U.S. Stocks Retreat for a Fourth Week on European Debt Concern

May 28, 2011, 12:23 AM EDT By Nikolaj Gammeltoft

May 28 (Bloomberg) -- U.S. stocks fell a fourth straight week, the longest slump in 15 months, as concern Europe’s debt crisis is worsening overshadowed rallies by commodity producers and a Group of Eight forecast for faster economic growth.

The S&P 500 pared its loss yesterday, gaining 0.4 percent, after G-8 leaders said a strengthening economy will help nations cut debt. Utilities, health-care stocks and household-products makers fell the most among 10 industries in the index, losing 1 percent or more, as investors sold stocks least-dependent on economic growth. Fuel and metal producers gained the most, adding 2 percent. Luxury retailer Tiffany & Co. surged 10 percent after raising its profit forecast.

The S&P 500 fell 0.2 percent to 1,331.10 this week. It dropped throughout May after reaching an almost three-year high on April 29. The Dow Jones Industrial Average lost 70.46 points, or 0.6 percent, to 12,441.58 this week.

“The market is seesawing back and forth, trying to assess these spectacular risks which live on the front page of the news and weigh them against strong corporate profitability,” said Stephen Wood, the New York-based chief market strategist for Russell Investments, which manages about $161 billion.

The S&P 500 has retreated 2.4 percent this month, fueled by concern Greece is struggling to avoid default and weaker-than- forecast economic data, including a decline in U.S. housing starts. Before this week, the advance since the S&P 500’s 2011 low on March 16 was led by health-care stocks, followed by consumer companies that sell necessities, telephone networks and utilities, as investors sought havens. The trend reversed this week as commodity producers surged.

Debt Crisis

Stocks decreased on May 23, giving the S&P 500 its biggest drop in two months, amid concern that the economic rebound is slowing and Europe’s debt crisis is worsening. The Federal Reserve Bank of Chicago’s gauge of economic activity unexpectedly dropped below zero in April, meaning the national economy is experiencing below-trend growth.

In Europe, Spanish Prime Minister Jose Luis Rodriguez Zapatero’s Socialist party suffered its worst defeat in more than 30 years in local elections amid a backlash over austerity measures. Italy’s credit-rating outlook was revised to negative from stable by S&P on May 20. Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said the International Monetary Fund may not release its portion of a 12 billion-euro ($17.2 billion) aid payment to Greece next month.

Utilities in the S&P 500 declined 1.7 percent, the most among 10 industries. PG&E Corp., a power company based in San Francisco, dropped 3.8 percent to $43.10. Integrys Energy Group Inc. slumped 3.2 percent to $51.97.

Medco, Hormel

Health-care shares in the S&P 500 slumped 1.2 percent, led by Medco Health Solutions Inc.’s 8.8 percent retreat to $58.66. CVS Caremark Corp. won a $3 billion contract to provide pharmacy benefits to federal employees, winning the deal away from Medco. Medtronic Inc. fell 4.5 percent to $40.31.

The so-called consumer staples group in the S&P 500 lost 1 percent. Hormel Foods Corp., which makes cold cuts and packaged foods, fell 3.5 percent to $29.03. Safeway Inc., a grocer, declined 2.7 percent to $24.52.

S&P 500 gains were led by raw-material and energy stocks, which advanced more than 2 percent. AK Steel Holding Corp. rallied 8.2 percent to $15.29. Freeport-McMoRan Copper & Gold Inc. increased 6.9 percent to $51.73. Exxon Mobil Corp. climbed 1.3 percent to $82.63.

Government Contracts

Computer Sciences Corp. sank 10 percent to $40.04. The provider of technology services to companies and U.S. government agencies gave a fiscal full-year forecast that missed analysts’ estimates. The company has been hurt by delays in federal contract decisions and is working to revise its contract with the U.K. government’s National Health Service.

American International Group Inc. sank 6.2 percent to $28.88. The Treasury sold 200 million shares at $29 each, compared with the most-recent closing price of $29.46. The government, which retains a majority stake, must sell shares at an average of about $28.73 to recover a $47.5 billion investment.

LinkedIn Corp. declined 5.1 percent to $88.32. The first major U.S. social-media company to go public more than doubled following its initial public offering last week, prompting investors such as Gamco Investors Inc.’s Lawrence Haverty to say the stock is overvalued.

The S&P 500 rose yesterday, finishing a three-day rally, after consumer sentiment increased to a three-month high in May and the Group of Eight leaders said that a strengthening global economy will pave the way to cuts in the debt built up during the recession that followed the 2008 financial crisis.

Europe vowed to fight its fiscal woes with “determination,” while President Barack Obama promised a “clear and credible” U.S. deficit-reduction strategy.

Tiffany rallied to its highest level since its May 1987 IPO, gaining 10 percent to $76.50 for the second-biggest increase in the S&P 500. The world’s second-largest luxury jewelry retailer raised its annual forecast as sales surged globally and recovered in earthquake-hit Japan.

--Editors: Nick Baker, Chris Nagi

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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