US & World Daily Markets Financial Briefing 04-11-2008

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US STOCKS-Wall St rises as focus firmly on election

NEW YORK - U.S. stocks climbed on Tuesday as Americans began voting in the race for the White House, while investors picked up shares trading around five-year lows amid further signs of easing in credit markets.

MasterCard Inc, the world's second-largest card network, rose more than 10 percent after the company reported better-than-expected earnings late on Monday. Dow component American Express gained 5 percent.

Economic bellwether General Electric was the biggest boost on the Dow, rising 7 percent after the Wall Street Journal reported the Treasury Department is considering using more of its $700 billion rescue package to buy stakes in a wide range of financial companies, such as GE's GE Capital unit.

The interest rates banks charge each other for short term loans also fell again, providing further hope that measures to shore up the credit markets are taking hold.

But the presidential election was first and foremost on investors' minds, with market watchers noting there was some relief that the final outcome was within reach.

"I think the election is overriding everything," said  Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "There's people thinking once the election is over, one of the unknowns of the market will be taken out - the market hates uncertainty."

GE gained 6.9 percent to $20.63. A spokesman for the company said that an investment from Treasury was not something GE expected, and an investment would be evaluated if it was offered.

CIT Group, which was also mentioned in the Wall Street Journal's report, shot up 29 percent at $5.83. MasterCard was up 10.6 percent at $159.11, while American Express rose 5.1 percent to $29.75.

Archer Daniels Midland Co jumped 4.2 percent to $3.76 after it posted a sharply higher profit, helped in part by higher selling prices.

On the Nasdaq, Microsoft was among the biggest boosters, rising 2.3 percent to $23.13. In economic news, data showed that new orders received by U.S. factories took a surprisingly steep tumble for a second month in a row during September, but the markets largely shrugged off the data.

"Even though they were worse than anticipated, the market didn't seem to budge off of it, which is a good thing when it stops going down on bad news," said Saluzzi.

Also helping sentiment, Australia's central bank cut interest rates by a bigger-than-expected 3/4 point raising hopes of further global efforts to ease an economic slowdown.

Central banks in the euro zone and the Bank of England meet later in the week and could add to global attempts to lower the cost of borrowing.

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FOREX-Dlr slips; investors await US election verdict

LONDON - The dollar slipped broadly on Tuesday as global stock markets took on a brighter complexion, with investors anticipating aggressive interest rate cuts to help stimulate flagging economies and the U.S. election outcome.

As Americans voted on Tuesday, Democrat Senator Barack Obama was seen leading in the polls in 5 out of 8 key states.

Trade was overall subdued ahead of the verdict, but an Obama victory, which is widely anticipated by the markets, was seen as dollar positive due to expectations for further fiscal stimulus. "We are seeing some euphoria around markets for an expected Obama win," said Neil Mellor, currency strategist at Bank of New York Mellon.

But even a surprise win by Republican John McCain could be supportive for the dollar, some said. "In the broader picture, the fact that (President George W) Bush, who has taken a benign neglect stance to the dollar, is leaving will be taken as a dollar positive," said Derek Halpenny, European head of global currency research for Bank of Tokyo-Mitsubishi-UFJ in London.

But the dollar was on the defensive as European share prices looked set to make a sixth straight day of gains, with extreme risk aversion side-lined for now.

At 1255 GMT, the dollar index, which measures the U.S. unit's value against a basket of currencies, was down 1.2 percent at 85.360. The euro was up 1.5 percent against the dollar at $1.2770  and up almost 2 percent at 127.23 yen.

The dollar was up 0.5 percent at 99.63 yen. The Australian dollar bounced back from an early tumble to $0.6597 after the Reserve Bank of Australia cut rates by 75 basis points to 5.25 percent, more than the expected 50 basis points.

Analysts said the euro was benefitting from the Aussie's comeback, with the prospect of further large interest rate cuts from the European Central Bank and Bank of England on Thursday seen as stimulative to their respective economies. "The current grim economic conditions could justify a cut of any magnitude," said Calyon analysts wrote in a research note on prospects for UK monetary easing.

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Europe shares up 2 pct by midday; banks, oils lead

LONDON - European shares rose 2 percent by  mid-session on Tuesday, looking set for a sixth straight day of  gains as banks and oil shares advanced and investors bet on  likely rate cuts in Europe later this week
   
At 1145 GMT the FTSEurofirst 300 index of top  European shares was 2 percent higher at 952.44 points. The FTSEurofirst 300 has lost nearly 40 percent this year in  a global equities slump, sparked by a credit crisis that has  shaken the world's top banks and brought a slowing global  economy onto the brink of recession.
   
Investors fretting over the future of the U.S. economy had  their attention firmly fixed on the U.S. presidential election. Democrat Barack Obama leads Republican John McCain in five  out of eight key battleground states, according to a series of  Reuters/Zogby polls released on Tuesday.
   
Across Europe, Britain's FTSE 100 rose 1.8 percent, Germany's DAX gained 2 percent and France's CAC  rose 2.3 percent. "The odds are slightly better for higher indices by the end  of the year," said Bernd Meyer, head of pan-European equity strategy at Deutsche Bank in London.
   
"We now have a more favourable seasonality. Typically, the  market is relatively weak in September and October, but the  period of November to January tends to be a positive period."
   
Banks were the biggest gainers. BBVA rose 5.7  percent and Societe Generale jumped 8.2 percent.  SocGen's chief executive told French newspaper Les Echos that it  could issue another 1.7 billion euro ($2.17 billion) hybrid bond  next year.
  
But Royal Bank of Scotland slid 5.8 percent after it  reported a smaller-than-expected writedown on toxic assets in  the third quarter but said it faced more writedowns this quarter  and bad debts are rising sharply. UBS AG was 0.4 percent lower after it said a government bailout is helping to stem client money outflows but  warned that it could take a 6 billion Swiss franc ($5.20 billion) hit in the fourth quarter due to accounting effects.

Australia joined several other central banks on Tuesday by  cutting its benchmark cash rate by 75 basis points. The focus now shifts to the European Central Bank and the  Bank of England, which are widely expected to serve up 50-basis  point cuts on Thursday.
   
"We see it happening all around the globe. We had the U.S.,  Japan and now Australia, and we will have cuts in (the UK) and  the euro zone," Meyer added.
   
The energy sector was a standout riser, with BP,  Total and Royal Dutch Shell gaining between  1.2 and 2.5 percent as U.S. crude rose more than 1 percent  towards $65 a barrel.
   
UK gas and oil producer BG Group rose 2.3 percent  after it beat analysts' forecasts with a sharp rise in third-quarter profit and gave a buoyant outlook.
   
Marks & Spencer Plc surged 9.1 percent. Britain's  biggest clothing retailer posted a 34 percent drop in first-half  profit on Tuesday, which was not as bad as expected in the  context of a deepening consumer downturn, and self-confessed  mistakes at its food business.
   
Chemicals group Clariant soared 16.4 percent after  it beat forecasts with its quarterly profit. Defensive pharmaceuticals also climbed. Roche added  2.6 percent, AstraZeneca rose 1.5 percent and Novartis  put on 1.6 percent.
   
Swiss Re, the world's second-biggest reinsurer,  reported a surprise third-quarter net loss, sending shares down  3.6 percent.

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Asian Market Summary

Japan's Nikkei rose 6.3 percent to a two-week high on Tuesday as investors bought back exporters on a softer yen and relief over a quiet three-day weekend, with Panasonic jumping after sources said it was planning to take over Sanyo Electric.

Shares of big Japanese banks such as Mitsubishi UFJ Financial Group and Mizuho Financial Group advanced after Credit Suisse raised its stance on the sector to "overweight", saying that all bad earnings news is likely out after a series of profit warnings last week

But Nissan Motor Co tumbled 10.6 percent after it more than halved its annual profit forecast and retracted its dividend target, hit by a slumping market and a strong yen.

Trade was thin, with many investors reluctant to buy actively ahead of the U.S. presidential election, a factor that also dampened activity in New York on Monday, when Japanese markets were closed for a holiday.

"While people are holding back a bit ahead of the election, their big concern is less who wins than whether the result will be decided quickly or not," said Takashi Ushio, head of the investment strategy division at Marusan Securities.

"The worst thing would be an extended political vacuum, with no sign of what economic policies could be expected."

In 2000, the election won by U.S. President George W. Bush was not finally decided until well into December, but trends in Tuesday's race between Democrat Barack Obama and Republican John McCain could become clear soon after the first polls begin to close at 6 p.m. EST (2300 GMT) in Indiana.

The benchmark Nikkei ended up 537.62 points at 9,114.60. The broader Topix was up 5 percent to 910.70 points. Tokyo markets were closed on Monday for a holiday.

Market participants said much of Tuesday's movements centred on short covering following a sharp sell-off ahead of the three-day weekend. Lehman Brothers collapsed on a three-day weekend in September, and Japanese investors have been shy of potential financial turmoil over long weekends ever since.

Shares of Panasonic gained 6.8 percent to 1,614 yen, after rising as much as 9.3 percent at one stage. Sanyo soared 34.5 percent, up by its daily limit to 195 yen.

"The reports about Panasonic are also positive for the overall market as they indicate industry realignment could happen across the board and across borders because stocks are so cheap now," said Fumiyuki Nakanishi, manager at SMBC Friend Securities.

Mitsubishi UFJ Financial Group rose 4.9 percent to 627 yen and No. 3 bank Sumitomo Mitsui Financial Group climbed 7.9 percent to 412,000 yen. Mizuho Financial Group rose 7.1 percent to 248,400 yen. Trade was light on the Tokyo exchange's first section, with 2.26 billion shares changing hands, compared with last week's daily average of 3.01 billion.

The Korea Composite Stock Price Index ended up 2.15 percent at 1,153.35 points after earlier losing as much as 1.3 percent in early morning trade. The KOSPI has risen for four consecutives sessions, taking its gains to 19 percent since Oct 29.

Taiwan stocks closed flat on  Tuesday, weighed down by tourism and tech shares, but transport  shares rallied ahead of an agreement with China to launch daily  cross-strait flights and direct cargo links.
 
The main TAIEX share index slipped 0.05 percent, or  2.43 points to close at 4,992.63, after briefly flirting with the  5,000-point psychological barrier minutes before the market  closed.

The 30-share benchmark index rose 293.44 points to 10,631.12, its highest close since Oct 21, with 24 stocks rising, having been down more than 2 percent in morning trade.

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Gold rises on weaker dollar

LONDON - Gold prices rose 1.5 percent on Tuesday on the weaker dollar, with investors keeping a close eye on the currency ahead of the U.S. presidential election result and expected central bank interest rate cuts this week.

Spot gold was at $731.45/733.45 at 1109 GMT compared with $722.35 late in New York on Monday. It earlier hit a high of $733.45 an ounce.

"The U.S. election might have an impact on the euro/dollar and so indirectly would have an impact on gold as well," said Eugen Weinberg, an analyst at Commerzbank. "We will be treading water today."

The dollar slipped against the euro and yen, although movements were muted ahead of the election outcome.

A win by Democrat Barack Obama, who is leading his Republican opponent, John McCain, in most polls, would be marginally better for the dollar, only because the Democrats already control Congress, analysts say.

Australia cut interest rates by a greater-than-expected 75 basis points on Tuesday, following rate cuts in the United States, China and Japan last week, with Britain and the euro zone expected to follow suit on Thursday with half point reductions in borrowing costs. "The rate cuts...makes gold more attractive as real interest rates are becoming more negative," said Weinberg.

Gold has bounced more than 7 percent since falling to a 13-month low at $680.80 in late October, when investors cashed in bullion to pay losses in stock markets. The metal was still below a two-month high of $931 also hit last month as it struggled to revisit a record high of $1,030.80 in March.

Lower oil prices are putting gold under pressure as crude is considered an inflation hedge along with the yellow metal and both commodities have been moving in parallel recently.

Oil fell more than 1 percent on fears of economic recession.

Physical demand for gold was slow as price volatility turned away jewellers. Gold imports to India, the world's biggest bullion market, fell 27 percent in October year on year, the Bombay Bullion Association said.

Platinum was trading at $815.00/835.00 ounce compared with $810 at New York's notional close.

However, platinum has lost more than half its value in the last quarter on slow auto sales data and the outlook for demand from carmakers, who consume more than half of the annual platinum output to make catalysts to clean exhaust fumes.

Automobile sales in Japan, excluding 660cc minivehicles, fell 13.1 percent in October from a year earlier.

While U.S. auto sales plunged 32 percent in October to lows unseen in a quarter-century. Lonmin Plc, the world's No. 3 platinum producer, advised trade unions of possible lay offs due to a big drop in demand for the metal from car makers, South Africa's Solidarity union said.

However Standard Bank is positive for precious metals in the longer term. "Looking past the current turmoil, the stimulus is bullish for precious metals - but we believe the current turmoil will likely linger for a few more months," it said in a note. Silver was at $9.91/10.01 from $9.78. Palladium was at $199.00/209.00 from $195.50.

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