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U.S. stocks slumped, sending the Standard & Poor’s 500 Index down for a sixth straight day, as the cost of insuring European government debt against default rose to a record on concern the region’s crisis is worsening. The debt crisis that began more than two years ago now risks engulfing Germany. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments rose to an all- time high as Germany failed to find buyers for 35 percent of the bonds offered at an auction.
Equities also fell after reports indicated more signs of a slowing American economy. Consumer spending rose less than forecast in October, while orders for durable goods sank. More Americans than forecast filed for unemployment benefits last week. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for November rose to 64.1, less than economists estimated.
All 10 groups in the S&P 500 fell as commodity and financial shares had the biggest declines. Bank of America lost 4 percent to $5.16, while Citigroup decreased 4.3 percent to $23.42. Both are among lenders that may have to temper plans to raise dividends and buy back stock next year as the Federal Reserve toughens capital tests for the biggest U.S. banks.
The Fed imposed a tougher capital test on the 31 largest U.S. banks yesterday, releasing the criteria for measuring their wherewithal if the U.S. economy sours and major trading partners default on their debt. Lenders need to prove they have the capital to withstand a “severe” U.S. recession with 13 percent unemployment and an 8 percent decline in gross domestic product before they can increase dividends or repurchase shares.
Raw material shares had the biggest decline in the S&P 500 among 10 industries, dropping 2.6 percent. JPMorgan Chase & Co. downgraded commodities to “underweight,” citing policy failures in the U.S. and Europe. Alcoa Inc. (AA) slid 3.5 percent amid concern about slower demand for commodities as a preliminary gauge indicated China’s manufacturing shrank by the most since March 2009. Halliburton Co. fell 4 percent to $32.35.
Deere & Co. rallied 3.7 percent as the largest farm-equipment maker reported profit that topped analysts’ projections. The company, led by Chief Executive Officer Sam Allen, has benefited as U.S. farmers used cash from rising corn and soybean prices to buy high-horsepower equipment. U.S. farm income will jump 31 percent this year to a record $103.6 billion, the U.S. Department of Agriculture said in August.
Boston Scientific Corp. rose 2.5 percent to $5.44 after gaining U.S. approval for a new version of its drug-coated heart stent. The second-biggest heart-device maker by revenue will immediately begin manufacturing and selling the Promus Element stent system, the Natick, Massachusetts-based company said in a statement late yesterday.
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