The Morgan Stanley Cyclical Index (CYC) of companies most- dependent on the economy lost 2.7 percent. Bank of America Corp. (BAC) and Caterpillar Inc. (CAT) dropped at least 3 percent. Alcoa Inc. (AA), which declined 2.9 percent in regular trading, jumped 5 percent at 4:25 p.m. New York time after reporting an unexpected profit. Best Buy Co. (BBY), the world’s largest electronics retailer, slumped 5.9 percent as Chief Executive Officer Brian Dunn resigned.

The S&P 500 declined 1.7 percent to 1,358.59, its biggest loss in 2012, at 4 p.m. New York time. The Dow Jones Industrial Average retreated 213.66 points, or 1.7 percent, to 12,715.93. The Chicago Board Options Exchange Volatility Index surged 8.4 percent to 20.39, rallying for a record eighth day. More than 8.3 billion shares changed hands on U.S. exchanges, the most since March 16 and 21 percent above the three-month average.

“I don’t think there’s any rush to be involved in the stock market,” James Swanson, who oversees about $250 billion as chief investment strategist at Boston-based MFS Investment Management, said in a telephone interview. “Europe is a temporary concern. The market is signaling they haven’t fixed the whole problem. Investors will need more reassurance.”

Stocks fell as Spanish bonds slumped after Economy Minister Luis de Guindos declined to rule out a rescue and Bank of Spain Governor Miguel Angel Fernandez Ordonez said the nation’s lenders may need more capital if the economy weakens more than expected. The Italian 10-year yield rose 23 basis points to 5.69 percent, sending the spread over bunds to 4.04 percentage points, the most since Jan. 31 on a closing basis.

50-Day Average

Today’s decline sent the S&P 500 below its average price in the past 50 days of about 1,372. The index, which has dropped 4.3 percent in five days, retreated 1.1 percent yesterday after an April 6 report showed employers added fewer jobs than forecast in March. Federal Reserve Chairman Ben S. Bernanke yesterday said the U.S. economy hasn’t fully recovered.

“Friday’s disappointing report has eroded investor confidence about America’s self-sustaining ability to overcome headwinds from Europe,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said in an e-mail.

Investors also awaited the start of the first-quarter earnings season. While per-share profit growth slowed to 0.8 percent from 4.9 percent in the fourth quarter, it will accelerate to 8.3 percent during all of 2012, according to analyst estimates compiled by Bloomberg.

Biggest Losses

All 10 groups in the S&P 500 declined today as consumer discretionary, financial and industrial shares had the biggest losses. The Dow Jones Transportation Average retreated 2.1 percent. A measure of 11 homebuilders in S&P indexes slumped 4.8 percent. The KBW Bank Index dropped 2.3 percent as all of its 24 stocks declined. Bank of America slipped 4.4 percent, the most in the Dow, to $8.54. Caterpillar fell 3 percent to $100.43.

Alcoa, the first company in the Dow to report quarterly results, lost 2.9 percent to $9.32. The shares rose 5 percent to $9.79 after the close of regular trading. The largest U.S. aluminum producer reported an unexpected first-quarter profit as customers from automakers to beverage-can manufacturers ordered more of the metal.

Net income fell to $94 million, or 9 cents a share, from $308 million, or 27 cents, a year earlier, the company said today in a statement. Earnings excluding restructuring costs and other items were 10 cents a share, compared with the 4-cent loss that was the average of 19 analysts’ estimates compiled by Bloomberg. Sales increased to $6.01 billion from $5.96 billion. The average of 12 estimates was for $5.77 billion.

Best Buy

Best Buy slumped 5.9 percent to $21.32 after saying board member G. Mike Mikan is taking the CEO position on an interim basis as the company focuses on smaller stores and Internet sales. The change was a “mutual agreement” that new leadership was needed, the company said. A committee of directors has been created to search for a new CEO, the company said.

PPL Corp. (PPL) declined 2.2 percent to $27.06. The energy and utility holding company will sell 9.9 million shares in a public offering.

Supervalu Inc. (SVU) surged 15 percent, the most in the S&P 500, to $6.13. The supermarket and pharmacy chain forecast 2013 earnings excluding some items of at least $1.27 a share, beating the average analyst forecast of $1.19.

“A significant disconnect” between stock valuations and bond yields in the U.S. has made equities relatively cheap, according to Binky Chadha, Deutsche Bank AG’s chief global strategist.

Price-Earnings

Ten-year Treasury yields would have to rise about 120 basis points to track the estimated price-earnings ratio for the S&P 500 as they did during the first three quarters of 2011, Chadha wrote in an April 5 report. Each basis point amounts to 0.01 percentage point. The government security yielded 2.04 percent as of yesterday.

The differential primarily reflects the Federal Reserve’s plan to keep its benchmark interest rate close to zero at least through late 2014, in his view.

“The Fed’s outlook for unemployment and inflation is therefore key” in determining when the gap might close, Chadha wrote. Policy makers for the central bank are scheduled to meet on April 24-25.

Stocks are a bargain with the S&P 500 at about 13 times analysts’ projected earnings for this year, the New York-based strategist wrote. He cited a December report in which he called the index fairly valued at 15.4 times future profit.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

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

http://www.bloomberg.com/news/2012-04-10/u-s-stock-index-futures-gain-as-alcoa-kicks-off-reports.html

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