US & World Daily Markets Financial Briefing 07-08-2007

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Stocks pull back ahead of Fed decision

NEW YORK - Wall Street pulled back in early trading Tuesday as investors, uneasy before the Federal Reserve's meeting during the afternoon, cashed in some of their gains from Monday's big advance.
   
The August meeting of the Fed's Open Market Committee, which sets short-term interest rates, follows two weeks of volatile trading. Investors have been uneasy about the availability of credit, and the health of subprime loans made to borrowers with weak credit.
       
Wall Street was also digesting a Labor Department report that found the productivity of U.S. workers rose to a 1.8 percent annual rate in the spring -- more than double the 0.7 percent pace of the first quarter -- while wage pressures lessened.
   
Unit labor costs rose at a 2.1 percent pace, which was the second straight quarter in which wage pressures have cooled. A drop in wage pressures could help assuage some of the Fed's concerns about inflation.
   
In the first hour of trading, the Dow Jones industrial average was down 48.86, or 0.36 percent, at 13,419.92 after soaring 286 points Monday, the latest in a series of triple digit swings the blue chips have made amid investors' ongoing uneasiness about credit. The Dow was down more than 100 in the early going Tuesday.
   
The Standard & Poor's 500 index fell 5.56, or 0.38 percent, to 1,462.11, and the Nasdaq composite index rose 7.14, or 0.28 percent, to 2,540.19.

European markets rose following Monday's U.S. advance. London's FTSE 100 rose 0.89 percent, Germany's DAX index rose 0.32 percent, while France's CAC-40 rose 0.94 percent.
   
In recent weeks, the major stock market indexes have traded erratically, with the Dow routinely showing triple-digit swings. The frenetic trading follows the stock market's high seen July 19, when the Dow closed above 14,000 for the first time and the Standard & Poor's 500 index also saw a record finish.
   
Bond prices, which move opposite yields, fell Tuesday. The yield on the benchmark 10-year Treasury note rose to 4.75 percent from 4.74 percent late Monday. Bonds fell sharply Monday amid the stock market rally.
 
Light, sweet crude fell 35 cents to $71.71 in pre-opening electronic trading on the New York Mercantile Exchange a day after tumbling more than 4.5 percent. A week ago, crude closed at a record $78.21 a barrel.
   
Stocks in focus

In corporate news, Marsh & McLennan Cos. fell $1.51, or 5.5 percent, at $26.14. The largest U.S. insurance brokerage, turned in a 3 percent increase in its second-quarter profits amid growth in its risk and insurance business and consulting operations. The company also approved a $1.5 billion share-repurchase
plan.
   
Duke Energy Corp. fell 7 cents to $17.83 after it reported second-quarter profit fell 17 percent after it spun off its natural gas business at the beginning of the year.
   
Among the companies reporting results Tuesday, Cisco Systems Inc. is expected to weigh in after the closing bell. Shares fell 15 cents to $29.35.    

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Dollar solid ahead of Fed rate decision

LONDON - The dollar remained on a relatively firm footing ahead of this evening's latest interest rate decision from the US Federal Reserve.
   
Though the rate-setting Federal Open Market Committee is expected to keep its benchmark rate unchanged this evening at 5.25 pct, most attention will focus on the accompanying statement and what is said about inflation and the uncertainties gripping financial markets amid credit crunch fears.
   
Most Fed watchers reckon the central bank will retain its inflation concerns and eschew any temptation to return to a more neutral bias, thus diminishing any expectations of a rate cut in the near term.
       
Earlier, the dollar had been supported by a tentative increase in the market's appetite for risk following the overnight news that US property loans giant Fannie Mae has asked the federal regulators to raise the limit on the amount of mortgage securities it is allowed to hold as investments.
   
News of the request boosted the regulated company's stock 5.87 usd, or more than 10 pct, its biggest percentage gain in two decades, to 62.50 usd, and helped account for the late surge in US equity indices, primarily from financial stocks.
   
That in turn has helped the dollar steady as the US currency has suffered of late from mounting concerns about the US housing market.
   
Elsewhere, the pound was on the back foot after a disappointing survey of high street activity in the UK.
   
In its monthly survey of high street activity, the British Retail Consortium revealed that like-for-like sales, which exclude new stores and space, were up 1.2 pct in July from the year before, which was half the monthly average for the second quarter of the year.    
   
That was the lowest rate of increase since November 2006's 0.5 pct, and was down on the 3.0 pct recorded in June and the 2.2 pct predicted by analysts.

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Euroshares up midday, investors turn to US markets, financials lead blue chips

LONDON - European exchanges were up, but off earlier highs, as investors cast an eye towards US markets ahead of today's statement by the Federal Reserve on interest rates. Financials were leading blue chips higher across Europe, while some earnings news also provided momentum.
   
At 12.29 pm, the Dow Jones STOXX 50 was 41.75 points or 1.13 pct higher at 3,733.98 while the DJ STOXX 600 Index gained 4.07 points or 1.10 pct to 372.71.
       
Back in Europe, US futures were carefully watched as investors focus on today's statement by the Federal Reserve Board in the US, which is anticipated to leave rates unchanged at 5.25 pct, but may pass out hints towards future moves.
       
Europe's financials impressed however as Dresdner Kleinwort issued a bullish note and highlighted just how cheap European banks are trading at the moment. Deutsche Bank added 4.51 pct, Commerzbank edged 4.10 pct higher, BNP Paribas gained 3.90 pct and Credit Suisse was 5.01 pct up. The broker said it believes the current weakness in the sector to be an "overreaction" and added that it does not believe a credit crunch is imminent.

Meanwhile, Natixis shot 7.68 pct higher after UBS raised its stance to 'neutral' and Cheuvreux lifted the stock to 'outperform'.
   
Shares in Dexia advanced 3.11 pct on the bank of the group's announcement last night that it was not concerned over its exposure to the subprime mortgage market.
   
Rabo Securities analyst Thomas Nagtegaal said in a note to clients that the exposure was "even lower than we anticipated" and therefore considers yesterday's positive share price reaction of a rise of more than 3 pct to be justified.
   
In earnings news, Bayer lost some momentum in late morning trade -- down 0.73 pct -- as initial enthusiasm wore off following its second quarter results and analysts said the report contained few surprises.
   
In Scandinavia, Securitas AB disappointed as well, down 8.50 pct, after the security services company reported a second quarter underlying pretax profit of 622 mln skr, while market expectations were for 734 mln skr, according to SME Direkt.
       
Iberdrola SA added 1.02 pct as dealers dismissed Bolivia's President Evo Morales' announced plans to boost operations at national power company Ende.
   
Norsk Hydro ASA, up 3.74 pct, was outperforming the market, after Norwegian financial research firm Investtech named the aluminium giant as its daily preferred buy candidate.
       
Elsewhere, JP Morgan gave Buzzi Unicem SpA a boost, up 2.37 pct, as it reiterated its 'buy' stance while upping the price target by 11 pct to 25.51 eur following better than expected results at Buzzi's German unit Dyckerhoff.
   
JP Morgan also hiked its earnings per share forecasts for this year and next respectively by 6 pct and 7 pct to reflect better than expected results at Dyckerhoff, which in 2006 provided guidance to 65 pct of Buzzi's profitability.

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Asian stocks close mixed; US FOMC's rate decision eyed

MUMBAI - Shares across the Asia-Pacific region closed mixed, as investors awaited the outcome of the US Federal Reserve meeting today for indications on what the US would do to avert a worsening credit crunch.
   
Japanese stocks closed almost flat, with the blue-chip Nikkei 225 Stock Average edging up 7.31 points to close at 16,921.77. The broader TOPIX index fell 7.88 points or 0.5 pct to 1,660.16, off a low of 1,656.02.
       
Australian shares ended higher following rebound on Wall Street Monday, with Macquarie Bank leading the market higher as investors viewed the recent heavy selling in the nation's leading investment bank as overdone and it was unlikely to suffer significant losses in the US debt market.
     
The S&P/ASX 200 closed up 64.8 points or 1.1 pct at 5,985.0, while the All Ordinaries index regained 64.1 points or 1.1 pct to settle at 6,013.6.
   
In Taiwan, the weighted index closed down 79.42 points or 0.9 pct at 8,862.31.
   
China A-shares closed at a record high for the third straight trading day on gains in steel and other metal companies, but dealers noted the market's rise has slowed after gains of more than 7 pct over the past three days.
   
The Shanghai Composite Index, which covers both A- and B-shares listed on the Shanghai Stock Exchange, closed up 23.12 points or 0.5 pct at a record 4,651.23.
      
In Hong Kong, stocks closed lower as profit-taking in highly volatile trade wiped out the day's gains, triggered earlier by Wall Street's overnight rally.  The Hang Seng Index closed down 28.74 points or 0.1 pct at 21,907.99.
   
Philippine shares closed sharply higher, rebounding from steep losses in the previous session, thanks to Wall Street's recovery and better-than-expected earnings of market leader Philippine Long Distance Telephone Co.
       
South Korea's KOSPI index closed up 4.77 points or 0.3 pct at 1,859.82, while Malaysia's Kuala Lumpur Composite Index slipped 0.77 point or 0.1 pct to 1,290.13, Indonesia's benchmark Jakarta composite index fell 15.04 points or 0.7 pct to 2,174.07, and Singapore's Straits Times Index dropped 6.98 points or 0.2 pct to 3,302.01.

Indian shares trimmed earlier gains and closed almost unchanged as investors decided against holding positions overnight ahead of the US Federal Reserve's rate-setting meet later today.
   
The Bombay Stock Exchange's benchmark Sensex closed 29.74 points or 0.2 pct higher at 14,932.77. The National Stock Exchange's S&P CNX Nifty closed 0.4 pct higher at 4,356.35 points.

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Copper continues higher as tin surges to new all time record

LONDON - Copper continued higher as traders took comfort from the rebound in global equities today, which helped ease concerns the troubles in the US housing and credit markets are spreading to other markets.
   
Tin, meanwhile, surged to a new record high of 17,050 usd a tonne before receding back to 16,900 usd by 2.30 pm. Tin closed at 16,150 usd a tonne yesterday.
   
"I think there's a general feeling that as unreported stocks are run down further there'll be a shortage of material," said BNP Paribas analyst David Thurtell.
   
He added that, with Indonesia clamping down in illegal production for the last nine months, traders are not convinced the supply situation will ease any time soon. Indonesia is the world's second largest tin producer after China.
   
Elsewhere, copper was up at 7,706 usd a tonne against 7,690 usd at the close yesterday.
   
Analysts said the metal was taking comfort from the fact that global stock markets are recovery today, after falling sharply in recent weeks amid concerns over the troubles in the US housing market.
   
Those concerns had led traders to bet on a decline in demand for copper if the US economy falters. The US is the world's second largest consumer of base metals, behind China.
   
MF Global analyst Ed Meir said the recovery in global equities, which began on Wall Street yesterday, might have been based on speculation the Federal Reserve will come to the rescue of financial markets at its meeting later today.
     
Elsewhere, lead was up at 3,120 usd a tonne against 3,094 usd, recovering from a plunge yesterday that knocked nearly 7 pct off the metal's value.
   
Nickel climbed to 29,500 usd a tonne versus 29,200 usd at the close yesterday, as players took their cue from the broader rebound in other metals and overlooked yet another large gain in LME monitored nickel stockpiles.
   
Zinc was up at 3,410 usd versus 3,350 usd, while aluminium edged up to 2,665 usd versus 2,652 usd.

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