US & World Daily Markets Financial Briefing 03-10-2007

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Stocks open lower ahead of economic data

NEW YORK - Stocks fell in early trading Wednesday as investors awaited a report on the health of the nation's service economy.
   
Any weakness in the service sector, whose industries range from banking to retail and travel and account for 80 percent of U.S. economic activity, could support the case for further interest rate cuts from the Federal Reserve. The Institute for Supply Management issues its reading on the sector at 10 a.m. EDT and is expected to report slower growth in September, following Monday's a weaker-than-expected reading on the manufacturing sector.
   
The Fed cut its key lending rate last month by a half percentage point. Many investors expect the central bank to trim rates further this year, but there is debate over whether the reductions will come at the Fed meeting Oct. 30-31 or in December.
   
Despite lower interest rates, home buying continued at its sluggish pace. The Mortgage Bankers Association said mortgage application volume fell 2.7 percent in the week ended Sept. 28. The MBA composite index, which gauges the level of mortgage applications, fell to 636.7 from 654.2 a week earlier.
   
In early trading, the Dow Jones industrial average fell 51.62, or 0.37 percent, to 13,995.69. The Dow moved back above the 14,000 mark on Monday after spending 2 1/2 months below that level amid concerns about soured mortgages, tighter access to credit and the ongoing housing market slump.
   
Broader stock indicators also fell. The Standard & Poor's 500 index fell 6.09, or 0.39 percent, to 1,540.54, and the Nasdaq composite index fell 9.80, or 0.36 percent, to 2,737.31.
   
Bond prices rose Wednesday, as yields slipped. The 10-year Treasury note fell to 4.50 percent from 4.53 percent late Tuesday.
   
In corporate news, Germany's Deutsche Bank AG on Wednesday said it would book charges totaling about $3.1 billion in the third quarter due to losses on loans, leveraged loans and structured credit products amid turmoil in the mortgage lending market. But the bank expects gains on asset sales and tax credits to offset those losses. Deutsche projects a profit of $1.98 billion, higher than a year ago.
   
The bank's forecast follows warnings on results from Citigroup Inc. and Switzerland's UBS AG on Monday. However, shares of banks have been resilient this week, as investors appear relieved to get bad news of the turbulent third quarter out of the way amid indications earnings may return to normal levels this quarter.
   
Oil prices held over $80 a barrel in premarket electronic trading on the New York Mercantile Exchange. The Russell 2000 index of smaller companies fell 2.78, or 0.33 percent, to 829.19.

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Yen falls across the board as recovery in risk appetite continues

LONDON - The yen fell across the board as Asian and European equity markets moved higher, prompting a revival in risk appetite leading to the sale of low-yielding currencies.
   
Stocks in Asia closed higher and European bourses managed to post gains despite a weak euro zone service sector survey. This is helping to support the revival in investors' enthusiasm for the carry trade - where they sell low-yielding currencies such as the yen to invest in high yielding ones elsewhere - pushing the Japanese currency lower.
       
Meanwhile the dollar was flat against major currencies, after a strong recovery yesterday, with focus turning to this afternoon's US data.
   
The ISM non-manufacturing index and the ADP jobs report are due this afternoon and will illustrate further how much impact the flagging US housing market and financial market difficulties are having on the wider economy. This in turn will help investors judge the likelihood of more cuts in US interest rates following a half-point cut two weeks ago.
   
The ADP report will be close eyed as a gauge to whether Friday's crucial payrolls data is set to show any further sign of weakness in the US labour market following last month's surprise drop in US employment.
   
The non-manufacturing index meanwhile is predicted to slip to 54.5 from 55.8.
   
However analysts said that even if the numbers turn out to be better than expected, they are unlikely to dislodge fears of a US recession for very long.
   
"With yesterday's pending home starts plummeting faster than expected there is no doubt that the housing market will remain a drag on growth and speculation about US recession risks will never be far below the surface," said Michael Ramon Klawitter, currency strategist at Dresdner Kleinwort.
   
Meanwhile the euro was largely unaffected by a weak euro zone services PMI, with figures showing the German service sector suffering a notable downturn in activity.
  
Attention now turns to the European Central Bank's rate decision tomorrow. The ECB is expected to keep rates on hold at 4.00 pct but analysts will be listening to hear whether the bank's president Jean-Claude Trichet take a more dovish tone in the subsequent press conference.
       
Elsewhere, the pound recovered after an earlier dip when data showed that services sector growth slowed to its lowest level for more than a year. Analysts said that while the dip in the purchasing managers' service sector index to 56.7 from 57.6 suggests activity is slowing, it is unlikely to prompt a rate cut from
the Bank of England tomorrow.

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Euroshares turn slightly higher midday supported by financials

LONDON - Leading European indices turned slightly higher again in midday trading, supported by the banking sector, with Northern Rock surging on M&A news and Deutsche Bank charging ahead on the back of solid third quarter preliminary results.
   
At 11.40 am, the Dow Jones STOXX 50 Index was up 2.85 points, or 0.07 pct at 3,868.88 while the DJ STOXX 600 Index was 0.65 points or 0.17 pct higher at 383.43.
   
In Europe, financials were the main focus today and supporting the overall market, one trader in Frankfurt said, where the market is currently very quiet amid Germany's reunification celebrations.
   
Embattled Northern Rock saw its shares surge 9.7 pct on a report in the Financial Times that the UK mortgage lender will hold takeover talks with JC Flowers, the US private equity firm. The paper reported that the private equity group, which secured 15 bln stg that could be used in a takeover, is interested in keeping Northern Rock as a whole entity and is understood to have received funding commitments from blue chip banks.
   
Staying in the banking sector, Deutsche Bank rose 2.10 pct, in a quiet market given today's reunification celebrations. The bank released its third quarter preliminary results, which were slightly above expectations, according to traders.
   
It said it sees third-quarter net profit exceeding 1.4 bln eur as positive tax effects boost the bottom line and its 'stable' operations help offset the impact of recent turbulence in credit markets.
   
In France, BNP Paribas was off earlier highs, up 0.66 pct, after it reassured investors that its risk exposure to the US subprime crisis is below 100 mln eur.
   
And Banco Comercial Portugues extended yesterday's gains, up 0.16 eur or 5.16 pct as rival Banco BPI upped its stake in the group, which revived talk that the two banks may agree on a friendly merger.
   
And French conglomerate Lagardere shed 7.41 pct as daily Le Figaro reported that the country's market regulator AMF has supplied the Paris public prosecutor with a document detailing claims of widespread insider trading by shareholders and executives of EADS that saved them a total of 90 mln eur after a 2006 profit warning prompted a collapse in the group's share price.
   
The AMF claims Lagardere and Germany's DaimlerChrysler, which each announced it was selling a 7.56 pct stake in EADS in April 2006, demonstrated an anticipation that a drop in the shares was imminent.
       
Shares in Telekom Austria AG rose 2.29 pct after it said it has agreed to acquire a 70 pct stake in Cypriot SB Telecom Ltd, the sole owner of Belarusian mobile phone operator MDC for around 730 mln eur.
       
In earnings news, Sodexho Alliance rose 5.12 pct after the French contract caterer raised its full year operating profit guidance.
   
The group's chief financial officer Sian Herbert-Jones said sales growth in its main business, food and facilities management, accelerated in Europe in the last month of its fiscal year due to the ramp-up of new contracts for KLM in the Netherlands and the Eiffel Tower.
   
In the automotive sector, Porsche rose 4.40 pct after the auto maker saw September North American sales jump 24 pct year over year and following a bullish note by UBS.
   
France's Michelin gained ground, up 0.90 pct, after the tyre maker said it will reorganise its French and Spanish operations to strengthen competitiveness.   

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Japan's Nikkei finished up 0.9 pct at 17,199.89, its highest close since July 31, as hopes for solid earnings growth and the easing threat from subprime loan problems in the US continued to underpin investor sentiment. The broader TOPIX index ended up 1.5 pct at 1,664.01.

Thai share prices closed lower on Wednesday as investors locked in profits in energy and oil stocks. Sentiment was also sluggish due to a slump in the regional market following a mixed close on Wall Street overnight. The Stock Exchange of Thailand (SET) composite index fell 2.85 points or 0.33 percent to 850.58 and the blue-chip SET-50 index lost 3.14 points to 618.89.

Indonesian shares closed lower Wednesday as investors opted to lock in gains following the market's strong rally over the past three days. Gains by car maker Astra group shares limited the market's fall.
   
The composite index closed down 13.36 points or 0.5 percent 2,451.59, off a new all-time intraday high of 2,498.79. Volume was 7.73 billion shares valued at 7.66 trillion rupiah The LQ-45 index was down 2.04 points at 522.63. Decliners led gainers 149 to 60, with 54 stocks unchanged. The Indonesian rupiah was trading at 9,119/9,129 to the US dollar, compared to 9,095/9,100 late Tuesday.

Malaysian shares closed flat Wednesday after Wall Street's retreat overnight triggered a bout of consolidation across Asian markets. The Kuala Lumpur Composite Index (KLCI) closed down 1.76 points or 0.1 percent at 1,366.96.
   
The FTSE Bursa Malaysia 30-large cap index gained 36.40 points or 0.4 percent to 8,653.80 while the second board index dropped 0.7 point or 0.7 percent to 105.58. Losers led gainers 318 to 555 with 284 stocks unchanged and 168 shares untraded.

Hong Kong shares closed a volatile session sharply lower Wednesday as investors locked in gains, snapping three straight days of record closes. Talk in the market that companies are poised to raise cash through share placements also prompted investors to unload stocks in late trade.
   
The Hang Seng Index closed down 719.81 points or 2.6 percent at 27,479.94. The index earlier reached a high of  28,871.04, another record, before a startling reversal in the final hour of trade. Market turnover hit a record 209.8 billion Hong Kong dollars, topping yesterday's turnover of 163.1 billion dollars.

In Australia the S&P/ASX 200 index ended flat at 6,659.9, as support for major financials was counterbalanced by dips in mining giants BHP Billiton Ltd and Rio Tinto Ltd following their record-breaking runs. The All Ordinaries fell 2.2 points to 6,665.4.

All sectors ended higher in the Philippines, with property developers extending their rally on expectations that the central bank will announce its second interest rate cut this year after its policy-setting meeting Thursday.
   
Market heavyweights Philippine Long Distance Telephone Co and Ayala Corp, reached record highs on attractive valuations, ending up 3.4 pct and 4.3 pct respectively. The composite index ended up 2.5 pct to 3,769.82.

Taiwan's weighted index closed up 0.8 pct at 9,700.07, as financial stocks rose on the extended strength of the Taiwan dollar while major plastics companies gained on strong earnings prospects.
   
Financials were also buoyed by expectations that the central bank might maintain its rate hike cycle, as well as news that the authorities are considering allowing banks to retain a bigger portion of their profits for
dividend payouts.

Indian shares notched another record finish Wednesday, with heavy buying seen across the board. The Bombay Stock Exchange's Sensex ended the day up 518.42 points or 3 pct at 17,847.04, while the the National Stock Exchange's S&P CNX Nifty closed up 2.80 pct at 5,210.80.   
   
Reliance Energy was once again the biggest Sensex gainer, up 7.48 pct to end the day at 1,450.40 rupees, after touching a new 52-week high of 1,488.40 rupees earlier in the day.

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Gold rises after correction lower yesterday, rally expected to continue

LONDON - Gold rose after falling sharply yesterday and analysts said prices could spike higher again as credit worries persist, and if the dollar weakens further.
   
The metal has surged some 17 pct since August 23 when it hit an intraday low of 626 usd per ounce.
   
Yesterday's fall, which saw gold tumble more than 20 usd from its intraday high at one point, was a technical correction the market had been waiting for, said Fortis analyst Gerry Schubert.
   
Persistent credit crunch concerns are expected to linger for at least seven months, he said, so safe-haven investment flows into gold, which have helped the recent run up, will swell prices further, he said.
   
Gold could reach as high as 800 usd in the final quarter, said the analyst. At 2.03 pm gold traded at 733.10 usd per ounce against 731.60 usd in late New York trade yesterday.
   
Bullion struck an almost 28 year high of around 750 usd on Monday.
   
Traders will eye the US ISM non-manufacturing index due out at 3.00 pm London time and which could impact the dollar.
   
The data is expected to show a drop to 54.5 in September from 55.8, "although should the reading drop considerably it will no doubt pressure the dollar," said TheBullionDesk.Com analyst James Moore.
   
Should the dollar, which remains close to record lows, decline further, gold would likely rise as the metal moves in the opposite direction to the US currency.
   
Investors see the greenback as an alternative asset to bullion and when weak, it makes gold cheaper for those trading in other currencies.
   
On the physical side, demand is widely expected to abate as prices remain at inflated levels but the floor at which consumers accept higher prices will rise gradually, said Schubert at Fortis.
   
As for financial investors, he said in light of global economic stress, "people might reconsider the value of gold in a prudent portfolio."
   
In other precious metals, silver was also higher at 13.42 per ounce against 13.34 usd yesterday, platinum rose to 1,348 usd per ounce from 1,349 usd while palladium was down at 346 usd per ounce against 349.50 usd.

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