banks.

The dollar Index lost 0.3 per cent and 10-year Treasury yields fell from the highest level since May.

Inflation expectations are increasing around the world after China’s central bank raised interest rates by 0.25 percentage point and United Kingdom food prices rose at the fastest pace in 19 months in January.

Federal Reserve Chairman Ben Bernanke gave no indication that he planned to scale back a $600bn plan to boost the economy after two regional Fed bank presidents said rising prices were a threat.

“Global inflation seems to be the major theme,” said Mr. Barry Knapp, Head of Equity Strategy for Barclays Plc in New York. “The risk is increasing in a lot of the emerging markets,” he said.

“In the United States, even as some forward yield curves have started to price in a tighter policy going forward, the risk of inflation is overblown. Fixed income volatility has increased,” he added.

The difference between yields on two-year and 10-year Treasury notes climbed by two basis points to 291 basis points, the highest in a year.

The so-called yield curve is considered a gauge of investors’ expectations for future inflation and economic growth. Declines in 10-year notes on Wednesday came before an auction of $24bn of the securities.

The MSCI Emerging Markets Index has declined by 3.4 per cent this year, compared with a five per cent rally in the MSCI gauge for developed countries, as central banks from China to India and Brazil raised borrowing costs.

The Shanghai Composite Index retreated by 0.9 per cent as trading resumed, following a week- long holiday for the Lunar New Year. Benchmark stock gauges in India, South Korea, Thailand, Indonesia and Hungary slid by more than one per cent.

The S&P 500 retreated from the highest level since June 2008 and its most expensive price-to-earnings valuation in seven months at almost 16 times reported operating earnings, according to data compiled by Bloomberg.

Exxon Mobil Corporation lost one per cent to help send energy companies to the biggest drop among 10 groups in the S&P 500. Wells Fargo & Company, the biggest US home lender, lost 2.7 per cent after Chief Financial Officer, Mr. Howard Atkins, retired.

Walt Disney Company and Coca-Cola Company led the Dow Jones Industrial Average higher after sales topped estimates.

About 74 per cent of the 319 companies in the S&P 500 that have reported quarterly results since January 10 have topped analysts’ per-share profit predictions, according to data compiled by Bloomberg.

Trading in NYSE Euronext was halted pending the release of news. The operator of the New York Stock Exchange was in advanced talks to merge with Deutsche Boerse AG, according to two people familiar with the situation, who declined to be identified because the talks are private.

 

Source: Punch