July 30 (Bloomberg) -- John Kerry pulled even with George W. Bush in the U.S. presidential election after Kerry picked a running mate, the stock market tumbled and government reports criticized the administration's handling of terrorism and Iraq, according to betting on electronic exchanges.

The price of a Kerry futures contract traded on the Iowa Electronic Markets rose 11 percent this month to a high of 51.6 on Monday, the first day of the Democratic National Convention in Boston. The contract has since slipped to 49.9. Contracts on Bush's re-election listed on Intrade, a Dublin-based market, fell 12 percent in July to 51.

``It's a market-determined consensus as opposed to a poll number,'' said Thomas Gallagher, 49, a political economist with International Strategy & Investment Group Inc., who says he is following the trading to gauge a potential winner. ``Anyone who is putting money down has to give it more consideration; they have something to lose.''

The current prices suggest that Bush and Kerry, who accepted his party's nomination last night, are in a dead heat. The futures trade on a scale of 0-100. After the election, the contracts on the winner will finish at 100 and the losing candidate's contracts will expire worthless.

A spokeswoman said the Republican Party isn't concerned. ``If I were betting the farm, I'd bet on Bush,'' said Christine Iverson, a spokeswoman for the Republican National Committee.

David Wade, a spokesman for the Kerry campaign, said that ``voters will decide this election on Nov. 2 and not a day before that, but it's clear that Wall Street wants a return to fiscal responsibility and an economic policy that creates good jobs instead of outsourcing them.''

Opinion Polls

Opinion polls show Kerry, 60, and Bush, 58, are tied nationally. A poll published Monday by the Washington Post and ABC News showed Bush with 48 percent and Kerry with 46 percent. A nationwide poll conducted June 17-20 by the same organizations indicated Kerry, a four-term U.S. senator from Massachusetts, led Bush 48 percent to 44 percent. The results in both cases were within the margin of error, indicating a dead heat.

On July 6, Kerry pulled even with Bush on the Iowa market when Kerry selected North Carolina Senator John Edwards, 51, to run for vice president.

Bush futures extended their decline as a Senate report on July 9 said U.S. intelligence officials overstated the threat posed by Iraq. A federal commission report released July 22 said the government missed nine opportunities to disrupt the terrorist plot before the Sept. 11, 2001, attacks and issued 37 recommendations to prevent future attacks.

Kerry said the Bush administration has suffered from bureaucratic and policy struggles over counterterrorism programs. Bush said the report contained ``solid, sound'' recommendations and that ``where the government needs to act, we will.''

Correlation

The Standard & Poor's 500 Index touched its 2004 low on July 26. The same day, Kerry futures climbed to a high on the Iowa market. The S&P 500 has dropped 3.5 percent in July through Wednesday and is headed toward its biggest monthly decline since December 2002.

Gallagher said there is a correlation between the stock market's performance and the chances of Bush winning the election. Both have declined this month.

``I am not trying to make a hard sell on this, but it's interesting,'' said Gallagher, who has written about the Iowa and Intrade markets three or four times this year in reports to clients. ``It's very possible that something else is driving those two -- the weaker economy driving the stock market down and driving down Bush's re-election probability.''

Kerry's Climb

The price of Kerry futures climbed to 49.9 cents from 46.3 cents on June 30, while the cost of futures on Bush winning a second term dropped to 50.9 cents from 54.1 cents, according to the Internet-based market run by the University of Iowa. The figures reflect trading through Wednesday.

The Iowa Electronic Markets has about 2,300 registered traders and more than 30,000 outstanding contracts related to the presidential election, according to Thomas Reitz, a finance professor at the University of Iowa in Iowa City. About $186,000 is invested in the election market, said Reitz, who said the school doesn't make any money from the site.

The university started its political futures market in 1988. The market correctly forecast George H. W. Bush receiving the majority of the popular vote in 1988 and Bill Clinton winning in 1992 and 1996, Reitz said. Futures incorrectly showed Bush taking the popular vote in 2000, when Democrat Al Gore received the majority of votes. Bush became president after a Supreme Court decision halted a recount in Florida, giving him more than the required votes in the Electoral College.

Off the Peak

The Iowa market has an average margin of error of 1.37 percent, based on futures on what percentage of the popular vote the presidential candidate will receive. That's better than the 4 percent or 5 percent in a typical opinion poll, Reitz said.

Futures on Bush defeating Kerry on Intrade.com dropped to 51 from 58 at the start of July. Bush contracts peaked at 75 in January. Since the Bush futures started trading in January 2003, more than 400,000 contracts have been traded.

To wager on Intrade that Kerry will win, a speculator can sell a Bush contract, betting that he or she will be able to repurchase it at a lower price.

A winning contract on the Iowa market will pay out $1, while an Intrade winner will receive $10.

Intrade has about 34,000 customers trading on its Web sites, Intrade.com and tradesports.com, which handles sports betting, spokesman Mike Knesevitch said. Traders also can wager on the chances of Bush winning each of the 50 states and Vice President Dick Cheney remaining on the Republican ticket.

Ohio, Missouri Contracts

Outside of politics and sports, traders can bet on Osama bin Laden being captured, which city will be named host of the 2012 Olympics and where the S&P 500 will finish the year. The sites charge a 4-cent commission per trade.

A contract on Bush winning Florida closed yesterday at 51, while a Bush Ohio victory traded at 52 and Missouri was at 56 on Intrade.com. These states account for a fifth of the electoral votes needed to win the national election.

Opinion polls published this week showed Kerry with a 5 percentage point lead over Bush in Ohio, Bush ahead by 4 points in Florida, and the candidates tied in Missouri. The polls were conducted by Gallup for USA Today and Cable News Network.

James McGlynn, 45, a money manager for Summit Investment Partners in Cincinnati, said he prefers the futures market to opinion polls as a way to track the election. He said he has wagered a ``couple hundred bucks'' on political futures, including a bet that Bush will win Pennsylvania. He correctly bet Kerry would win the Democratic nomination.

``I trust the markets more than slanted pollsters asking random samples,'' said McGlynn, a Republican who helps manage $5 billion and plans to vote for Bush.

To contact the reporter on this story: Danielle Sessa in New York at dsessa@bloomberg.net.

Last Updated: July 30, 2004 00:05 EDT