U.S., Global Stocks Drop as MSCI World Falls Most in 2 Months

U.S. stocks extended a global slide, sending the MSCI World Index down the most in two months, as falling oil and metal prices weighed on commodity producers. Treasuries rose and the dollar strengthened.

Alcoa Inc., Caterpillar Inc. and DuPont Co. lost at least 4.2 percent to help spur the broadest slump since January on the New York Stock Exchange as a weaker-than-estimated report on manufacturing also dragged stocks lower. Freeport-McMoRan Copper & Gold Inc. slid 4.1 percent as copper sank by the daily limit in Shanghai on speculation supply may outpace demand in China, the largest consumer of the metal. Benchmark indexes for Europe and Asia sank as BP Plc and BHP Billiton Ltd. tumbled.

“There’s no clear trajectory for moving us out of a recessionary environment,” said Wayne Wicker, who oversees $33 billion as chief investment officer at Vantagepoint Funds in Washington. “Given the shellshock of the last year and a half, you have a lot of people who don’t think this market is sustainable.”

The S&P 500, which had climbed 40 percent from a 12-year low on March 9, decreased 2.6 percent to 921.02 at 11:29 a.m. New York time. The Dow Jones Industrial Average, which last week erased its 2009 loss, tumbled 207.76, or 2.4 percent, to 8,591.5 as all 30 companies in the gauge declined. Twenty-five stocks fell for each that rose on the NYSE. The MSCI World Index of developed nations plunged 2.8 percent, the most since April 20.

Europe’s Dow Jones Stoxx 600 Index lost 2.4 percent after Group of Eight finance ministers, who met in Italy over the weekend, began drawing up contingency plans for rolling back budget deficits and bank bailouts as the economy shows signs of recovery and investors start worrying about inflation.

Empire Manufacturing

The VIX, the benchmark gauge for U.S. stock volatility, jumped the most since May 21 as the Federal Reserve Bank of New York’s general economic index fell to minus 9.4 from in June from minus 4.6. Readings below zero signal manufacturing is shrinking. Economists in a survey predicted minus 4.6. U.S. stocks fell even as the International Monetary Fund raised its outlook for the U.S. economy.

The S&P 500’s rally since March left the index valued at 14.9 times its companies’ earnings, near the highest level since October. Last week, the Dow average became the latest major U.S. stock gauge to give investors a profit for the year amid growing optimism the worst recession since World War II is ending after the government and Federal Reserve pledged $12.8 trillion to revive economic growth.

‘Wariness’

“We’re starting to see wariness in the markets about where we go from here,” said James Gaul, who helps oversee $1.5 billion at Boston Advisors LLC in Boston. “We’re still in a recession and we’re still losing jobs. The economy’s struggling.”

The MSCI World Index has rebounded from a 13-year low in March. The rally pushed the index’s value to 18.2 times the earnings of its 1,655 companies, the most expensive level since December 2004, weekly data compiled by Bloomberg show. The Stoxx 600 Index trades at 25.4 times the earnings of its companies, the most in five years.

Russian Finance Minister Alexei Kudrin said the dollar is in “good shape,” further affirming that there’s no substitute for the world’s reserve currency.

“It’s too early to speak of an alternative,” Kudrin said in an interview two days ago in Italy after meeting officials from the G-8 nations.

Treasuries Gain

Kudrin’s comments helped U.S. Treasuries climb for a third day, the longest streak in a month, even after international holdings of long-term U.S. financial assets rose at a slower pace in April as China, Japan and Russia trimmed holdings of Treasuries. Purchases of long-term equities, notes and bonds rose a net $11.2 billion, compared with buying of $55.4 billion in March, the Treasury said today in Washington.

Exxon Mobil Corp., the biggest U.S. oil company, lost 1.8 percent to $72.42, while rival ConocoPhillips retreated 3.6 percent to $42.78.

Crude oil for July delivery dropped as much as 3.1 percent to $69.83 a barrel in New York Mercantile Exchange trading as the dollar rose the most in a week against the euro, limiting investors’ need to use commodities as a hedge against inflation.

Freeport-McMoRan, the world’s biggest publicly traded copper producer, slid 4.1 percent to $56.11 as gold declined to a three-week low.

Inventories of copper in Shanghai warehouses grew for a second week to 60,647 metric tons last week, the highest since the week of March 20, 2008, the exchange said after the market closed June 12. China’s imports of the metal and its products increased 6 percent in May from April to 422,666 tons.

Wal-Mart Stores Inc. lost 2.4 percent to $48.63 after Goldman Sachs Group Inc. cut the largest retailer to “neutral” from “buy,” saying it sees “little near-term positive catalysts to drive shares higher.”

‘Golden Cross’

The S&P 500 may struggle to reach a so-called golden cross as trading volume decreases, according to a technical analyst at RBC Capital Markets.

A golden cross, considered a buy signal by analysts who make predictions based on patterns in price charts, occurs when the 50-day moving average, which is currently at 889.24 for the S&P 500, rises above the 200-day moving average, which is at 911.65, according to Bloomberg data. The U.S. benchmark index ended last week at 946.21.

The major stock indexes “are back above their 200-day averages, and it’s increasingly tempting to conclude that a new bull market is under way,” Toronto-based Ray Hanson wrote in a report dated June 12. However, the S&P 500 “has not yet achieved a golden cross” and “the steadily declining volume since early May suggests caution,” he said.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, added 8.8 percent to 30.63. 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 average over its 19-year history.