U.S. Stocks Drop as Savings Rate Hits 15-Year High, Oil Falls


June 26 (Bloomberg) -- U.S. stocks fell, giving the Standard & Poor’s 500 Index the first two-week decline since March, after the highest American savings rate in 15 years spurred concern that consumer spending will slow and oil retreated. The dollar dropped after China’s central bank reiterated a call for a worldwide currency.

Exxon Mobil Corp. and Tesoro Corp. dropped as crude oil futures lost 1.5 percent to $69.16 a barrel. The Russell 2000 Index of so-called small-cap companies added 0.8 percent as investors placed bets on the annual revision of stock weightings, to be completed after the close of trading today.

The S&P 500 decreased 0.2 percent to 918.90 at 4 p.m. in New York. The Dow Jones Industrial Average fell 34.01 points, or 0.4 percent, to 8,438.39. The dollar slumped 0.7 percent against the currencies of six trading partners as China sought to replace it.

“The magnitude of that savings rate may have gotten some folks by surprise,” said Philip Orlando, who helps manage $409 billion as chief equity market strategist at Federated Investors Inc. in New York. Economic and earnings growth is “potentially not going to be as robust as some were thinking. That’s weighing on stocks.”

While the stock market has rebounded since March on optimism the deterioration in the global economy will slow, U.S. business activity is probably contracting for a fourth consecutive quarter, according to economists’ estimates. The S&P 500, which advanced 36 percent in 3 1/2 months through yesterday, has fallen 0.3 percent since June 19.

$1.95 Trillion
The Dollar Index fell 0.7 percent to 79.83. The restatement of Governor Zhou Xiaochuan’s proposal in March added to speculation that China will diversify its currency reserves, the world’s largest at more than $1.95 trillion. Chinese investors, the biggest foreign owners of U.S. Treasuries, reduced holdings by $4.4 billion in April to $763.5 billion after Premier Wen Jiabao expressed concern about the value of dollar assets.

“Long-term concern about the dollar is something globally we’re all worried about,” said Eric Teal, who oversees $5 billion as chief investment officer at First Citizens Bank in Raleigh, North Carolina.

Energy companies in the S&P 500 declined 1 percent as a group, the most among 10 industries. Exxon slumped 1.2 percent to $69.05. Tesoro decreased 1.9 percent to $12.77. Crude oil dropped after the Commerce Department said the savings rate among Americans rose to a 15-year high of 6.9 percent.

‘Deflationary Bias’
The income and spending data “reflects a deflationary bias in the economy,” said Kevin Caron, a Florham Park, New Jersey- based money manager at Stifel Nicolaus & Co. “Why pay 18 times earnings for an economy with a deflationary burden on its shoulders?”

The 40 percent rally in the S&P 500 from March 9 through June 12 pushed its valuation to almost 17 times its companies’ estimated operating earnings over the coming year, the highest since the index peaked in October 2007. The valuation fell to under 10 times estimated profit in November 2008.

The benchmark index for U.S. stock options fell a fourth day to the lowest since Sept. 12, the last session before Lehman Brothers Holdings Inc. filed for the biggest bankruptcy in U.S. history. The VIX, as the Chicago Board Options Exchange Volatility Index is known, retreated 1.6 percent to 25.93. The index, which measures the cost of using options as insurance against declines in the S&P 500, is down from a record 80.86 in November yet above its 20.18 average over its 19-year history.

Quarterly profits at the 495 companies in the S&P 500 that have reported results since April 7 dropped 32 percent on average, according to Bloomberg data. Analysts expect annual earnings in the measure to decline 15 percent before rebounding 22 percent in 2010, estimates compiled by Bloomberg show.

Bigger Loss
KB Home fell the most in the S&P 500, sliding 9.1 percent to $13.42. The Los Angeles-based homebuilder that targets first- time buyers reported a second-quarter net loss that was 53 percent bigger than the average analyst estimate, according to Bloomberg data.

Micron Technology Inc. dropped 3.8 percent to $5.10. The biggest U.S. maker of computer-memory chips said its third- quarter net loss widened as slowing electronics demand and an industry glut kept prices below the cost of production.

UBS AG fell 5.2 percent to $12.30. The European bank with the biggest losses from the credit crisis raised about 3.8 billion Swiss francs ($3.5 billion) by selling shares and said it expects a second-quarter loss.

New Equity
Led by financial companies seeking to rebuild balance sheets eroded by rising delinquency rates on mortgage-backed and other forms of debt, U.S. companies are creating new equity at the fastest pace on record, causing future earnings to be divided among a larger number of shares. During the second quarter, 195 public companies have raised $91.9 billion by selling additional shares.

The cost of borrowing dollars for three months in London, called the London interbank offered rate, or Libor, declined to 0.598 percent from 0.601 percent, extending its decline this year to 0.83 point. The rate, a benchmark for about $360 trillion of financial products around the world, peaked at 4.82 percent on Oct. 10 following the collapse of Lehman Brothers Holdings Inc. on Sept. 15.

Palm Inc. surged 16 percent to $16.22. The maker of the new Pre phone reported a smaller fourth-quarter loss than analysts estimated after sales fell less than predicted.