Stocks mixed as GM gets closer to bankruptcy; price of gold up
NEW YORK -- Wall Street's rally is going back on hold as General Motors takes another step toward bankruptcy court.
Stocks were mixed Wednesday after a big advance Tuesday. General Motors said not enough bondholders agreed to swap their debt for company stock.
That means the automaker is almost definitely headed for bankruptcy protection. GM has until Monday to finish restructuring or file for Chapter 11. The announcement dampened the mood of investors who had grown more optimistic about the economy after Tuesday's positive reading on consumer confidence.
"While consumer confidence looking forward is improving, the reality is the economy is still very weak," said Alan Gayle, senior investment strategist at RidgeWorth Capital Management.
Investors didn't find relief in a bigger-than-expected increase in home sales because a rise in inventories fanned worries that homes languishing on the market would continue to crimp the economy by hurting consumers and banks that hold mortgages.
The National Association of Realtors said sales of previously occupied homes rose from March to April as buyers hunted for bargains. Sales rose 2.9% to an annual rate of 4.68 million last month. But the trade group also said the number of unsold homes on the market at the end of April rose almost 9% to nearly 4 million. That's a 10-month supply at the current sales pace.
On Tuesday, after an initial dip on worries about North Korea's nuclear testing in Asia, stocks soared on the Conference Board's surprisingly high reading of consumer confidence. The May index was the highest since September. Consumer sentiment does not always correspond to consumer spending, but the data nevertheless fueled investors' hopes for an economic rebound later this year.
The Dow is 29.4% above the 12-year low it reached in early March, but still 40.2% below the record high it hit in October 2007.
Advancing stocks narrowly outpaced those that fell on the New YorkStock Exchange, where volume came to 256.8 million shares compared with 294.3 million shares about the same time Tuesday.
Government bonds showed modest moves ahead of an auction of $35 billion in five-year notes that is part of the $101 billion in debt the government is issuing this week.
The dollar rose against other major currencies after data showed U.S. existing home sales rose 2.9% in April against a fall of 3.4% in March.
The dollar had already firmed earlier in the session after a European Central Bank official said further interest rate cuts could not be ruled out, and as a two-year U.S. debt sale on Tuesday was met with solid demand.
A firmer dollar generally weighs on gold, which is often bought as an alternative investment to the U.S. currency.
Gold turned higher as weakness in the equity markets diverted investment into bullion, balancing out the negative effects of a firmer dollar.
Weakness in the stock markets after the opening of New York trade lifted gold from lows of $941.25. Stocks are suffering from a retreat in risk appetite, which had sharpened after Tuesday's upbeat report on U.S. consumer confidence.
"We might see a bit of risk aversion coming back after yesterday's good reading from the consumer confidence index," said Standard Bank analyst Walter de Wet.
"The markets probably overran a bit. It was a good figure, but it was only one figure."
Longer term, analysts say gold may benefit from rising U.S. inflation once the economy begins to recover. While at present the environment is still largely deflationary, this could change rapidly once economic activity picks up.
"Inflation is perhaps not the tune of this year, as demand remains weak despite all those green shoots," said VTB Capital analyst Ivan Ivanchenko. "But given how fast the environment is changing, inflation may come much faster than many expect."
Other commodities lent little direction to gold. Oil and most base metals prices inched higher after U.S. consumer confidence data released on Tuesday boosted the appeal of industrial raw materials.
Contributed by Reuters