GLOBAL MARKETS-US stocks slip after 4-year high; euro soars on ECB

NEW YORK: U.S. stocks fell on Tuesday as investors cashed in gains
after driving the S&P 500 index to its highest in four years, but
the euro rallied against the dollar on hopes the European Central Bank
will soon start buying Spanish and Italian bonds to contain the debt
crisis. Spanish borrowing costs fell and Portuguese government bond
yields slid to levels reached before Lisbon agreed to a bailout deal in
May 2011, with traders citing media reports that the ECB was drawing up
detailed plans about bond-buying.
The perception of declining
risks from the euro crisis has been a major factor behind stocks'
recent gains. Earlier in the session, the broad Standard & Poor's 500 Index climbed to its strongest intraday level since May 2008, before surrendering gains ahead of technical resistance.
"It's
not uncommon that you run into some resistance at new highs," said Jim
Paulsen, chief investment officer at Wells Capital Management in
Minneapolis. "Traders sort of play for a while to see which way the
market is ultimately going to resolve itself." Uncertainty remained
high and investors were concerned that the ECB's requirement that
troubled countries ask for help from the euro zone's rescue funds
before turning to the central bank may mean that the Spanish crisis
could get worse before it gets better.
Still, optimism over eventual ECB action bolstered sentiment.
"The
market has moved to the belief that (the ECB) is going to do whatever
it takes," said William Larkin, fixed-income portfolio manager at Cabot
Money Management in Salem, Massachusetts.
The Daily Telegraph, a
British newspaper, supported a report over the weekend in a German
magazine that the ECB planned to put a hard cap on Spanish and Italian
bond yields.
An ECB spokeswoman, asked about the Telegraph
story, referred to the ECB's statement on Monday, when it said it was
misleading to report on policy decisions that had not been made.
U.S. stocks closed lower. The Dow Jones industrial average ended down 68.06 points, or 0.51 percent, at 13,203.58.
The S&P 500 Index closed down 4.96 points, or 0.35 percent, at 1,413.17.
The Nasdaq Composite Index fell 8.95 points, or 0.29 percent, to 3,067.26.
The S&P 500 has risen 2.4 percent so far in August.
Volume
has been light as investors wait for central banks' meetings next
month, where policymakers are expected to take action to ease Europe's
debt crisis and boost the economy.
The MSCI global
share index gained 0.3 percent to 326.34 after hitting an intraday high
at 328.21, its highest level since early May.
The FTSEurofirst 300 index of European shares gained 0.4 percent to end at 1,109.55.
Yields
at a Spanish short-term debt auction fell on Tuesday, while Europe's
VSTOXX volatility index hit a one-month low, signaling a steady rise in
investors' appetite for risk.
Spanish 10-year bond yields
fell 10 basis points to 6.24 percent, with shorter-dated yields down as
much 16 basis points. Italian bond yields also dropped.
Portuguese 10-year yields fell 30 basis points on the day to 9.40 percent, the lowest level since April 20.
Portugal's original request for a bailout was on April 6, 2011; the deal was announced on May 3 of last year. EURO RALLIES
Financial
markets have been on a red-hot run on hopes that the new urgency in
Europe to overcome the 2-1/2-year debt crisis may let Greece remain in
the euro zone and keep the 17-member bloc from unraveling. Greek Prime Minister Antonis Samaras will meet German Chancellor Angela Merkel, French President Francois Hollande
and Eurogroup chief Jean-Claude Juncker in the coming days to try to
secure more help from the European Union, International Monetary Fund
and ECB, even though Greece has fallen behind on its debt-cut targets.
Samaras
is expected to lobby for a two-year extension of austerity measures to
soften their impact, though he is unlikely to win major concessions.
The euro climbed 1 percent to $1.2462, while the dollar slipped 0.2
percent to 79.24 yen.
U.S. Treasury debt prices erased losses as
the major U.S. stock indexes gave up early gains. The benchmark 10-year
U.S. Treasury note was up 2/32 in price to yield 1.8036 percent.
Brent
crude oil rose 94 cents to settle at $114.64 a barrel. It has jumped
from below $90 at the end of June, propelled higher by maintenance in
the North Sea and increased fear of military conflict between Iran and
Israel.
U.S. crude added 71 cents to settle at $96.68 per barrel.
Gold
rallied to a 3-1/2 month high as the U.S. dollar weakened, while
platinum hovered just below a two-month peak hit in the previous
session as concerns over supply from top producer South Africa festered.
Spot gold hit a high of $1,641.20 an ounce. It was last at $1,637.70 an ounce. - Reuters