US & World Daily Markets Financial Briefing 02-10-2008

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US STOCKS-Wall St extends losses as factory orders tumble

NEW YORK - U.S. stocks extended losses on Thursday as data showing U.S. factory orders tumbled in August heightened concerns about the economy.

All three major indexes fell more than 2 percent as the negative data added to anxiety about the fate of a $700 billion financial-sector rescue plan.

The Senate passed a revised plan on Wednesday, two days after the House rejected the initial version and triggered the biggest slide in U.S. stocks in more than two decades. A second House vote was expected on Friday.

The Dow Jones industrial average .DJI was down 231.14 points, or 2.13 percent, at 10,599.93. The Standard & Poor's 500 Index .SPX was down 28.29 points, or 2.44 percent, at 1,132.77. The Nasdaq Composite Index .IXIC was down 47.78 points, or 2.31 percent, at 2,021.62.

US weekly jobless claims rise 1,000 to 497,000, highest level since Sept. 2001

WASHINGTON - The number of individuals filing new claims for unemployment insurance in the latest week rose to a level not seen since just after the Sept. 11 2001 terrorist attacks, but the US Labor Department said that much of the unexpected increase is due to an influx of claims related to the recent hurricanes in Louisiana and Texas.
   
The number of first-time claims filed in the week ending Sept. 27 rose by 1,000 to 497,000, the highest level seen since the period shortly after the Sept. 11 terrorist attacks. Economists polled by Thomson Reuters IFR Markets were expecting claims to fall in the latest week to 475,000.
   
The Labor Department said Hurricanes Gustav and Ike added approximately 45,000 claims to the total this survey week. Even when subtracting for hurricane-related claims, total jobless claims were still above 400,000, a level many economists consider a signal of recession.
   
Labor reported the four-week moving average for initial claims, a measure economists prefer because it smoothes out fluctuations in weekly data, rose 11,500 to 474,000, the highest level seen since Oct. 2001.
   
Meanwhile, the number of individuals continuing to receive unemployment insurance in the week ending Sept. 20 rose 48,000 to 3.591 million, the highest level since Sept. 2003. Economists were expecting continuing claims to rise more moderately to 3.55 million.
   
The four-week moving average for continuing unemployment claims increased by 48,000 to 3.591 million, the highest level since Oct. 2003.

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FOREX-Dlr rides up on Senate vote, ECB holds rates

LONDON - The dollar neared a one-year high versus a basket of currencies on Thursday after the U.S. Senate passed a $700 billion bank bailout plan, pinning the euro down as the European Central Bank held rates at 4.25 percent.
  
After the widely anticipated rate verdict, investors' focus rests with ECB President Jean Claude Trichet's post-decision news conference at 1230 GMT for his views on the escalating financial market crisis and future interest rate policy.
   
"With the deteriorating financial market crisis and emerging evidence of further deterioration in the economy ... all that should argue for the ECB president to soften his language a little bit," Brown Brothers Harriman senior currency strategist Audrey Childe-Freeman said.
   
"But hoping for a signal of a rate cut could prove disappointing," she said.  The U.S. rescue package, which will allow the government to mop up toxic mortgage-related assets from ailing banks to help resolve the year-long credit crisis, faces a second vote in the House of Representatives, which had earlier
voted against it.
  
House Financial Services Committee Chairman Barney Frank told CNN the bill was more likely to pass, but the outcome was uncertain. The House will probably vote on Friday.
   
"Overall, there is a recognition that this is broadly dollar positive and the momentum is in favour of the dollar," said Daragh Maher, deputy head of global FX strategy at Calyon in London.
   
At 1209 GMT, the dollar index, a gauge of its performance against six major currencies, was up 0.4 percent at 80.019 -- near a one-year peak of 80.375 struck last month.
   
The euro fell 0.8 percent on the day to $1.3905, having hit a session low of $1.3856 -- a level last seen in September 2007. Against the yen, the single currency slid 1.1 percent to 146.61 yen, after having touched a two-year low of 145.97 yen.
   
Investors are keenly awaiting Trichet's latest take on the intensifying global financial turmoil. "Several analysts expect that the ECB will hint to a rate cut in the near future. The ECB would have to adjust its assessment of future economic developments, though. So far, the ECB has been rather optimistic about growth prospects," said Commerzbank analysts in a report.
   
Despite being at the epicentre of the financial crisis, the dollar has surged this week after several European banks had to be bailed out -- highlighting the international nature of the crisis. This had hit the euro and pound.
   
Banks and funds scrambling to buy dollars on the open market because they cannot borrow funds in frozen interbank money markets have provided further support for the greenback. The confluence of factors has pushed the euro and sterling both down about 4 percent against the dollar so far this week.

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European shares gain on hopes for banks recovery

LONDON - European share prices gained early on Thursday with the passing of a $700 billion banking industry bailout package by the U.S. Senate rekindling hopes that banks could advance on a recovery path.
      
At 0834 GMT the FTSEurofirst 300 index of top European shares was up 1.1 percent at 1,084.03 points. The benchmark closed 0.9 percent higher in the previous session, but is down about 28 percent so far this year.
      
Swiss bank UBS rose 9.5 percent after it said it would make a small profit in the third quarter after a year of losses, signalling it had started to turn the corner even as the credit crisis still engulfs many U.S. and European peers.
      
Banking stocks were the top weighted gainers on the index, with HBOS rising 13.3 percent, Lloyds TSB rising 4.1 percent, Fortis gaining 15.5 percent and Dexia climbing more than 8 percent.
      
Shares in French bank Natixis rose nearly 13 percent on market talk that the company's owners could buy out the public shareholding and delist its shares. No immediate comment was available from Natixis.
      
The support for the banking sector came from the U.S. Senate, which approved the rescue package late on Wednesday, putting pressure on the House to approve a plan that political and financial leaders called crucial to averting economic catastrophe.
      
"I wouldn't be surprised if we see a decent rally over the next month as long as we get the passage of the bill so that people can think that the building blocks are in place to make the restructuring of the banking sector more orderly," said Andrew Bell, head of research at Rensburg Sheppards. "And we have got to have either the reality or the hope of interest rates coming down," he added.
      
The revised legislation is aimed at reinvigorating worldwide credit markets and interbank lending that had frozen up while overleveraged financial institutions staggered under the weight of failed mortgages. But market participants said that the rescue package is not a cure-all, with a worsening economic outlook spurring calls for central banks to cut interest rates.
     
Gloomy economic data continued to pour in. British house prices fell 1.7 percent in the month of September from August to post their biggest annual drop since comparable records began in 1991, the Nationwide building society said.
       
Investors awaited the European Central Bank's rate decision at 1145 GMT. The bank is expected to keep rates on hold at 4.25 percent but its views on the global financial crisis will be scrutinised by the market.
      
"There is mounting pressure on the central bank to cut key rates to help crisis-ridden banks and ward off the increasing risks to the economy," German bank Helaba said in a commentary note.
      
Across Europe the FTSE 100 index was up 0.9 percent, Germany's DAX rose 0.6 percent and France's CAC 40 added 0.9 percent.
      
Miners broadly gained, tracking a rise in key base metals prices and on positive market sentiment. BHP Billiton, Anglo American, Lonmin  and Rio Tinto rose between 0.6 and 3.9 percent.
      
Energy stocks were also up despite a decline in crude oil prices. BP, Royal Dutch Shell, gas producer BG Group and Cairn Energy added between 0.9 and 1.6 percent.

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Asia Market Summary

JAPAN
The Nikkei average slipped 1.9 percent to a three-year closing low on Thursday despite passage of a $700 billion financial bailout bill by the U.S. Senate, as growing fears about the global recession
offset relief.
   
The benchmark Nikkei shed 213.50 points to end at 11,154.76, the lowest close since mid-2005. The broader Topix fell 2.2 percent to 1,076.97.

SOUTH KOREA
Foreign direct investment (FDI) plans in South Korea fell for the first time over a year for the third quarter, dragged by the global financial market turmoil, government data showed on Thursday.
   
The outlook for FDI is also unclear as international investors grow more risk averse on the widening fallout from the U.S. financial market crisis.  Asia's fourth-largest economy received $2.87 billion worth of FDI plans for the July-September period, down 2.6 percent from $2.95 billion a year earlier, the Ministry of Knowledge Economy said in a statement.
   
This was the first decline after four consecutive quarters of healthy growth as the financial and insurance sectors suffered a sharp drop in foreign investment.
   
During the first nine months, FDI plans stood at $7.42 billion, 17.4 percent higher than a year ago. South Korea is maintaining its FDI target of $12 billion with a 14.3 percent growth rate this year, the ministry said.
   
"Although many international agencies project a smaller size of FDI deals worldwide this year, we will strive to achieve our goal by inducing more investments from oil-rich Middle East countries and others," a ministry official said.
   
South Korea has become less attractive to overseas investors in recent years than lower-cost neighbours such as China, Vietnam and India. Foreign investors have also blamed a long tradition of lifetime employment and often confrontational labour relations for making the country a less attractive business destination.

TAIWAN
The weighted index closed down 60.29 points or 1.05 pct at 5,703.72, off a high of 5,840.09 and a low of 5,672.39, on turnover of 66.46 bln twd.

The Taiwan dollar closed the morning at 32.111 to the US dollar, compared with the previous close of 32.029.
   
Smartphone maker HTC was limit-down 34.00 twd or 7 pct at 454.00. Hon Hai, the world's largest contract electronics maker, fell 7.00 twd or 6.25 pct to 105.00 and chip designer MediaTek was 15.00 twd or 4.62 pct lower at 310.00.

AUSTRALIA
Australian shares fell 0.7 percent on Thursday, as investors waited for the final verdict on a $700 billion U.S. financial rescue package after the U.S. Senate approved the plan.
   
The benchmark S&P/ASX 200 index lost 33.5 points to 4,761.1, based on the latest available data, after gaining 4.2 percent on Wednesday.

HONG KONG
The Hang Seng index closed up 194.90 points or 1.08 pct at 18,211.11, off a low of 17,631.70 and high of 18,285.68.

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US gold falls 3.5 pct, above $850 as dollar jumps

NEW YORK - New York gold futures dropped 3.5 percent  on Thursday, holding above $850 as the dollar surged and as global markets  steadied on hopes that the U.S. Congress would pass a $700 billion financial-sector bailout plan.

Gold dropped as dollar rose on the unwinding of carry trades, risk  aversion and repatriation of funds back to the U.S. currency - Leonard  Kaplan, president of Prospector Asset Management.
   
Gold's decline related to uncertainty about the U.S. market rescue  plan, which was passed by the Senate on Wednesday, and now lies with the  House of Representatives.
   
Bullion weakened as market jitters subsided after the Treasury  Department guaranteed money market mutual funds and a Congress proposal to  raise the deposit insurance limit to $250,000 from $100,000 per account -  Kaplan.
   
Recent sharp drop of gold futures open interest indicated more long  liquidation - dealers. COMEX gold futures open interest dropped by 21,153 lots to 336,598  lots as of Sept. 30.
   
However, the immediate need for cash will still leave bullion  vulnerable to bouts of long liquidation in the short-term - analysts.  Bullion holdings of SPDR Gold Trust, the world's largest  gold-backed exchange-traded fund, held steady on Wednesday at a record  755.26 tonnes.
 
COMEX estimated 9:00 a.m. volume at 59,116 lots, with options  turnover at 3,029 contracts. Spot gold quoted at $853.40/855.40 an ounce, down 1.7 percent  from gold's nominal Wednesday close at $868.75.  The morning fix in London was $866.25.
   
December down 88.00 cents or 7.0 percent at $11.890 an ounce  as less liquid silver gained more than gold. Silver rose to a high of $12.660, with the low at $11.700. COMEX estimated 9 a.m. volume at 9,949 lots.
 
Spot silver at $11.81/11.88 an ounce, down 0.7 percent from  Wednesday's nominal close of $12.52. London silver fix at $12.250.
   
NYMEX January platinum down $36.00 or 3.5 percent at $1,007.10  an ounce on sharply weaker auto sales on Wednesday and widespread decline  of precious metals. January broke below the psychological $1,000 mark in overnight  trading.
   
Platinum's recent decline was driven by fears that a weaker economy  would hurt car sales and, as a result, autocatalyst demand. Spot platinum was at $988.00/1,008.00. December palladium down $2.95 or 1.4 percent at $208.00 an ounce. Spot palladium at $202.50/206.50.

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