The S&P index had risen for two straight weeks for the first time since July, riding a wave of euphoria built on optimism that European leaders had a newfound commitment to tackle a crisis that threatened financial stability and global growth.The rapid rally left the market susceptible to swift declines. German Finance Minister Wolfgang Schaeuble, speaking of an October 23 European Union summit on the debt crisis, tempered enthusiasm, saying, “we won’t have a definitive solution this weekend.”U.S. bank earnings also contributed to the selling pressure. Wells Fargo & Co shares fell 8.4 percent to $24.42 after the U.S. lender financial results fell short of expectations.The KBW Bank index lost 3.9 percent.”The German Finance Minister basically came out and sort of ruined the expectation that a grand plan was coming along, that some sizable fund was being put together to recapitalize European banks,” said Stephen Massocca, fund manager with Wedbush Morgan in San Francisco.”Depending on the development there, we could technically get back down to the low end of the trading range, which is about 1,100 on the S&P.”With that in mind, investors rushed to seek protection in the options market against losses. The CBOE Volatility index VIX, Wall Street’s so-called fear gauge, rose 18.2 percent to 33.39, its highest one-day jump since August.The VIX is a 30-day risk forecast of stock market volatility conveyed by S&P 500 index options; it generally moves inversely to the S&P benchmark.The Dow Jones industrial average was down 246.58 points, or 2.12 percent, at 11,397.91. The Standard & Poor’s 500 Index was down 23.72 points, or 1.94 percent, at 1,200.86. The Nasdaq Composite Index was down 52.93 points, or 1.98 percent, at 2,614.92.Trading volume was light, with just 6.87 billion shares exchanging hands on the New York Stock Exchange, NYSE Amex and Nasdaq for the day, well below the year’s daily average so far of about 8 billion.Events in Europe overshadowed a $21 billion deal by Kinder Morgan Inc to buy rival El Paso Corp, combining the two largest natural gas pipeline operators in North America in a huge bet on the fast-growing market for that fuel.El Paso’s shares surged 24.8 percent to $24.45 and Kinder Morgan shares jumped 4.8 percent to $28.19.Shares of Citigroup Inc fell 1.7 percent to $27.93. The bank reported higher third-quarter earnings as it set aside less money to cover bad loans and recorded an accounting gain available to banks in turbulent markets.After the closing bell, IBM reported third-quarter revenue that met expectations. The tech company ended 2 percent lower at $186.59 during regular trading, but in after-hours action IBM shares fell 3.6 percent more to $179.81 after reporting results.Of the 45 companies in the S&P 500 that have reported earnings, 62 percent have beaten analyst expectations, according to Thomson Reuters data.Declining stocks outnumbered advancing ones on the NYSE and the Nasdaq by a ratio of about 5 to 1.
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* Brent settles above $114 on optimism over debt end game* Euro extends gains against dollar after U.S. retail data* Bonds succumb to rising equity markets, retail salesBy Herbert LashNEW YORK, Oct 14 (Reuters) - Global stocks gained and the
euro rose on Friday over growing optimism that Europe is on
track to resolve its festering sovereign debt crisis and after
data showed a surprising surge in U.S. retail sales.Group of 20 finance ministers and central bank chiefs began
two days of talks in Paris on Friday, which investors hope will
provide a basis for a draft plan in time for a European Union
summit on Oct. 23.The benchmark S&P 500 was on track for back-to-back weekly
gains for the first time since early July, and gold posted its
biggest weekly rise in six weeks.The euro rose 0.7 percent to $1.3872.”Right now we are trading on hopes of a decisive policy
response,” said Jens Nordvig, head of G10 FX strategy at Nomura
Securities in New York.But even though investors do not expect a comprehensive
strategy to Europe’s debt crisis to come out of the meeting,
there was growing optimism that the meeting would put Europe on
track for a solution. In addition, data that U.S. retail sales
grew by 1.1 percent in September, the fastest pace in seven
months, boosted investor sentiment on the economy’s prospects.The data, coupled with earnings from Google late
Thursday that trounced analysts’ expectations, led investors to
shrug off a rating downgrade on Spain by Standard & Poor’s and
an unexpected slump in U.S. consumer confidence in October.The retail sales data also was expected to help lift
forecasts for growth in gross domestic product even though a
resolution to Europe’s debt crisis was the real focus for
investors.”The data hasn’t mattered for a couple of months. It
matters here and there, but most of what today is, is Europe,”
said John Canally, investment strategist for LPL Financial in
Boston.”Just getting the details of this plan out there and making
the details work is the most important thing,” Canally said.Stocks on Wall Street rose more than 1 percent, while
shares in Europe rose almost 1 percent.The Dow Jones industrial average was up 131.62
points, or 1.15 percent, at 11,609.75. The Standard & Poor’s
500 Index was up 17.03 points, or 1.41 percent, at
1,220.69. The Nasdaq Composite Index was up 38.47
points, or 1.47 percent, at 2,658.71.Google shares jumped 5.8 percent to $591.43 after the
Internet search giant said robust growth at its mobile business
and a strong emerging market lifted its third quarter, allaying
worries that a slowing Europe was hurting business.In Europe, the FTSEurofirst 300 index of top
regional shares closed up 0.95 percent at 975.52 points, while
MSCI’s all-country world equity index gained
1.1 percent.The increased appetite for risk also lifted the price of
crude oil more than 3 percent and pushed down the U.S. dollar
and government debt, usually beneficiaries of bearish news.”The outlook is good and getting better by the day. Risk
is back on,” said Chris Rupkey, chief financial economist at
Bank of Tokyo-Mitsubishi UFJ in New York.Crude oil prices were propelled by the hopes that European
leaders would soon agree on how to curtail the euro zone debt
crisis.Early hints that China may loosen credit as inflation cools
also boosted gains while investors mostly ignored a preliminary
reading of U.S. consumer sentiment that sagged to 57.5 from
59.4 in September, a Thomson Michigan
survey showed.November Brent crude settled up $3.57 at $114.68 a
barrel on the day of its expiry. Brent crude for December
delivery rose $3.26 to $112.46 a barrel.U.S. crude settled up $2.57 at $86.80 a barrel.U.S. Treasury debt prices fell.The benchmark 10-year U.S. Treasury note was
down 15/32 in price to yield 2.23 percent.Spot gold prices rose $14.24 to $1,680.40 an ounce.U.S. gold futures for December delivery settled up
$14.50 at $1,683 an ounce.
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* Losses on bonds, recaps could hit fragile economiesBy Philipp Halstrick and Alexandra HudsonFRANKFURT/BERLIN, Oct 13 (Reuters) - Deutsche Bank and other top European banks would need to raise
billions of euros to meet a 9 percent core capital target and
withstand hefty losses on sovereign bonds, leading to warnings
of another damaging credit crunch.Germany’s flagship lender would need 9 billion
euros in fresh equity if a 9 percent core Tier 1 capital ratio
is imposed, two people with direct knowledge of the bank’s
finances said on Thursday.Deutsche Bank declined to comment, but in separate remarks
the bank’s chief executive Josef Ackermann said it would do all
it could to avoid a forced recapitalisation and added it had
enough funds of its own to cope with a crisis.Euro zone leaders are insisting that banks
recapitalise, in an attempt to halt the euro zone crisis and
shore up investor confidence.The European Banking Authority, which is assessing banks’
capital needs, is likely to mark down the value of banks’
holdings of sovereign debt to market value and require lenders
to hold a 9 percent core Tier 1 capital ratio, an EU source told
Reuters.That would leave European banks with a capital shortfall of
about 260 billion euros, based on a two-year recession and
applying current market prices to holdings of Greek, Irish,
Italian, Portuguese and Spanish government bonds, according to
Reuters Breakingviews data.Royal Bank of Scotland , Unicredit ,
Deutsche Bank, BNP Paribas and Societe Generale
would all need over 12 billion euros based on that
data. Some 67 of 90 banks tested would need capital.The high bar may not be based on stricter new Basel III
capital rules and a contraction in balance sheets this year and
retained earnings could also reduce the amount needed for
several banks, however.Analysts at Credit Suisse said a 9 percent capital level
would leave banks in need of 220 billion euros, with RBS,
Deutsche Bank and BNP Paribas most in need.Banks are already attempting to sell assets and shrink their
loan books to lift capital ratios. They could also be told to
cut pay for staff and dividends for investors to preserve cash.But those demands could force them to cut lending
to companies and risk derailing economic recovery, bankers have
warned.”We need to find the right balance between stricter
regulation of the financial sector and the impacts these have on
the economy as a whole,” Deutsche Bank’s Ackermann said.Ackermann, Germany’s most high-profile banker, said it was
doubtful whether a blanket recapitalisation of European banks —
a measure being considered by politicians in Germany and France
— would help solve the sovereign debt crisis.”It is not the capital position which is the problem, but
the fact that sovereign debt as an asset class has lost its
risk-free status,” Ackermann told a conference in Berlin. “The
key to the solution is therefore in the hands of governments, to
restore confidence in the solidity of state finances.”Deutsche Bank’s obligation to retain Greek bonds had cost it
400 million euros this year, he said.The capital plans are subject to change, and face intense
lobbying from banks and some countries who say it is too harsh.
Proposals are expected to be presented to a meeting of European
leaders on Oct. 23.
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