US stocks sink as oil breaks $40; Treasuries drop on rate bets

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(Bloomberg) -- US stocks slipped as crude plunged past $40 a barrel, sparking a slide in energy producers. Treasuries fell after Federal Reserve Chair Janet Yellen signaled increasing confidence in the economy two weeks before central bank officials meet to review policy.

The Standard & Poor’s 500 Index extended losses in afternoon trading as the selloff in oil accelerated before a meeting of OPEC members Friday. Yields on 10-year Treasury notes rose the most in almost a month, while the dollar hovered near its strongest level in a decade as Yellen’s remarks laid the groundwork for the first rate rise since 2006.

As three days of economic events likely to set the course for global markets into 2016 kicked off, the renewed slump in crude oil distracted traders from their focus on the looming divergence in monetary policy, with the Organization of Petroleum Exporting Countries having shown few signs it will vote to trim output. Yellen is increasingly confident the U.S. economy is growing, intensifying speculation that the Fed will tighten policy just as the European Central Bank seems poised to expand stimulus. Investors are awaiting Friday’s jobs report, the last major U.S. data before the Fed meets Dec. 16.

“Yellen’s remarks appear to be reinforcing market expectations of liftoff,” said Alan Gayle, senior strategist for Atlanta-based Ridgeworth Investments, which has about $42.5 billion in assets. “The Fed’s actions combined with the ECB is already taking the the dollar higher, and it’s taking it higher today. This will weigh on the large-cap space.”

The S&P 500 lost 1.1 percent to 2,079.51 by 4 p.m. in New York. Yields on the 10-year Treasury note climbed four basis points, or 0.04 percentage point, to 2.18 percent, their first advance since Nov. 20. The euro weakened 0.2 percent as tepid inflation data boosted the argument for extra stimulus. West Texas Intermediate crude futures tumbled 4.5 percent to settle at $39.94 a barrel.

Stocks

The S&P 500 retreated after rebounding the most in almost two weeks on Tuesday, when it closed 1.3 percent below its record. The index is still up more than 11 percent from a low reached in August on growing confidence that the economy is sturdy enough to handle higher borrowing costs.

“Yellen didn’t say anything miraculous that’s pushing the market down, it’s just that yesterday was a float up on air,” said Yousef Abbasi, global market strategist at JonesTrading Institutional Services LLC in New York “There’s a lack of leadership on a day like today, when you’re not going to get it from commodities-linked equities like energy or materials.”

Energy shares led declines with a 3.1 percent slide. Chevron Corp. and Exxon Mobil Corp. fell more than 2 percent. Technology shares erased earlier gains spurred by Qualcomm Inc. and Yahoo! Inc. Materials producers also slumped more than 1 percent.

European stocks closed little changed as the rout in commodities overshadowed optimism over the prospect of additional central-bank stimulus. The Stoxx Europe 600 Index slipped less than 0.1 percent to end near a three-month high. In Asia, stocks swung, with the MSCI Asia Pacific Index ending Wednesday down 0.2 percent as Korean shares slumped.

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