July 26, 2011, 12:46 PM EDT
By Stephen Kirkland and Nikolaj Gammeltoft

July 26 (Bloomberg) -- The dollar slid to a record low versus the Swiss franc, stocks fell and the cost of insuring U.S. debt rose to a 17-month high as President Barack Obama dueled with House Speaker John Boehner over the U.S. debt limit. Commodities recovered from earlier losses.

The dollar depreciated against all 16 major peers at 12:13 p.m. in New York and dipped below 80 centimes versus the franc. The Standard & Poor’s 500 Index lost 0.2 percent to 1,335.35 and the Stoxx Europe 600 Index fell 0.4 percent. Credit- defaults swaps on U.S. debt increased two basis point to 58 basis points. The S&P GSCI Index of 24 commodities climbed 0.6 percent, rebounding from a 0.7 percent drop, as zinc, cotton and copper added at least 1.5 percent.

Obama said yesterday the U.S. may experience a “deep economic crisis” if leaders fail to reach a deal and the nation defaults, while Boehner said the president “wants a blank check” to keep spending. Stocks were also pressured after home prices fell the most in 18 months, 3M Co. forecast earnings that trailed analyst estimates and United Parcel Service Inc. said the third quarter will be “fairly slow.”

“We have multiple sources of uncertainty, including what’s happening in Washington with the debt ceiling,” Mark Freeman, co-chief investment officer at Westwood Management Corp. in Dallas, said in a telephone interview. His firm oversees $14 billion. “The longer the uncertainty goes on, the greater the risk is that it will negatively affect businesses.”

‘Theme of the Day’

The Dollar Index, which tracks the U.S. currency against those of six trading partners, declined 0.6 percent for the fifth decline in the past six days. South Africa’s rand, Sweden’s krona and the Norwegian krone rose more than 1 percent to lead gains against the U.S. currency.

“The theme of the day is once again sell the dollar,” said Kathleen Brooks, research director at Forex.com, a unit of Gain Capital Holdings Inc., an online currency-trading company. “Playing this argument out in public, rather than trying to iron out differences behind closed doors, is causing shock waves in the markets. Every public spat is a step back from reaching an agreement by the Aug. 2 deadline.”

Obama delivered his message yesterday in a prime-time television address from the White House, while Boehner spoke afterward from the Capitol. Earlier in the day, Boehner, an Ohio Republican, and the Democratic leader in the Senate, Harry Reid of Nevada, unveiled competing plans to raise the $14.3 trillion debt limit.

Two-Step Plan

Boehner said today that his two-step plan to raise the nation’s debt limit and cut spending can pass both chambers of Congress, and he hopes Obama would sign it.

“To think about the fact that we’re a week away from a default, or a pseudo default, is a reflection of the fact that Washington is less than a place of great intellectual wisdom,” Michael Steinhardt, whose hedge funds returned more than 20 percent a year for almost three decades, said on Bloomberg Television’s “InBusiness with Margaret Brennan.”

The S&P 500 extended losses after yesterday slumping 0.6 percent. All 12 stocks in a gauge of homebuilders declined after home prices in 20 U.S. cities dropped in the year ended in May by the most in 18 months, adding to evidence the housing market is struggling. The S&P/Case-Shiller index of property values in 20 cities fell 4.5 percent from May 2010. Other data showed sales of new homes unexpectedly declined for a second month in June.

Consumer Confidence

Stocks pared losses in the U.S. after confidence among American consumers unexpectedly rose in July from an eight-month low, led by a rebound in the outlook for jobs over the next six months. The Conference Board’s index climbed to 59.5 from a revised 57.6 reading in June that was lower than previously estimated.

3M slid 4.6 percent after projecting full-year earnings that trailed analysts’ estimates after lower demand for LCD televisions curbed sales in its display and graphics business, the company’s third-biggest unit. United Parcel Service Inc. retreated 4.4 percent as the shipping company said it expects a continued “extremely sluggish” U.S. business environment.

Gains in technology companies helped limit losses in stocks. Broadcom Corp., the supplier of communications chips for Apple Inc.’s mobile devices, surged 9.5 percent after also forecasting sales that topped estimates. Netflix Inc., the mail- order and online film-rental service, tumbled 9.2 percent after its forecasts missed projections.

Baidu, India

The MSCI Emerging Markets Index climbed 0.7 percent, led by a rally in technology companies after Baidu Inc. reported earnings. India’s Bombay Stock Exchange Sensitive Index dropped 1.9 percent, the most in two weeks, as the central bank raised its benchmark interest rate more than economists estimated.

The New Zealand dollar climbed as much as 1.2 percent to a record versus the greenback as investors sought alternatives to the U.S. currency. China’s yuan advanced as much as 0.1 percent against the dollar to its strongest level in 17 years after the central bank placed the currency’s reference rate at a record high.

Copper advanced 1.6 percent as a strike at BHP Billiton Ltd.’s Escondida copper mine in Chile, the world’s biggest, entered a fifth day. Corn for December delivery rose 0.2 percent on the Chicago Board of Trade and soybean futures climbed 0.9 percent as dry weather in the Midwest worsened crop conditions in the U.S. Gold for immediate delivery was little changed at $1,613.50 an ounce following yesterday’s rally to a record $1,624.07.

--With assistance from Shiyin Chen in Singapore, John Deane, Michael Patterson, Andrew Rummer, Michael Shanahan, Garth Theunissen and Daniel Tilles in London and Jimi Corpuz and Margaret Brennan in New York. Editors: Michael P. Regan, Nick Baker

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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