Stocks Retreat, Led by Banks, as Euro Advance on Greece Bailout

Stocks fell in the U.S. and Europe, led by banks, as criminal prosecutors scrutinized Goldman Sachs Group Inc. and Barclays Plc reported a drop in investment- banking revenue. The euro rose against the dollar on speculation a bailout for Greece is near. Treasuries gained.

The Standard & Poor’s 500 Index slid 1.7 percent at 4 p.m. in New York to cap a five-day drop of 2.5 percent, its worst week since January. Goldman Sachs tumbled 9.4 percent. The Stoxx Europe 600 Index slumped 0.7 percent, with Barclays declining 6.4 percent in London. The euro extended its rebound from a one- year low earlier this week. The yield on the benchmark 10-year Treasury note fell 6 basis points to 3.67 percent. Oil rose to a three-week high, while gold climbed to a 2010 high.

Concern over potential criminal charges against Goldman Sachs and skepticism about continued growth at Barclays overshadowed reports showing a 3.2 percent gain in the U.S. economy last quarter and better-than-estimated consumer confidence. Energy and technology shares also slumped as the White House’s chief strategist said offshore drilling will be banned while the Gulf of Mexico oil spill is investigated and MEMC Electronic Materials Inc. slid following a quarterly loss.

“There’s just a lot going on,” said James Paulsen, who helps oversee about $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “The GDP number was pretty much in line with expectations. It didn’t add much. And there’s Goldman. Whether they are going to bring a criminal suit or not, if you just come up with the idea or the possibility, that will keep the pressure.”

Euro Gains

The euro rose for the third consecutive day against the dollar and the yen, climbing 0.6 percent to $1.3312 and 0.5 percent to 125.12 yen.

The two-year Treasury yield slipped 3 basis points to 0.96 percent and the 30-year yield lost 7 basis points to 4.53 percent. Treasury 10-year notes had for their first monthly gain since January as Greece’s fiscal crisis renewed demand for the safest government securities even as the U.S. economic recovery showed signs of accelerating.

“Investors are very quick to pull the trigger and buy Treasuries in this risk-averse atmosphere,” said Sergey Bondarchuk, an interest-rate strategist in New York at BNP Paribas, one of 18 primary dealers that are required to bid at Treasury auctions. “Now there is a flight-to-quality bid in the market as stocks fell off a cliff. Worried fixed income investors are preparing for another massive flight to quality.”

Bank Default Swaps Gain

Goldman Sachs Group Inc. led a jump in the cost to protect bank bonds from default. Credit-default swaps on Goldman Sachs increased the most since the Securities and Exchange Commission’s civil lawsuit filing on April 16, as a federal review begins by the U.S. attorney in Manhattan, said two people familiar with the matter, who weren’t authorized to comment and spoke on condition of anonymity.

Credit swaps on Goldman Sachs climbed 33.6 basis points to 165.2 basis points, according to CMA DataVision. Swaps on other banks, including Morgan Stanley to Bank of America, also gained.

Stocks tumbled this week as credit-ratings downgrades of Greece, Portugal and Spain fueled concern Europe’s sovereign debt crisis is worsening. The S&P 500, the benchmark gauge of U.S. stocks, still rose 1.1 percent gain in April, its third- straight monthly advance.

Financials Lead Declines

Financial shares led losses in the S&P 500 today, dropping 2.5 percent as a group. Energy stocks declined as the White House banned new offshore drilling until an investigation of a Gulf of Mexico oil spill determines what happened to the rig. Technology shares slumped after MEMC Electronic Materials Inc. posted a quarterly loss, sending shares of the silicon-wafer producer down 19 percent.

D.R. Horton Inc. and Newell Rubbermaid Inc. rose at least 0.7 percent after posting better-than-estimated earnings. About 78 percent of companies in the S&P 500 that reported first- quarter results beat analysts’ estimates for per-share earnings, according to Bloomberg data.

National Bank of Greece SA, the nation’s largest lender, rallied 2.9 percent in Athens, extending yesterday’s 18 percent surge. The benchmark ASE Index of stocks rallied 2.2 percent in Athens and Greek bonds surged, with the two-year yield dropping 17 basis points to 12.72 percent.

Greek Prime Minister George Papandreou said the country’s survival was at stake in talks to win a potential $159 billion European Union-led bailout in exchange for budget cuts denounced by unions as “savage.”

Yield Spread

Investors demanded less 5.95 percentage points extra in yield to buy Greek 10-year bonds rather than German bunds after the premium, or spread, had widened to more than 8 points earlier this week on concern about a default. The deal with the EU and the International Monetary Fund, which may impose 24 billion euros of budget cuts in exchange for the aid, could be closed as soon as tomorrow, EU spokesman Amadeu Altafaj said.

The MSCI Asia Pacific Index climbed 1.1 percent, its first gain in four days. Samsung Electronics Co. Ltd. added 2.9 percent in Seoul after reporting record net income. Baoshan Iron & Steel Co. Ltd., China’s largest publicly traded steelmaker, gained 6 percent in Shanghai after saying its profit may surge 10-fold. Macquarie Group Ltd., Australia’s largest investment bank, rose 4 percent as earnings doubled.

The MSCI Emerging Markets Index climbed 0.6 percent. Poland’s benchmark WIG20 Index climbed 0.5 percent as insurer PZU SA raised 8.1 billion-zloty ($2.7 billion) in Europe’s biggest initial public offering since 2007. Emerging-market equity funds attracted $1.5 billion of net inflows in a week, taking year-to-date gains to $15.2 billion, EPFR Global said.

Crude oil for June delivery rose or 1.2 percent to $86.15 a barrel.

Gold climbed to the highest price since December on signals that sovereign-debt risk may erode the value of currencies, boosting demand for the precious metal as an alternative asset.

Gold futures for June delivery advanced $11.90, or 1 percent, to $1,180.70 an ounce on the Comex in New York, after reaching $1,182.50, the highest level since Dec. 4. The record was $1,227.50 on Dec. 3.