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Gold Reaches Record, Stocks Fall on Economy Concern

By Michael P. Regan and Rita Nazareth – Sep 14, 2010 7:12 AM MT

Gold rose to a record, Treasuries rallied and stocks halted a four-day advance amid a slump in German confidence and concern China will cool its real-estate market. The yen rose to a 15-year high versus the dollar on speculation Japan is less likely to weaken its currency.

Gold futures rallied as much as 1.8 percent to $1,269.20 an ounce and the 10-year Treasury note yield lost 6 basis points to 2.69 percent at 10:06 a.m. in New York as investors pursued assets believed to be the safest. The Standard & Poor’s 500 Index and the Stoxx Europe 600 Index decreased 0.2 percent. The yen appreciated against all 16 most-traded peers and the Swiss franc touched $1 for the first time this year.

The MSCI World Index of stocks in 24 developed nations dropped for the first time in five days as investor confidence in Germany fell to a 19-month low in September, according to the ZEW Center for European Economic Research, and China’s Premier Wen Jiabao cautioned that rising property prices may stoke unrest. Better-than-estimated growth in U.S. retail sales and business inventories failed to extend the equity market’s rally after the S&P 500 climbed to a one-month high yesterday.

“It’s a sloppy, mixed-data environment,” said Stephen Wood, the New York-based chief market strategist for Russell Investments, which manages $140 billion. “We had good retail sales data. However, German confidence and indications that China may continue to cool down its economy show that the economic environment continues to be very choppy.”

Rally Halted

The S&P 500 fell for only the second time in 10 days, trimming its September rally to 6.5 percent. Retail sales grew 0.4 percent in August. The median forecast of 76 economists in a Bloomberg News survey was for a 0.3 percent increase. The S&P 500 surged 1.1 percent yesterday, erasing its 2010 loss.

Concern the economic recovery is faltering has pushed the S&P 500 down 8 percent from its 2010 high in April and sent the index to 12 times forecast earnings over the next year, near the lowest since March 2009.

The yield on the two-year Treasury slipped 1 basis point to 0.52 percent and the 30-year yield lost 3 basis points to 3.82 percent.

The yen climbed as much as 0.8 percent to 83.07 per dollar, the strongest level since May 1995, and advanced as much as 1 percent against the euro to 106.77.

China’s yuan surged to the strongest level since 1993 on speculation the government will allow appreciation to head off U.S. trade sanctions as its economy improves. The currency gained 0.2 percent to 6.7469 per dollar and touched 6.7400, the strongest level since the central bank unified official and market exchange rates at the end of 1993.

Yuan Rate

The central bank fixed the reference rate at 6.7378 per dollar, the highest level since the dollar peg was scrapped in July 2005, before the U.S. House Ways and Means Committee discusses China’s currency policy tomorrow and Sept. 16.

Gold futures for December delivery rose $20.40, or 1.7 percent, to $1,267.50 an ounce on the Comex in New York after touching $1,269.20. The previous all-time high was $1,266.50 on June 21.

Gold, heading for the 10th straight annual gain, has offered insurance against fluctuations in the dollar and the euro, and the metal has outperformed most stocks and bonds this year. The Federal Reserve and the European Central Bank have kept benchmark lending rates at the lowest level ever to revive the economy.

Oil fell fluctuated near $77 a barrel before a report forecast to show U.S. inventories declined while crews repaired a pipeline in the Midwest. Abdalla El-Badri, the secretary general of OPEC, said today on the organization’s 50th anniversary that prices of between $70 and $80 a barrel are comfortable for producers and consumers.

German 10-year bunds climbed, sending the yield down 7 basis points to 2.36 percent. Greece’s 10-year yield slipped 1 basis point to 11.36 percent. Greece sold 1.17 billion euros ($1.5 billion) of 26-week Treasury bills, the Athens-based Public Debt Management Agency said. Investors bid for 4.54 times the securities offered, and the yield was 4.82 percent.

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