US & World Daily Markets Financial Briefing 04-04-2007

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Stocks Fall on Service Sector Report

NEW YORK - Stocks fell moderately Wednesday after a trade group reported the country's service economy expanded at a slower pace in March than in February.
   
The report came as Wall Street received mixed reports from electronics retailers and found some relief from global political tensions with word that Iran would release 15 detained sailors and marines.
   
Oil prices, which had been higher since the sailors and marines were taken March 23, moved lower.
   
Investors also weighed a disappointing estimate on U.S. employment a day after the Dow Jones industrials and Standard & Poor's 500, riding some optimism about the housing market, rose to their highest levels since a global pullback Feb. 27.
   
In the first hour of trading, the Dow fell 5.28, or 0.04 percent, to 12,505.02.
   
Broader stock indicators slipped. The Standard & Poor's 500 index fell 1.88, or 0.13 percent, to 1,435.89, and the Nasdaq composite index fell 0.39, or 0.02 percent, to 2,449.94. Declining issues outnumbered advancers by about 5 to 4 on the New York Stock Exchange, where volume came to 157.4 million shares.
   
The Russell 2000 index of smaller companies fell 2.85, or 0.35 percent, to
808.92.
   
Overseas, Britain's FTSE 100 fell 0.11 percent, Germany's DAX index rose 1.56
percent, and France's CAC-40 rose 0.20 percent.
   
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.65 percent from 4.67 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices rose.
   
Light, sweet crude fell 92 cents to $63.72 on the New York Mercantile Exchange.
   
The Institute for Supply Management, an organization of corporate purchasing executives, reported its index of business activity in the non-manufacturing sector came in at 52.4 in March, down from 54.3 in February. Wall Street had been expecting a reading of 54.7.
   
Figures above 50 indicate expansion. March represents the 48th consecutive month of growth in the non-manufacturing industries. Also, new orders placed with U.S. factories for manufactured goods rose by 1 percent in February. Economists had been expecting an increase of 1.9 percent.
   
Investors appeared unimpressed with a report from payroll-services company Automatic Data Processing Inc. and consultancy Macroeconomic Advisers reported that predicts an increase of 106,000 private jobs in March. That came in below economists' expectations for an increase of 150,000 jobs.
   
Stocks in focus

In corporate news, Best Buy Co. rose 45 cents to $49.58 after reporting its fiscal fourth-quarter profit rose nearly 19 percent.
   
Rival Circuit City Stores Inc. posted an unexpected loss because of sluggish sales growth -- especially in its flat-panel televisions. Circuit City, the No. 2 electronics chain behind Best Buy, fell 13 cents to $18.15.
   
In other corporate news, automakers will remain in focus as DaimlerChrysler AG Chief Executive Dieter Zetsche said the automaker is in talks with potential buyers for its Chrysler unit. He would not elaborate on who was involved in the talks.
   
There is also speculation that Goldman Sachs Group Inc. and JPMorgan Chase & Co. have been hired by private equity firm Apollo Management LP about a possible public offering, according to The Wall Street Journal. Apollo would follow a move by rival Blackstone Group LP to raise $4 billion with a stock market debut.

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Euro rises after strong German manufacturing data

LONDON - The euro was higher in midday trade, following a stronger-than-expected rise in German manufacturing orders.
   
German manufacturing orders in February rose a seasonally adjusted 3.9 pct from January, well above forecasts for a much more modest 0.5 pct rise, data released earlier showed.
   
"Germany's recovery is going from strength to strength," said David Brown at Bear Stearns.
   
"This is a positive sign of good health for global recovery as investment spending is being maintained and overseas producers are looking to German capital goods to gear up for stronger real activity ahead. These numbers should be a positive spur to the euro," he added.
   
The strong data will confirm expectations that the European Central Bank is set to raise interest rates by a further quarter point to 4.00 pct in the coming months, most likely in June.
   
Calyon analyst Stuart Bennett noted, however, that while the figures "should be very euro supportive", the euro only managed to edge slightly higher following the release with the market thinning out ahead of the Easter holidays.
   
Earlier this morning, the euro zone PMI index on the services sector for March remained strong, despite a very slight dip to 57.4, while official retail sales figures for February came in below forecasts though still showed a rise.
   
Elsewhere the yen weakened further with the start of the new fiscal year in Japan, while the Reserve Bank of Australia's (RBA) decision overnight not to raise interest rates failed to dent the carry trade, with a rate hike in May still fully expected. 
   
The dollar has strengthened slightly in recent days following positive US data.
   
Elsewhere, the pound remained firm after a modest rise in the March UK services PMI index.

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Top Stories in Europe at 12.05 GMT

Berlin - DaimlerChrysler AG confirmed for the first time that it is talking with some parties who are interested in its loss making unit Chrysler. "I can confirm that we are talking with some of the potential partners who have shown a clear interest," chief executive Dieter Zetsche said in the speech he will deliver at the AGM today.

Milan - Eni SpA and Enel SpA said their consortium EniNeftgaz won the latest auction of assets of stricken Russian oil business Yukos, paying about 4.3 bln eur (5.8 bln usd) for 20 pct of the company OAO Gazprom Neft and other former Yukos assets.

Russian airline Aeroflot and Unicredito Italiano SpA may team up with a European carrier in their bid to acquire the controlling stake in Alitalia SpA the Italian government has put up for sale, daily La Repubblica and other newspapers reported. La Repubblica said this European partner could be Air France-KLM and an announcement could be made in a couple of weeks.

Madrid - Grupo Ferrovial SA said it would not be interested in participating in a bid for Iberia Lineas Aereas de Espana SA, denying earlier media speculation. "Ferrovial would not be interested," a source at the group told AFX News.

Endesa SA is considering mounting a legal challenge to the proposed bid for the electricity group by Acciona SA and Enel SpA, El Economista reported citing unnamed sources. The newspaper said Endesa lawyers may resuscitate legal arguments used by EON AG in various suits against its former rivals in the bidding war, that were dropped as part of the deal to withdraw its offer earlier this week.

La Caixa is considering a merger between Repsol YPF SA and Gas Natural SDG SA before July, Hispanidad reported without citing sources. The website said the savings bank would seek to link the two energy firms ahead of its planned listing of a holding company containing its industrial portfolio.

Frankfurt - Kabel Deutschland (KDG) is planning to slash 8 pct of jobs to reduce costs, Financial Times Deutschland reported, citing a spokesman for the company. Some 220 positions will be eliminated, of which 190 will be compulsory redundancies, the newspaper said.

Vienna - An unknown investor is said to hold a substantial tranche of Boehler-Uddeholm shares and is planning a rival takeover offer around April 16, the day the Takeover Commission is expected to give the go-ahead to voestalpine's offer, according to the Austrian daily Kurier.
 
Russian oligarch Viktor Vekselberg, who has a 16 bln usd fortune, is named by Kurier in connection with the probable rival bid, which is expected to be in the region of 75 eur a share.

Paris - Sodexho reported a 4.2 pct rise in first half 2007 sales to 6.819 bln eur from 6.546 bln a year earlier, with particularly sharp growth in the service voucher and cards business.
 
Organic sales growth for the period, on a constant structure and exchange rate basis, was 8.2 pct, leading the group to raise its full-year target for organic growth to over 7 pct, which it said is in line with its medium term objective of annual average organic growth of 7 pct.

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Asian shares close higher, new record highs in Australia, SKorea

HONG KONG - Shares across the Asia-Pacific region closed higher, with some markets making strong gains and the Australian and Seoul markets hitting new record highs on corporate activity.
   
Tokyo shares ended sharply higher as investor sentiment was buoyed by Wall Street's rally overnight amid easing concerns over its economy, while the softer yen continues to drive hopes of better earnings at Japanese exporters.

The blue-chip Nikkei 225 Stock Average closed up 300 .04 points or 1 .74 pct
at 17,544.09 off a high of 17,576.51. The TOPIX index of all first-section issues closed 26.20 points or 1.54 pct higher at 1,730.52 off a high of 1,733.53.
   
Ryuta Otsuka, strategist at Toyo Securities, said buying interest was spurred by gains on Wall Street overnight, a weaker yen and a return of foreign buyers.
   
"But it is too early to say that the market is back on the upward trend. It is still in the process of returning to the level before the end-February world stock market sell-off," he added.
   
Kazuhiro Takahashi, equity general manager at Daiwa Securities SMBC, said the market was also helped by the drop in crude oil prices by more than 1 usd a barrel overnight as tensions eased in the stand-off between Britain and Iran over captive British military personnel.
   
Australian shares closed higher at fresh record levels with sentiment buoyed by merger and acquisition activity and the Reserve Bank of Australia's decision to hold interest rates.
   
The market jumped from the open after conglomerate Wesfarmers announced late yesterday a proposed offer for the nation's second largest retailer, Coles Group, in what would the biggest-ever corporate takeover in Australia.
   
Dealers said the Reserve Bank's pre-open decision to leave the official cash rate at 6.25 pct provided further buying impetus, as did strong gains in the resource sector. The S&P/ASX 200 closed up 83.8 points or 1.39 pct at a record 6,097.2. The key index closed at the day's high.
   
Hong Kong shares were higher in afternoon trade, tracking a rally on Wall Street overnight after better-than-expected home sales data eased concerns over the US housing sector. At 3.20 pm the Hang Seng Index had risen 150.28 points or 0.75 pct to 20,152.98.
   
In mainland China, A-shares in Shanghai and Shenzhen closed slightly higher with auto and machinery stocks gaining further ground, even as profit taking emerged to trim the upside. The Shanghai A-share Index was up 0.05 points at 3,459.51 and the Shenzhen A-share Index was up 9.51 points or 1.06 pct at 903.08, a fresh record.
   
Seoul shares finished sharply higher to register a new record high as foreign investors continued to buy Samsung Electronics and other blue chips ahead of the corporate quarterly earnings season starting next week. Boosted by Wall Street's overnight surge on easing housing concerns and falling oil prices, the market easily surpassed its historic record of 1,471 points seen in late February.
   
Investors also hoped that the free trade accord with the US will revive the nation's economy via exports growth and active foreign investment, an expectation that, combined with the recent agreement over North Korea's nuclear program, may lead to sovereign rating upgrades.
   
The KOSPI index closed up 19.66 points or 1.34 pct at 1,483.41, off a low of 1,471.05 and a high of 1,484.86.

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Gold rises on weaker dollar, strong oil prices; copper extends gains

LONDON - Gold prices moved higher, benefiting from strong oil prices and investment flows as a result of the softer US dollar.
   
At 11.22 am, spot gold was quoted at 666.40 usd an ounce, from the 664.50 usd level seen in late New York trades yesterday.
   
Easing geopolitical tensions between Iran and the UK underpinned the metal by spurring traders' appetites for riskier assets, like gold, said UBS analyst, John Reade.
   
The UK government has had direct contact with Ali Larijani, Iran's National Security chief. "Both sides share a desire for an early resolution of this issue through direct talks," Downing Street said in a statement late last night.
   
Iran and the UK has been in an ongoing dispute since March 23 when it took 15 British Navy Personnel captive after finding them 'illegally' in Iranian waters on March 23.
    
"Political risk aversion buying of gold over the past two years, and especially over the past six months, has been a factor in gold's strong performance," he said.
   
However, analysts noted gold has been trapped in a tight range for several days now, despite strong fundamentals.
    
In other precious metals, silver was at 13.44 usd an ounce against 13.40 usd, platinum was unchanged at 1,240 usd, while palladium was at 353 usd usd against 352 usd.

Copper was higher after breaking through the 7,000 usd barrier yesterday, with supply fears linked to an ongoing strike at Doe Run's La Oroya plant in Peru and positive signs of demand growth in key markets China and the US continuing to buoy prices.
   
The majority of base metals continued to post gains this morning after a strong day yesterday which saw both nickel and lead setting fresh record highs.
   
Supply fears over copper boosted the metal as a strike by workers at the La Oroya zinc and copper smelter in Peru run by US-based Doe Run continued into its third day. The company said it is resuming talks with workers today.
   
The smelter is reported to be running at roughly 40 pct capacity as a result of the strike.
   
At 11.32 am, copper for three-month delivery rose to 7,275 usd, against 7,230 usd at the close yesterday.
   
Zinc was up at 3,320 usd against 3,251 usd and lead rose to 1,988 usd from 1,965 usd, also supported by the strike news. Doe Run is the world's second largest lead producer.
   
The market was also eyeing developments at a copper mine in China's Hubei province, where flooding trapped six miners underground earlier this week.
   
Fears of flagging demand in the US were also partially alleviated this week, while the market also took comfort from further confirmation Chinese demand is growing strongly.
   
Data out earlier this week showed US manufacturing growth slowed less quickly than expected in March, further boosting sentiment towards copper.
   
Nickel, yesterday's biggest riser with a 7 pct price hike, dipped slightly to 48,599 usd against 48,650 usd at the close yesterday. Nonetheless sentiment remained positive, with JP Morgan Securities saying the metal "looks on track to push towards the 50,000 usd level".
   
Backwardation -- the premium paid for the cash metal over the three-month price -- remains solid, indicating that the market is continuing to value near-term supply, it added.
   
Aluminium meanwhile edged up to 2,844 usd against 2,843 usd, while tin was at 14,150 usd, up from 13,975 usd.

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