US & World Daily Markets Financial Briefing 01-03-2007

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Dow down 37 after falling another 209

NEW YORK -  Wall Street tried to stage a comeback Thursday, with the Dow Jones industrials erasing much of a 209-point drop after an upbeat assessment of manufacturing activity eased some fears about a flagging U.S. economy. Just before 11:30 a.m. EDT, the Dow Jones industrial average was down 37.25, or 0.30 percent, at 12,231.38.
   
Broader stock indicators also fell. The Standard & Poor's 500 index was down 3.67, or 0.26 percent, at 1,403.15, and the Nasdaq composite index was down 11.13, or 0.46 percent, at 2,405.02.
   
Investors showed their relief about manufacturing by buying some of the stocks that were pummeled in Tuesday's drop that sliced 416 points off the Dow. Fears about the U.S. economy contributed to that plunge, and a halfhearted rebound on Wednesday followed soothing words from Federal Reserve Chairman Ben Bernanke.
   
The Institute for Supply Management's index of manufacturing activity came in at 52.3, stronger than the 50.0 reading analysts expected. The index is an important measure of a part of the economy that has given investors headaches in recent months. Manufacturing has struggled and at times given off signals that a recession might be in the offing. A reading at 50 and above indicates expansion, while anything below 50 signals contraction.
   
The ISM data showing manufacturing expansion was the trigger behind the market bouncing back from earlier lows, said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc. "However, the aftermath of Tuesday's major selloff will linger for the next couple of days. I don't think we're totally out of the woods yet."
   
Bond prices rose as stocks fell, with the yield on the benchmark 10-year Treasury note falling to 4.53 percent from 4.57 percent late Wednesday.
   
Stocks began their plunge on Tuesday amid growing worries that the U.S. and Chinese economies are slowing, then recovered slightly on Wednesday as Bernanke predicted the U.S. economy would continue to grow moderately.
   
The market appears to be in a pattern set during past big downturns, dropping sharply one day, regaining some ground the next and then resuming its slide as investors were unable to recoup their lost confidence in stocks.
   
U.S. investors began the day feeling skittish after another series of declines in Asian and European markets.

The Russell 2000 index of smaller companies was down 7.28, or 0.92 percent, at 786.02. In afternoon trading, Britain's FTSE 100 was down 1.24 percent, Germany's DAX index was down 1.41 percent, and France's CAC-40 was down 1.36 percent.
   
In other economic news, the Commerce Department said personal incomes rose in January at the fastest pace in a year, fueled in part by executive bonuses and pay hikes for federal workers. Personal incomes rose by 1 percent in January while consumer spending was up by 0.5 percent. The income advance was the largest since January 2006. A confident consumer willing to spend is integral to ushering the economy to the gradual slowdown Wall Street has been hoping for.
   
The report also showed inflation excluding sometimes volatile energy and food prices rose 0.3 percent in January, the largest one-month gain since August. During the past 12 months, the inflation gauge, a favorite of the Federal Reserve, is up 2.3 percent, which remains well above the Fed's 1 percent to 2 percent target.
   
Also, construction activity fell by 0.8 percent in January, double the decline that analysts had been expecting.
   
The Labor Department reported that the number of newly laid off workers filing claims for unemployment benefits rose by 7,000 last week to 338,000. Economists had been expecting a decline in claims.
   
Stocks in focus

Database and software maker Oracle Corp. rose 49 cents, or 2.9 percent, to $16.91 after agreeing to acquire Hyperion Solutions Corp. for $52 per share in cash, or $3.3 billion. Hyperion surged $8.70, or 20 percent, to $51.54.
   
Sears Holding Corp., which controls Sears department stores and Kmart discount stores, reported a better-than-expected increase in its fiscal fourth-quarter profit as margins improved despite weaker sales at established stores. Sears was off $4.93, or 2.7 percent at $175.39.
   
Declining issues outnumbered advancers by more than 3 to 1 on the New York Stock Exchange, where volume came to 679.01 million shares.

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Dollar higher after strong manufacturing ISM number

LONDON - The dollar was supported this afternoon by a stronger-than-expected reading in the US manufacturing ISM indicator.
   
The dollar received support from the data, particularly against the euro and the yen, against which it had weakened in the past few trading sessions. The euro fell below 1.3170 usd after the news. Against the yen, the dollar rose to 117.70 yen from 117.0 yen.
   
"Many have been sitting long euros against the dollar with little to show for it and are pulling the plug on some of those positions," said Jamie Coleman at Thomson IFR Markets.
   
The euro was earlier left to trade in a range after euro zone inflation this morning came in at a benign 1.8 pct for February but was offset by a continued rise in the manufacturing PMI.
   
The point of weakness for both the euro and the dollar today has been against the yen, supported by a reassessment of global risk in financial markets, triggered this week by the sell-off in equity markets. This has led to speculation that investors may start undoing their carry trades -- when investors borrow in countries with low interest rates to invest in higher-yielding economies -- which have been keeping the yen weak in the past.
   
However, analysts have said that the yen strength is probably only a short-term correction, as an unwinding of the carry trades involving the yen would have a much larger effect on the currency.
   
"At a time when global liquidity remains ample and benign inflation argues in favour of relatively stable central bank rates, the temptation to play the yen's negative carry remains strong though investors may want to see further declines in the yen crosses to re-enter the trades," said Michael Ramon Klawitter at Dresdner Kleinwort.
   
Elsewhere, the pound was firmer after a raft of strong data this morning increased the likelihood that the Bank of England will hike interest rates soon.

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Top Stories in Europe at 11.05 GMT

Frankfurt - Deutsche Telekom AG's adjusted fourth-quarter EBITDA fell 12.5 pct as the German telecoms giant continued to struggle with weak business in its home market. EBITDA adjusted for special factors in the three months to Dec 31 was 4.548 bln eur, down from 5.199 bln in the same period a year earlier, the Bonn-based company said. This fell short of the 4.650 bln consensus forecast of analysts polled by AFX News.

Merck KGaA said it expects its 2008/09 EBIT margin for its five divisions - Ethicals, Serono, Consumer Health Care, Liquid Crystals and Performance Life Science - to be unchanged from its expectations for 2007/08.

Allianz SE is planning to enter the Japanese life insurance market next year, a company spokeswoman said, confirming Japanese media reports. "We are currently launching a 100 pct Allianz unit (in Japan)," she said, adding that business operations are to begin there in 2008.

Zurich - Swiss Re reported a forecast-beating full year net profit of 4.560 bln sfr, up from 2.304 bln a year earlier, citing a disciplined underwriting approach in its property & casualty business lines, consistent returns from the life & health segment and a rising contribution from its financial services.
 
Brussels - InBev SA said its net profit has rocketed year-on-year, in-line with expectations, on higher sales and driven by volume growth in Latin America, with the brewer eclipsing its long-term operating margin target. Full year net for the Leuven-based group soared to 1.41 bln eur from 904.0 mln last year and in line with 1.35-1.49 bln forecasts. For the fourth quarter, net jumped to 371.0 mln eur from 165.0 mln.

Telecoms group Belgacom will cut up to 1,500 jobs or 10 pct of its total workforce over the course of the next five years, Belgian financial daily De Tijd reported. The job cuts are due to restructuring within the organisation after Belgacom acquired ICT group Telindus and mobile network operator Proximus in 2006, the newspaper said.

Madrid - Telefonica SA said net profit grew 40.2 pct to 6.233 bln eur in the full year to December from 4.446 bln a year earlier, in line with analysts' forecasts for 4.113-6.898 bln, on revenues of 52.901 bln, up from 37.383 bln. In a statement, the telecos giant said operating income before depreciation and amortisation (OIBDA) rose to 19.126 bln eur from 15.056 bln, also in line with forecasts for 13.913-20.876 bln.

Oslo - Aker ASA posted fourth quarter EBITDA of 1.06 bln nkr, broadly level with last year's 1.04 bln, as the value of the holding company's listed assets surged to 36 bln nkr from 19 bln a year earlier. Aker holds substantial stakes in a number of companies, including Aker Kvaerner ASA, Aker Yards ASA, Aker American Shipping ASA and Aker Seafoods ASA.

Vienna - Andritz said it will increase full year dividends after EBIT for 2006 grew almost 50 pct to 159.8 mln eur versus 106.7 mln eur, beating analyst consensus of 150.51 mln, thanks to increased orders and the first time inclusion of VA TECH Hydro. The company said it will propose a 50 pct increase in 2006 dividend to 3 eur a share at its shareholder meeting on Mar 29.

London - Aviva PLC, the UK's largest insurer, reported full-year pretax operating profit on an European Embedded Value basis rose 12 pct to 3.245 bln stg. The result was below consensus analyst forecasts of 3.31 bln stg.

UK manufacturing sector activity rose to its highest level in two and a half years in February, coming in well above analysts' expectations, sources said of a key survey. They said the Chartered Institute of Purchasing and Supply's purchasing managers index jumped to 55.4 in February, its highest level since July 2004, from an upwardly revised 53.2 in January.

Paris - Albert Frere's holding company Groupe Bruxelles Lambert (GBL) will raise its stake in Lafarge to 20 pct in 2007 in order to fend off potential takeover bids by the KKR private equity fund or Lafarge's rivals Cemex in Mexico and Holcim in Switzerland, French weekly Challenges reported without citing sources. According to the report, GBL will initially raise its stake to 20 pct and then gradually increase its holding to over 30 pct in the next three years.

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Asian shares close lower on jitters over outlook

HONG KONG - Shares across the Asia-Pacific region closed lower on fears that the falls in the Chinese and US stock markets might not be over. The Shanghai markets, which sparked this week's sell off, dropped again today.
   
Tokyo shares closed lower, investors having remained wary about the future of the US economy and the performance of markets overseas. The blue chip Nikkei 225 Stock Average closed 150.61 points or 0.86 pct lower at 17,453.51, off a low of 17,261.60 and a high of 17,557.42.
   
The TOPIX index of all first-section issues ended 12.63 points or 0.72 pct lower at 1,740.11, off a low of 1,724.98 and a high of 1,755.70. Hiroaki Hiwada, a strategist at Toyo Securities, said that the market had extended its losses after a large sell-off in the futures markets.
   
"Investors were less active in picking up shares, as further observation of the performance of markets in China and India, as well as the US and Europe, is needed," he said. "As individual investors opt to buy on the dips, the market needs foreign investors to return to purchasing shares to reverse its trend."
   
Australian shares finished down as investors remained cautious following yesterday's sharp sell-off which was sparked by the 8.8 pct plunge on the Shanghai Composite index on Tuesday.
   
Investor sentiment improved with the mainland China stock market rebounding yesterday and the Dow Jones industrial index rising 0.43 pct overnight, but selling continued to hold favor and the major retail banks were the focus of further profit taking.
   
The S&P/ASX 200 closed down 22.3 points or 0.38 pct at 5,810.2, a more subdued decline after yesterday's 2.69 pct drop. The key index managed to end above the day's low of 5,797.3.
   
Hong Kong shares were down in afternoon trade on Tokyo's fall and renewed weakness on the Shanghai market. Wall Street's bounce overnight was not convincing enough to dispel worries about the prospects for global economy and markets after this week's big sell-off. At 3.20 pm the Hang Seng Index had fallen 236.59 points or 1.2 pct at 19,414.92.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply lower on renewed selling pressure ahead of the coming session of parliament, with financial and airline stocks hit.
   
The Shanghai A-share Index ended down 87.99 points or 2.91 pct at 2,937.76 and the Shenzhen A-share Index was down 18.02 points or 2.35 pct at 749.33.
   
The Seoul market was closed for a holiday.
   
Taipei shares closed sharply lower in active trade due to laggard selling after the market was spared from yesterday's plunge across global equity markets. The Taipei market was shut yesterday for a public holiday.
   
The weighted index closed down 223.29 points or 2.83 pct at 7,678.67, after moving between 7,663.17 and 7,761.40.

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Gold edges up after recent losses, investors still upbeat

LONDON - Gold edged up as investors again chose to buy on dips, taking the view that the metal's outlook is still positive notwithstanding recent declines.
   
Gold has surrendered some 20 usd since Monday, when it hit a nine-month high of 689 usd an ounce on rising geopolitical tensions and high energy costs.
   
Since then, poor US economic data and a sell-off in global equity markets -- triggered by Tuesday's 9 pct plunge the Chinese stock market -- has pressured the metal.
   
"Although some may argue gold should rally in crisis-like conditions, we stress the fact that gold was one of the few assets that allowed investors to liquidate quickly in order to cover margin calls ... in other markets," said HSBC analyst James Steel.
   
"In our opinion, as the financial markets stabilise, investors will note this fact and come back into bullion as its role as a safe haven has again been reaffirmed," he said.
   
At 9.51 am, spot gold was quoted at 673.95 usd an ounce, up from the 669 usd level seen in late New York trades yesterday.
   
Silver was up at 14.22 usd an ounce against 14.15 usd in late New York trades yesterday, platinum was down at 1,239 usd an ounce against 1,250 usd while palladium was down at 347 usd an ounce against 350 usd.

Copper gains as market recovers from this week's equities-led sell-off

LONDON - Copper rose as the market recovered from this week's sharp declines, which were prompted by a global market sell off following the plunge in the Chinese stock market on Tuesday.
   
At 12.09 pm, LME copper for three month delivery was up at 6,130 usd a tonne against 6,015 usd at yesterday's close.
   
Tariq Salaria, an analyst at Standard Chartered Bank, said metals have recovered as the market realises the sell off in the Chinese market was simply a correction from overbought conditions.
   
He added copper was also benefiting from a trend towards falling inventories, which seem to indicate the Chinese have returned to the market this year as buyers.
   
The LME said in a daily report earlier copper stocks held in its warehouses dropped by 2,575 tonnes to total 205,400 tonnes. Stocks have now fallen for four days running.
   
Meanwhile, Chinese imports continue to rise. Data out in China yesterday showed imports of refined copper jumped an annual 86.3 pct in January to 131,851 tonnes.
    
Aluminium edged up to 2,846 usd a tonne against 2,815 usd even as LME inventories rose by 550 tonnes to total 803,300 tonnes.
   
LME aluminium stocks have been rising steadily of late because the cash metal is still trading at a large premium to the three month price, attracting physical metal into warehouses. The condition is known as backwardation.
     
Nickel was up at 41,800 usd a tonne against 41,395 usd as the metal continued to benefit from critically low stocks and expectations demand will stay solid going forward.
       
In other metals, tin was up at 13,425 usd a tonne against 13,150 usd at the close yesterday, lead was up at 1,900 usd a tonne against 1,820 usd while zinc was up at 3,559 usd against 3,480 usd.

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