U.S. Stocks Erase Losses as Euro Pares Drop Against Dollar, Yen

U.S. stocks erased losses, paring a global retreat in equities, while the euro wiped out most of its declines against the dollar and yen on speculation financial reform will hurt bank earnings less than estimated. Equities rebounded after briefly falling to the weakest levels of 2010.

The Standard & Poor’s 500 Index rose less than 0.1 percent, recovering from a 3.1 percent slump, after dropping its February low of 1,044. The MSCI World Index of shares in 23 developed nations fell 1.5 percent after losing up to 3.4 percent. The euro climbed to $1.2374 and 111.75 yen at 5:50 p.m. in New York, jumping from $1.2178 and 108.84 yen. The yield on 10-year Treasuries dropped 4 basis points to 3.16 percent after touching 3.06 percent as investors snapped up the safest assets earlier.

The recovery in U.S. equities reduced losses from a global selloff that sent the MSCI World Index to the lowest intraday level since July 30 and pushed Russian shares down 20 percent from their April peak. U.S. Representative Barney Frank, who will lead congressional talks to produce a financial-regulation bill, said Senate language that would require commercial banks to wall off their swaps-trading operations “goes too far.”

“Bulls were inspired to go back into the market,” said Michael O’Rourke, chief market strategist at BTIG LLC in Yardley, Pennsylvania. “It’s tough to sustain that kind of drop without a strong a catalyst. We didn’t see a default.”

Bank Mergers

Concern the European debt crisis will spread has driven the MSCI World Index down 16 percent after Greece, Spain and Portugal had their credit ratings cut. Four Spanish banks said they will combine as regulators push lenders to merge with stronger partners, boosting speculation that the nation’s ailing lenders signal widening turmoil.

Goldman Sachs Group Inc. rose 4.3 percent to help the S&P 500 Financials Index erase a 3.4 percent drop. Freeport-McMoRan Copper & Gold Inc. and Newmont Mining Corp. jumped at least 2.3 percent as a gauge of commodity producers reversed a 3.3 percent tumble. The Dow Jones Industrial Average slipped 22.82 points to 10,043.75 after plunging 292 points in the morning.

“It was a technical rebound,” said James Paulsen, who helps oversee about $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “The stock market was oversold. We’ve breached so many levels so quickly. The economic recovery is still in place.”

Consumers gained more confidence in May than projected as a recovering U.S. economy raised expectations hiring will pick up in coming months. The Conference Board’s confidence index rose to 63.3, exceeding all estimates of economists surveyed by Bloomberg News and the highest level in two years, according to a report today from the New York-based private research group.

Libor Rises

Earlier declines in stocks came after bank borrowing rate known as Libor rose for an 11th straight day and North Korea said it will sever ties with South Korea as tensions between the nations escalate. The U.S. announced plans yesterday to conduct anti-submarine exercises with South Korea following the March 26 torpedoing of the Asian nation’s warship.

U.S. stocks are “oversold” and likely to rebound to a level short of this year’s intraday high of 1,219.80, according to Marc Faber, publisher of the Gloom, Boom & Doom report. The S&P 500 has slumped 12 percent from its 19-month high on April 23 amid concern the global economic rebound will be derailed as European governments struggle with swelling budget deficits.

“The market is near-term oversold,” Faber said in a Bloomberg Television interview today. “I don’t think we’ll go and make a new high above 1,219 on the S&P, but I think we can rally here somewhat.”

To contact the reporters on this story: Rita Nazareth in New York at