By Rita Nazareth and Cordell Eddings
U.S. stocks fell, halting a three-day rally, and the euro erased earlier gains versus the dollar after Fitch Ratings downgraded the government debt of Spain and Italy. Treasuries retreated, pushing 10-year note yields toward their biggest weekly increase since July.
The Standard & Poor’s 500 Index slipped 1 percent to 1,153.44 at 12:34 p.m. in New York after rebounding more than 8 percent from a one-year intraday low on Oct. 4. The euro lost 0.2 percent to $1.3405 after climbing as much as 0.7 percent. The 10-year note yield increased nine basis points to 2.08 percent and has climbed 16 points in five days.
Faster-than-forecast growth in U.S. employment was overshadowed by concern Europe’s debt crisis will worsen. Italy had its foreign and local currency long-term issuer default ratings cut to ‘A+’ from ’AA-,’ while Spain had the same set of ratings cut to ‘AA-’ from ‘AA+.’ The outlook for both is negative.
Government data showed payrolls climbed by 103,000 workers, topping the median forecast in a Bloomberg News survey of economists for a rise of 60,000. The data followed reports earlier this week showing faster-than-estimated growth in manufacturing, construction and service industries, improving retail sales and signs that European leaders were stepping up efforts to tame the region’s sovereign debt crisis.
The 30-year Treasury bond’s yield climbed nine basis points to 3.04 percent and is up 12 points the this week. Two-year yields climbed one basis point to 0.28 percent, up three points on the week.
“We saw a positive surprise in payrolls and the market has to respect that and push yields higher on the optimism, but no one is too excited about the data given the uncertainty in Europe,” said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas SA, one of the 20 primary dealers obliged to participate in U.S. debt offerings. “The uncertainty isn’t going away anytime soon.”
The S&P 500 rebounded more than 8 percent from a one-year intraday low on Oct. 4. The benchmark index sank 14 percent in the third quarter and this week came within 1 percent of extending its decline from its April peak to 20 percent on a closing basis, the common definition of a bear market. The slump pushed the index to 12 times reported earnings, the cheapest valuation level since 2009, according to data compiled by Bloomberg.
The S&P GSCI commodities index is poised to snap a streak of four straight weekly declines.
The government jobs data also showed hours and earnings both increased and revisions to previous reports added a total of 99,000 jobs to payrolls in July and August. The jobs report last month showed no gain in non-farm payrolls for August.
“This is yet another data point suggesting that the U.S. is not moving toward recession any time soon,” Richard Skaggs, senior equity strategist at Loomis Sayles & Co. in Boston, which manages more than $150 billion, said in a telephone interview. The revisions to prior months “were significant,” he said. “Last month, the unchanged number really sent stocks for a loop.”
The rate by which data on the economy has been trailing forecasts has been decreasing since June, according to the Citigroup Economic Surprise Index. The U.S. gauge, which fell below zero on April 29 as the S&P 500 was peaking, has climbed from a low of minus-117.2 on June 3 to minus-14.7.
Alcoa Inc., the largest U.S. aluminum producer, will mark the unofficial start of the earnings-reporting season when it reports results on Oct. 11. Third-quarter profits for S&P 500 companies are projected to have grown 13 percent, according to analyst forecast compiled by Bloomberg, down from an estimate of 17 percent when the index traded at a three-year high at the end of April.
The Stoxx Europe 600 Index rose 0.8 percent to extend its weekly gain to 2.6 percent. Gauges of energy producers and auto companies climbed more than 1.7 percent to lead gains among 19 industries.
European markets closed before Fitch downgraded Italy and Spain.
The yield on 10-year Italian bonds rose seven basis points to 5.49 percent. The nation said it plans to sell securities maturing between 2016 and 2025 on Oct. 13. Spanish yields fell two points to 4.97 percent.
German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet in Berlin on Oct. 9 to discuss Greece’s debt problems as the nation edges closer to default. It will be their eighth one-on-one summit in 20 months.
The BSE India Sensitive Index, or Sensex, added 2.8 percent after Citigroup raised its rating on the nation to “neutral.” The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong advanced 3.7 percent. Benchmark indexes gained more than 2.6 percent in Russia and South Korea.