Emerging Stocks Slump as Gold Shares Sink on Dollar Rally

Emerging-market stocks retreated, capping the biggest weekly slide in four months, as growing speculation the Federal Reserve will curtail economic stimulus drove a rally in the U.S. dollar and sank gold producers.

The MSCI Emerging Markets Index decreased 1.5 percent to 995.30, extending its slump for the week to 3.2 percent. Benchmark stock gauges from South Africa to Russia and China dropped more than 1 percent, while the Borsa Istanbul National 100 Index posted the second-biggest decline among the 94 world equity gauges tracked by Bloomberg. DRDGold Ltd. (DRD) and AngloGold Ashanti Ltd. decreased at least 3.7 percent in Johannesburg as the precious metal drove losses in commodities.

The dollar climbed to a two-month high, Treasuries dropped the most in four months and gold tumbled as data showed U.S. employers added more workers than forecast, fueling speculation the Fed may start reducing stimulus by the end of this year. The gauge for stocks in developing nations has retreated as much as 16 percent since May 22, when the U.S. central bank signaled its $85 billion asset-buying program could be trimmed if the economy showed sustained improvement.

"The outlook is positive for the U.S. and that might lead people to think that the Fed will begin tapering sooner rather than later," John Carey, a portfolio manager at Pioneer Investment Management who manages $200 billion in assets globally, said by phone from Boston. "That could lead to some strength in the dollar and rising interest rates. Markets react sometimes in exaggerated ways and people are maybe more fearful than is justified and that may be what's going on today."

Biggest Losses

All 10 groups in the MSCI Emerging Markets Index dropped today, as commodity shares sank at least 1.5 percent. The broad measure fell for a seventh day in the longest losing streak since March 19. It trades at 10.4 times projected earnings, compared with the valuation of 14.3 for the MSCI World Index.

The iShares MSCI Emerging Markets Index exchange-traded fund declined 0.2 percent to $41.16. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, retreated 3.9 percent to 23.83.

Fed policy makers said last week they needed to see more evidence the economy will continue to improve before they trim monthly purchases of Treasury and mortgage debt. The Fed won't begin tapering its bond buying until March and will continue purchasing securities until October, according to the median estimate of 40 analysts in a Bloomberg News survey last month.

'Lingering Fears'

"It appears as though the consensus has pretty much shifted from a March taper to closer to a December taper," Brian Jacobsen, who helps oversee $236 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said by phone. "The moves in the emerging markets are indicating to me that there are still some lingering fears of what sort of effect this could have on those sort of economies."

Brazil's Ibovespa extended its weekly decline to 3.3 percent. Mobile carrier Tim Participacoes SA (TIMP3) sank after parent Telecom Italia SpA (TIT)'s chief executive officer said its Brazilian assets are strategic, damping speculation the local unit will be sold.

Russian stocks declined to the lowest level in a month as builder LSR Group (LSRG) and power company OAO Inter RAO UES dropped after MSCI Inc. cut them from an index tracked by investors. The Borsa Istanbul National 100 Index tumbled 2.5 percent, the most in two months, as Turkiye Garanti Bankasi AS led losses in lenders. Benchmark gauges in the Czech Republic and Poland retreated at least 0.7 percent.

Gold Shares

The FTSE/JSE Africa All Shares Index dropped 1.3 percent as DRDGold sank to the lowest level in two months, while AngloGold Ashanti retreated 3.8 percent.

The Shanghai Composite Index fell 1.1 percent, adding to a 2 percent loss this week, before the start of a Communist Party meeting tomorrow. Sanan Optoelectronics Co. dropped 3.3 percent, paring this year's gain to 43 percent. China Cosco Holdings Co. slumped the most in two months after the largest shipping company said an executive director is under investigation. The government is scheduled to release data on consumer prices and industrial output tomorrow.

India's (SENSEX) benchmark stock index fell for a fourth day, capping its biggest weekly loss in three months, as the rupee dropped to a six-week low. HDFC Bank Ltd. (HDFCB) dropped 1.9 percent, leading a gauge of banking shares to a fifth day of losses, the longest losing streak since July. Oil & Natural Gas Corp. (ONGC) slid to a three-week low, leading a slide in the S&P BSE India Oil & Gas Index.

Thailand's stocks dropped the most in Asia and the baht fell to the weakest level in a month as a delay in voting on the government's amnesty bill spurred concerns of more protests against the measure.

The premium investors demand to own emerging-market debt over U.S. Treasuries slid 10 basis points, or 0.1 percentage point, to 318 basis points, according to JPMorgan Chase & Co.