US stocks fall on EU sanctions as bonds rise before Fed decision

The yield on 10-year treasuries declined 2 basis points to 2.47% before a Federal Reserve policy decision. Photo: AFP

New York: US stocks fell as tougher European Union sanctions against Russia overshadowed a rally in phone shares and better-than-estimated earnings. Bonds increased before a Federal Reserve policy decision.

The Standard & Poor's 500 Index fell 0.2% at 11:41 am in New York, after earlier climbing 0.3%. The Stoxx Europe 600 Index rose 0.3%, trimming an earlier rally of as much as 0.6%. The yield on 10-year treasuries declined 1 basis point to 2.47%. Germany's 10-year yield fell 3 basis points to an unprecedented 1.117%, and rates from Finland to Italy also dropped to records. The ruble depreciated 0.1% while gold reversed an earlier advance.

The EU curbed Russia's access to bank financing and advanced technology in its widest-ranging sanctions yet over the Kremlin's backing of the rebellion in eastern Ukraine. Equities rose earlier as Windstream Holdings Inc. led a rally in phone shares and reported profit that beat estimates. Fed policy makers start a two-day meeting on Tuesday as data showed consumer confidence increased to the highest since 2007.

'Geopolitical risk remains a risk,' Dan Veru, chief investment officer at Fort Lee, New Jersey-based Palisade Capital Management, said by phone. The firm oversees $5 billion in assets. 'It is, to use a phrase during the nuclear era, a mutually assured destruction, if you will, where it won't benefit either parties. But let's look at what's happening that's good. What ultimately makes stocks go higher is earning and earnings are supporting higher valuations in the market.'

EU governments agreed on Tuesday in Brussels to bar Russian state-owned banks from selling shares or bonds in Europe and restricted the export of equipment to modernize the oil industry, a key prop for Russia's economy, an EU official told reporters. New contracts to sell arms to Russia and the export of machinery, electronics and other civilian products with potential military uses will also be banned.

Due to the reliance of many European countries on Russian oil and natural gas, the bloc stopped short of the full-scale commercial warfare that could damage its own economy, which is still shaking off the euro debt crisis.

The ruble traded as low as 35.76, the weakest level since 5 May. Russia's February 2027 bond also declined for a fourth day, sending the yield 12 basis points higher to 9.46%. The finance ministry cancelled its second ruble bond auction in a row, citing unfavorable market conditions.

The Micex Index of Russian stocks rose 0.6%, rebounding after a two-day slide that dragged the gauge down to the lowest close since 6 May.

The Fed's Open Market Committee will scale back its monthly asset purchases to $25 billion from $35 billion on 30 July, according to economists surveyed by Bloomberg, keeping it on pace to end the programme late this year. The policy-making committee last month repeated it's likely to reduce the pace of asset purchases in further measured steps and that it expects interest rates to stay low for a considerable time after the bond-buying ends.

Chair Janet Yellen and her fellow policy makers are debating how long to keep interest rates near zero as the US labour market improves and inflation moves closer to the Fed's 2% goal.

Three rounds of monetary stimulus from the Fed and better than-forecast corporate earnings have driven the S&P 500 up 192% from its March 2009 bottom. The S&P 500 is trading at 18.1 times earnings of its members, around the highest valuation for the gauge since 2010.

The Conference Board's index of US consumer confidence increased to 90.9 in July, the highest since October 2007, from 86.4 a month earlier, the New York-based private research group said on Tuesday. The median projection in a Bloomberg survey of 75 economists called for a reading of 85.4 in July.

The S&P/Case-Shiller index of property values in 20 cities increased 9.3% from May 2013, the smallest year-to-year advance since February 2013, after rising 10.8% in the year ended in April, the group said on Tuesday in New York.

'Risk assets globally continue to be supported by the fact that the Fed is in no hurry to hike interest rates,' said Alvin T. Tan, the director of foreign-exchange strategy at Societe Generale SA in London. 'Our economists are expecting the US data to come out on the positive side.'

Quarterly profit growth is poised for the fastest increase in almost three years. Companies in the S&P 500 have reported an 11% gain in second-quarter earnings, data compiled by Bloomberg show. Should the pace continue, the gain would exceed all periods since the third quarter of 2011.

American Express Co. and Newmont Mining Corp. are among other S&P 500 companies reporting earnings on Tuesday. About 78% of those that have posted results this season have beaten analysts' estimates for profit, while 65% exceeded sales projections, data compiled by Bloomberg show.

slipped 3.5% after cutting its full-year forecast as second-quarter profit fell short of estimates. rose 1.5% after reporting quarterly earnings that topped analysts' projections.

Windstream Holdings Inc. surged 14% after saying it plans to spin off certain telecommunications network assets into a real estate investment trust.

European stocks rose after a two-day drop. Ferrovial SA rose 1.2% after the Spanish construction company posted first-half profit that exceeded projections and said it will buy back shares. advanced 2.6% after the retailer increased its annual profit and sales forecasts.

slid 4.6%, the most in four months, as the French carmaker revealed that it is consuming more cash than it did a year ago. dropped 1.8% after Switzerland's largest lender reported a 36% drop in pretax profit, falling short of projections.

Banco Espirito Santo SA 's shares fell 11% after a Portuguese newspaper said the lender will report the nation's biggest-ever banking loss when it publishes its results on Wednesday.

The rally in European bonds, fuelled by unprecedented central bank stimulus and subdued inflation, sent German yields below the previous record set at the height of the euro area's sovereign debt crisis. Finland's 10-year rate fell to 1.252% and Italy's dropped to 2.643%. All-time lows were also set for Ireland, Belgium, France, Spain, the Netherlands and Austria.

Markets in Turkey, the United Arab Emirates, Qatar, Indonesia, Malaysia, the Philippines, Sri Lanka and India are closed for holidays.

The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major counterparts, added 0.2% to 1,016.49, the highest since 5 June.

The dollar rose 0.2% to ¥102.10, the highest since 7 July. The US currency gained 0.2% to $1.3412 per euro. The shared currency was little changed at ¥136.93.

Gold fell 0.3% to $1,301.40, erasing an earlier gain of 0.7%. Palladium traded near a 13-year high.

West Texas Intermediate crude declined 1% to the lowest level in almost two weeks on concern the shutdown of a Coffeyville refinery in Kansas may reduce crude demand. CVR Refining LP shut the 115,000-barrel-a-day plant following a fire in an isomerization unit, the company said. Bloomberg

Paul Dobson, Cecile Vannucci, Stephen Kirkland, Shelley Smith and Claudia Carpenter in London also contributed to this story.

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