Reuters Wall Street falls as rate worries dent recovery hopes

NEW YORK (Reuters) - U.S. stocks fell on Wednesday on worries that rising interest rates could put a damper on consumer and business spending, but stocks pared losses late in the session to finish off the day's lows.

The market had extended losses after a 10-year Treasury note auction sparked a sell-off in bonds, pushing yields briefly above 4 percent for the first time since October. Stocks recovered from the sell-off after the bond market rebounded, with the yield at 3.9455 percent.

Investors are worried that higher yields, which act as a benchmark for many lending rates, could handcuff an economic recovery.

Interest rate-sensitive stocks, such as homebuilders and financials, were among the primary laggards, with the Dow Jones U.S. Home Construction index .DJUSHB off 1.5 percent and the S&P Financial index .GSPF down 1.6 percent.

"Rising interest rates are a headwind for the market," said Todd Salamone, vice president of research at Schaeffer's Investment Research in Cincinnati.

The Dow Jones industrial average .DJI fell 24.04 points, or 0.27 percent, to 8,739.02. The Standard & Poor's 500 Index .SPX slid 3.28 points, or 0.35 percent, to 939.15. The Nasdaq Composite Index .IXIC dropped 7.05 points, or 0.38 percent, to 1,853.08.

In its latest Beige Book survey of the economy, the Federal Reserve said U.S. economic conditions were weak or worsened through May, but some areas of the country saw signs the contraction was moderating.

U.S. crude oil futures rose to their highest level in seven months at over $71 a barrel, lifting energy companies. ExxonMobil (XOM.N) rose 1 percent to $73.84 and was the top boost to the Dow. The PHLX Oil Service Sector index .OSX gained 1.4 percent.

While gains in oil and other commodities had earlier supported stocks globally on hopes economic activity was quickening, U.S. investors worried that higher prices would fuel inflation and dent an economic recovery.

Trading was low on the New York Stock Exchange, with about 1.22 billion shares changing hands, below last year's estimated daily average of 1.49 billion, while on Nasdaq, about 2.35 billion shares traded, above last year's daily average of 2.28 billion.

Declining stocks outnumbered advancing ones on the NYSE by 1635 to 1376 while decliners beat advancers on the Nasdaq by about 1624 to 1038.

(Additional reporting by Ellis Mnyandu; Editing by Leslie Adler)

Reuters Mounting deficits spark jitters about U.S. economy

WASHINGTON (Reuters) - Gaping U.S. trade and budget deficits and a weak auction of government debt that pushed interest rates higher pointed to a bumpy road to recovery for the world's largest economy on Wednesday.

A Federal Reserve report noting businesses see some signs of moderation in the contraction, even though conditions were weak or deteriorated further in May, failed to ease anxiety about the economy.

Instead, financial markets found new reasons to worry that massive government spending and Fed cash infusions will lead to dangerous inflation and undercut any fledgling rebound.

A government bond auction pushed yields on the benchmark 10-year Treasury note above 4.0 percent for the first time in eight months, suggesting investors want the government to pay a premium to finance its huge deficit.

U.S. stocks ended little changed though, with the three month rally stalling on worry that rising interest rates could dampen consumer and business spending.

"The risk of rising yields should not be discounted," said Joseph Brusuelas of Moody's Economy.com. "If continued, they will reduce home mortgage refinancing and curtail corporate borrowing, both critical to an economic recovery."

Federal Reserve and U.S. Treasury Department officials have cited recent economic data and relative calm in financial markets as hopeful signs that a deep recession begun in December 2007 may be approaching its bottom.

But a sharp upswing in longer-term Treasury bond yields in recent weeks, spurred by worries over the burgeoning government budget deficit, threatens to derail any renewal of consumer spending or home buying.

The rise in bond yields has come despite the Fed's pledge to buy $300 billion in long-term Treasury securities to lower borrowing costs and stimulate economic activity. more...

Bloomberg Oil Rises to 7-Month High, Gasoline Tops $2, on Stockpile Drop

June 10 (Bloomberg) -- Crude oil rose to a seven-month high and gasoline futures climbed above $2 a gallon for the first time since October after a government report showed that U.S. crude and fuel supplies unexpectedly fell.

Stockpiles of oil dropped 4.38 million barrels to 361.6 million in the week ended June 5, the Energy Department said today. Analysts surveyed by Bloomberg News said supplies would rise by 100,000 barrels. Gasoline inventories slipped for a seventh week.

“This was an incredibly bullish report,” said Mike Zarembski, senior commodity analyst at OptionsXpress Holdings Inc. in Chicago. “There were big drops in both crude oil and gasoline, falling imports and increased gasoline demand.”

Crude oil for July delivery rose $1.32, or 1.9 percent, to $71.33 a barrel at 2:44 p.m. on the New York Mercantile Exchange, the highest settlement since Oct. 20. Prices are up 60 percent this year.

Gasoline for July delivery rose 4.86 cents, or 2.5 percent, to $2.0153 a gallon in New York, the highest close since Oct. 9.

Pump prices are climbing along with futures. Regular retail gasoline, averaged nationwide, rose to $2.627 a gallon, the highest since October, AAA, the nation’s biggest motoring organization, said today on its Web site. Prices have jumped 28 percent since April 28, the last day there was a decline.

Stockpiles of gasoline fell 1.55 million barrels to 201.6 million, the report showed. A 750,000-barrel increase was forecast, according to the median of 14 estimates by analysts surveyed before today’s report. more...

Bloomberg World Oil Reserves Dropped Last Year on Russia, China

June 10 (Bloomberg) -- Global proved oil reserves fell last year, the first drop since 1998, led by declines in Russia, Norway and China, according to BP Plc.

Oil reserves totaled 1.258 trillion barrels at the end of 2008, compared with a revised 1.261 trillion barrels a year earlier, BP said in its annual Statistical Review of World Energy today.

“Fossil fuels will remain the dominant source of energy well into the future,” BP Chief Executive Officer Tony Hayward said at a presentation in London. The world has enough reserves for 42 years at current production rates, BP said.

BP and other oil companies are struggling to replace reserves as access to deposits becomes harder and older fields in places like the U.K. and Mexico are depleted. Russia passed a law last year that limits foreign ownership in some of the country’s biggest energy and metals deposits. Middle East countries, which hold 60 percent of global reserves, restrict access for international companies.

Some countries have yet to submit information on reserves, making an upward revision of the data likely, Chief Economist Christof Ruehl said.

Saudi Arabia’s reserves, the world’s largest, stood at 264.1 billion barrels, little changed from 264.2 billion a year earlier, BP said. The Middle East as a whole holds 754.1 billion barrels, compared with 755 billion barrels last year.

“Declines in Russia, Norway, China and other countries offset increases in Vietnam, India and Egypt,” BP said on its Web site.

Canadian Oil Sands

Including Canadian oil sands deposits of 150.7 billion barrels, total global reserves stood at 1.409 trillion barrels, the review said.

BP made an upward revision to 2007’s global oil reserves of 23.1 billion barrels, with the largest increases in OPEC members Venezuela and Angola.

None of the biggest international oil companies have replaced output through new discoveries or extending fields in the past six years, Sanford C. Bernstein & Co. said in an April 2 report. Companies such as Royal Dutch Shell Plc, Europe’s largest oil company by market capitalization, are looking at acquisitions to boost reserves, Bernstein said.

BP said the estimates in today’s report are a combination of official sources, OPEC data and other third-party estimates. Oil reserves include gas condensates and natural gas liquids, as well as crude oil.

To contact the reporters on this story: Rachel Graham in London rgraham13@bloomberg.netAlexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net

Bloomberg BHP Agrees to Cut 2009 Coking Coal Prices About 58%

June 10 (Bloomberg) -- BHP Billiton Ltd., the world’s largest mining company, agreed to about a 58 percent cut in annual coking coal contract prices after demand for the steelmaking material declined.

A “significant portion” of supply contracts have been settled with “key global customers,” the Melbourne-based company said today in a statement. BHP and Mitsubishi Corp.’s alliance is the world’s biggest exporter of coking coal.

Nippon Steel Corp. and JFE Holdings Ltd., Asia’s two largest steelmakers, won a 57 percent cut in prices to between $128 and $129 a metric ton in talks with BHP, two industry executives with knowledge of the deal said in March. Global mills have slashed raw material orders as the worst recession since World War II curbs demand from builders and carmakers.

“We saw a little bit of upside” in BHP’s shares as the price cut was not as steep as some investors expected, Chris Weston, an institutional dealer at IG Markets in Melbourne, said today by phone. “It’s a commodities play today. People want a piece of it. We are seeing a lot of positive momentum on this stock.”

BHP rose 3.3 percent to A$37.69 at 2:36 p.m. Sydney time on the Australian stock exchange, after a measure of the six metals traded on the London Metal Exchange rose to the highest in eight months overnight Sydney time.

Lower Demand

BHP’s production of coking coal may be 10 percent to 15 percent less than current capacity this year because of lower demand, BHP said in April. Sales of the coal accounted for 6.7 percent of BHP’s revenue in the year ended June 30, 2008. The annual contracts cover sales running from April 1 to March 31.

Coking coal prices tripled in the year ending March 31 as flooding disrupted supply from Australia’s Queensland state and rising demand from China fueled a surge in commodity prices. Contract prices with Japanese mills were about $50 a ton during most of the 1990s, according to Nippon Steel.

Japan’s steel output tumbled 44 percent in April to 5.72 million tons, the Tokyo-based Japan Iron & Steel Federation said last month. Production was 10.15 million tons last year, and the percentage drop for April is near the March record decline, according to data on the Bloomberg.

Source: Bloomberg