Stocks edge lower, investors opt for Treasurys after disappointing jobs report from ADP

By Stephen Bernard, AP
Wednesday, October 6, 2010

Stocks dip, Treasury yields drop after jobs data

NEW YORK — Stocks closed mostly lower Wednesday after a disappointing report on the jobs market renewed concern about the economy. Treasury yields sank to new lows as investors sought safety and anticipated more stimulus measures from the Federal Reserve.

Payroll company ADP said private employers cut jobs in September for the first time in seven months. Investors are seeing a silver lining in the news, however, hoping that it could help push the Federal Reserve to take more action to get the U.S. economy going next month, including stepping up its purchases of bonds.

“It’s just a matter of when and how much,” Christian Hviid, chief market strategist at Genworth Financial Asset Management, said of the Fed’s likely plans to buy bonds. “The motivation is to keep (interest) rates low.”

Gold reached another high and the dollar slumped further against other currencies on anticipation that U.S. interest rates could head even lower if the Fed moves aggressively to buy bonds and take other measures to encourage borrowing.

The Dow Jones industrial average rose 23 points, closing at its highest level since early May, but broader indexes dropped and falling stocks outpaced those that climbed. The yield on the two-year Treasury note touched a record low 0.38 percent, and the yield on the 10-year note fell to 2.39 percent. The 10-year yield touched its lowest level since January 2009 when the country was mired in a recession.

More weak economic data in the coming weeks, including any disappointment from Friday’s key Labor Department report on employment, could provide further incentive for Fed action.

The Dow Jones industrial average rose 22.93, or 0.2 percent, to close at 10,967.65.

Broader indexes fell. The Standard & Poor’s 500 fell 0.78, or 0.1 percent, to 1,159.97, while the Nasdaq composite index fell 19.17, or 0.8 percent, to 2,380.66.

Falling stocks narrowly outpaced rising ones on the New York Stock Exchange, where volume came to 980 million shares.

In corporate news, Johnson & Johnson agreed to buy Dutch biotechnology company Crucell NV for about $2.41 billion. Johnson & Johnson first announced it was planning an offer last month. Johnson & Johnson shares rose 41 cents to $63.21.

In currency trading, the euro moved above $1.39 for the first time since February, while the yen struck a 15-year high as investors anticipate more action from the Fed to lower U.S. interest rates.

The poor showing on the ADP jobs report suggest that the much broader Labor Department jobs survey on Friday “probably won’t improve at all,” said Mark Luschini, chief market strategist at Janney Montgomery Scott.

A bad jobs report from the government Friday would “increase odds the Fed is more forthcoming and aggressive” in trying to stimulate the economy, he said.

Japan announced similar bond-buying measures Tuesday when it also cut a key interest rate to near zero. The U.S. central bank long ago set interest rates at near zero, leaving it few other options but to buy Treasurys to further drive interest rates lower. If the Fed continues to push interest rates down it could make investing in stocks and other kinds of riskier assets more appealing by comparison.

Private hiring has been slow to pick up as the economy remains sluggish. ADP said private employers cut 39,000 jobs last month.

The ADP report usually comes in below the government’s measure of total private payrolls. So far this year, the average difference has been about 75,000. That means Friday’s report could show a net increase in private hiring. But the ADP figure does suggest that current forecasts for a gain of about 75,000 private sector jobs could be too high.

Gold prices touched another record high as investors shied away from the dollar, whose value is hurt if the Fed buys more bonds. Gold rose as high as $1,351.00 an ounce before pulling back to settle at $1,347.70, up $7.40 on the day.

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