The euro weakened, Treasuries reversed losses and stocks fluctuated as concern about European bank stress tests and Chinese loan losses overshadowed better- than-estimated earnings and U.K. economic growth. The euro fell against 13 of 16 major counterparts, depreciating 0.4 percent to $1.2844 at 11:30 a.m. in New York. The 10-year Treasury yield was little changed at 2.95 percent after jumping to almost 3 percent earlier. The Standard & Poor’s 500 Index lost less than 0.1 percent to 1,093.3, heading for a weekly gain of 2.6 percent. Oil slipped 0.8 percent to $78.69 a barrel after surging to an 11-week high yesterday. European Union stress tests are set to ignore the majority of banks’ holdings of sovereign debt, spurring concern the evaluations are not rigorous enough to determine if a lender can survive a government default. Chinese banks may struggle to recoup about 23 percent of $1.1 trillion lent for local government projects, according to a person with knowledge of data collected by the nation’s regulator. “The news out of China is certainly a headwind,” said Mark Turner, head of U.S. sales trading at Instinet, which handles about 4 percent of U.S. equity trading volume. “The upcoming stress test results are an unknown, so that is also causing uncertainty.” Stress Test Watch The euro slumped the most against the pound, losing 1.4 percent, and slipped 0.8 percent versus the New Zealand dollar and South Korean won. European banks were examined on sovereign debt losses for the bonds they trade, rather than those they hold to maturity, according to a draft European Central Bank document. The results of the tests will be released at 12 p.m. New York time. The European stress tests will assume a loss of 23.1 percent on Greek debt, 14 percent on Portuguese bonds, 12.3 percent on Spanish debt, and 4.7 percent on German state debt, according to the document obtained by Bloomberg News. U.K. government bonds will be subject to a 10 percent haircut, and France 5.9 percent. “We feel some trepidation about the veracity of the stress tests of Europe’s banks,” said Randy Bateman, chief investment officer at Huntington Asset Management in Columbus, Ohio, which oversees $13.5 billion. “If one fails, then it could start the same contagion we saw during the sovereign debt crisis. Any hint of weakness and investors will flee.” In the U.S. stock market, Verizon Communications Inc. led telephone shares higher after new phones helped the company grow subscriptions and top analysts’ earnings estimates last quarter. Ford Motor Co. surged 3.6 percent after completing its most profitable first half in more than a decade as buyers pay more for its new models. Of the 149 S&P 500 companies that have reported earnings since July 12, about 85 percent have beaten forecasts for earnings-per-share, according to Bloomberg data. Less than 70 percent have topped sales estimates, the data show. To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Elizabeth Stanton in New York at estanton@bloomberg.net.

Source