US & World Daily Markets Financial Briefing 07-10-2008

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US STOCKS-Market flat; rate worry tempers Fed action

NEW YORK - U.S. stocks were little changed in choppy trade on Tuesday as news of a Federal Reserve plan to shore up the commercial paper market offset dashed hopes of  coordinated interest rate cuts by central banks.
      
Shares of energy companies rose as oil prices rebounded after Monday's tumble. Exxon Mobil, up nearly 3 percent, was the top boost on the Dow, followed by Chevron Corp, up 2 percent.
     
The Fed's bid to relieve the log jam in the $1.6 trillion commercial paper market buoyed hopes that companies will have unhindered access to cash to run day-to-day operations and lessen the shocks of the credit crisis on the broader economy.
      
Investors will hear from Federal Reserve Chairman Ben Bernanke, who speaks to a business group at 1:15 p.m. Shares of big manufacturers, including Caterpillar Inc rose 1.1 percent and General Electric gained nearly 4 percent.
      
"I like this commercial paper market effort that the Fed is doing. It might help us domestically," said Marc Pado, U.S. market strategist AT Cantor Fitzgerald & Co in San Francisco.
      
"But if we don't see Europe, whether it's the Bank of England or the European Central Bank, taking the kind of steps that we want, then how far can this really go?. The markets want to see a coordinated effort."
      
The Dow Jones industrial average slipped 16.25 points, or 0.16 percent, to 9,939.25. The Standard & Poor's 500 Index declined 3.41 points, or 0.32 percent, to 1,053.48. The Nasdaq Composite Index fell 9.05 points, or 0.49 percent, to 1,853.91.
      
Investors had bet that after Monday's slide in global equity markets, central banks might mount a coordinated response to calm jittery investors.
      
Instead, the only news of rate cuts came out of Australia, which slashed rates by a full percentage point, and from India, which said it would cut the proportion of deposits that banks keep with the central bank.
      
Shares of financial services companies were a top drag. Bank of America was down more than 13 percent, a day after it announced a plan to raise as much as $10 billion to shore up its capital. The bank also slashed its dividend and posted a slide in quarterly profit in a surprise announcement.
      
The interbank overnight and three-month costs to borrow dollars shot up earlier on Tuesday, indicating the continued lack of confidence and that banks were hoarding cash. 

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FOREX-Euro holds gains vs dlr, stg sinks to 2-1/2 yr low

LONDON - The euro held on to tepid gains against the dollar on Tuesday while sterling hit a 2-1/2 year low against the U.S. currency on renewed fears about the UK banking system.
   
Currencies were whipsawed, hovering between extreme anxiety over the banking system and hopes that governments would deliver a credible solution to the financial crisis.

UK banking shares were hammered after reports that some major lenders may need additional funds from the government.
  
An injection of capital by the UK government into British banks was one of the options discussed between the Treasury and banking industry officials at a meeting on Monday evening, a source familiar with the talks said.
   
At 1035 GMT, the euro was up 0.6 percent to $1.3579, pulling away from a 14-month low of $1.3441 hit on Reuters data on Tuesday, when escalating worries about the health of European banks had pummelled the single currency.
   
Sterling was down 0.1 percent at $1.7438 after falling as low as $1.7322, its weakest since April 2006.

The pound was supported on expectations that the Bank of England (BoE) will step in with a sizeable rate cut when it concludes a two-day rate-setting meeting on Thursday, helping to bolster the economy after more dismal economic data on Tuesday showed a bigger-than-expected fall in industrial output.
  
"Anything less than a 50 basis point cut would be a major disappointment for the market," said Ian Stannard, senior foreign exchange strategist at BNP Paribas.
   
"If the government does deliver a credible package tomorrow as expected and the BoE delivers a more aggressive rate cut, we could see sterling benefiting," he said.
   
The euro gained as European Union finance ministers attempted to hammer out ways to alleviate market turmoil, instil confidence in the banking system and ensure that savers do not lose money on their deposits

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European stocks up around midday; RBS plummets

PARIS- European stocks were higher on Tuesday after suffering record losses in the previous session, but banks fell again as the credit crisis escalated, prompting Iceland to take control of Landsbanki.
   
Royal Bank of Scotland plummeted 26 percent, Lloyds shed 6.7 percent and HBOS tumbled 14 percent, hit by talk that the British government was mulling a possible bank recapitalisation plan with the country's lenders. RBS said it did not make a request to government for capital.
   
An industry source told Reuters Britain and its banks will hold more urgent talks over a possible multi-billion pound injection into the sector over coming days.
   
At 1200 GMT, the FTSEurofirst 300 index of top European shares was up 1.3 percent at 1,018.03 points. Stocks experienced their worst one-day percentage fall on record on Monday, tumbling to four-year closing lows as mounting fears over the global credit crisis prompted investors to dump stocks across the board.
   
"Shares of big banks are collapsing. It's just a complete loss of confidence, worries about what governments are going to do and what governments can do," said Alan Harris, investment manager at Charles Stanley.
   
"Europe is supposed to be acting with one voice but it seems to be chaotic at the moment," he said. "You must not panic, that's the worst thing to do. You do not sell good quality shares at these prices ... This could be sort of a climactic selloff that very often leads to the bottom of the market, and we've been in a bear market for 15 months now, which is a reasonable length of time."
   
Deutsche Bank dropped 7.4 percent on talk the German lender may be looking to push through a capital increase.
   
A spokesman for the bank declined to comment.  French banks were on the rise, with BNP Paribas up 2.6 percent and Credit Agricole up 1.6 percent, gaining ground after French President Nicolas Sarkozy
said France was prepared to help French banks by acquiring a stake in their capital if necessary.
   
Banking stocks have been hammered since the start of the global credit crisis in mid-2007 which has prompted financial institutions to unveil massive writedowns of mortgage-related assets, forced Lehman Brothers to file for bankruptcy and triggered a flurry of government bailouts of embattled companies.
   
"Liquidity problems and high risk aversion are driving redemptions and forced selling positions. We need to restore confidence and for that we need some capital injections into the banking system," Societe Generale analysts wrote in a note.
   
"As stock prices drop and ever-increasing financial spreads make rights issues impossible, governments need to become capital providers of last resort." Iceland's market authority, battling to stave off national bankruptcy after its banks took on massive debts in expanding overseas, on Tuesday took control
of Landsbanki, the island's second-largest bank by value.
   
Earlier, Australia responded to the global financial turmoil by cutting interest rates by 1 percentage point to 6.0 percent, the Australian central bank's biggest rate cut in 16 years and twice the size analysts had expected, fuelling hopes for similar moves by other central banks.
   
Citing the banking sector woes, weakness in many asset prices and wild gyrations in many financial markets, Citigroup said in a note: "The justification for emergency easing may be in place."
   
Shares of automakers rose, with Volkswagen up 14 percent. The stock has been strongly rallying over the past weeks since Porsche said it wants to raise its stake in VW. Porsche was up 4.7 percent, while Renault rose 5.5 percent.
   
Energy shares were also on the upside, with Total up 4.2 percent and BP up 3.8 percent as U.S. crude oil prices gained more than $3 a barrel, reversing recent sharp losses.
   
On the downside, German software maker SAP AG tumbled 8.8 percent after it warned that its sales had abruptly dropped off in the last two weeks of September as companies curtailed business software spending amid a widening financial crisis. Other tech companies fell, with France's Capgemini losing 9
percent.
   
Around Europe, Germany's DAX index was up 0.3 percent, UK's FTSE 100 index up 1.8 percent and France's CAC 40 up 1.8 percent. The benchmark FTSEurofirst 300 is down about 33 percent so far this year.

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Asian stock market summary

JAPAN
The Nikkei shed 3 percent to finish at 10,155.90, the lowest close since December 2003, as panic over the global financial crisis prompted investors to dump stocks.

The benchmark had fallen more than 5 percent in the morning but trimmed those losses on bargain hunting and after a rate cut by Australia's central bank raised hopes that more countries would take measures to contain the crisis.
   
The broader Topix fell 2.2 percent to end at 977.61.

SOUTH KOREA
The Korea Composite Stock Price Index closed 0.54 percent higher at 1,366.10, led by exporters that could benefit from a weaker won currency, while some defensive telecommunications and consumer issues also advanced.
   
Shares turned positive after the Reserve Bank of Australia slashed the country's interest rates by a larger-than-expected 100 basis points.
   
Samsung Electronics, the world's top memory chip maker rose 2.71 percent, and LG Electronics, the world's No.4 handset maker, climbed 3.9 percent.

AUSTRALIA
The benchmark S&P/ASX 200 index rose 1.7 percent to end at 4,618.7, after the Reserve Bank of Australia shocked investors by slashing interest rates by a full percentage point, double the amount that was expected.
   
Banks, miners and property trusts led the market higher after the biggest rate cut since 1992.

CHINA
The benchmark Shanghai Composite Index closed down 0.73 percent at 2,157.84, as property developers gained on talk of government support measures, including a cut in interest rates.

Banks clawed back some of their initial losses following tumbles on world markets as the global credit crisis continued to unravel.
 
Brokerage firms fell sharply after posting strong gains yesterday on hopes for launch of margin trading.
Resources stocks continued their slide amid worries that slowing global growth will reduce demand for energy and raw materials.
  
The Shanghai A-share Index fell 0.73 percent to 2,266.10, and the Shenzhen A-share Index was down 0.83 percent at 615.61.
   
The Shanghai B-share Index fell 0.47 percent to 125.14, while the Shenzhen B-share Index was up 0.03 percent at 297.37.

TAIWAN
The weighted index closed up 0.34 percent at 5,524.66, as support from government-related funds, focused mainly on technology heavyweights, helped the market recover from an early decline triggered by steep losses on Wall Street and European bourses.
   
Government intervention also inspired some investors to hunt for bargains, including battered financials, after the market had recorded a fresh four-year intraday low.

INDIA
The Bombay Stock Exchange's benchmark Sensex rose more than 3 percent due to these cues in early deals today, but closed 106.46 points or 0.9 percent lower at 11,695.24. The key index moved in a nearly 680-point range from the day's low of 11,501.85 and high of 12,181.08.
  
The National Stock Exchange's S&P CNX Nifty ended 4.25 points or 0.12 percent up at 3,606.60. Dealers said investors booked profits in the early rally, which was seen more as a technical pullback in a bearish market.
   
Among the 30 Sensex stocks, 14 advanced and 16 declined. No.1 software company Tata Consultancy Services Ltd. (TCS), 7.02 percent down at 575.80 rupees, shed the most.

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Oil rises to $90 after steep slide

LONDON - Oil rose by $2 a barrel on Tuesday after a large interest rate cut in Australia aroused hopes that other policymakers would follow suit to bolster economic growth, a move that would support oil demand.
      
The gain recouped some of the loss on Monday, when oil slid by $6 as an international market rout sparked concerns that oil demand could be eroded further. But traders were sceptical the rally would last.
      
"It's a bit of a recovery, but hardly anything to speak of after very steep falls," said Christopher Bellew, a broker at Bache Commodities.
      
"It would be foolish to think the dawn has come in terms of oil prices going back up again." U.S. crude was up $2.37 at $90.18 a barrel at 0959 GMT. It settled down $6.07 at $87.81 on Monday after hitting an eight-month low of $87.56. London Brent rose $1.68 to $85.36 a barrel.
      
Australia's central bank surprised the market with its biggest interest rate cut in 16 years on Tuesday, a 1 percentage point reduction in the Reserve Bank of Australia's benchmark cash rate.
      
Investors expect the Bank of England to cut rates at its policy meeting this week and are pricing in cuts from the U.S. Federal Reserve and the European Central Bank in the near future.
      
Even so, analysts said concern remained about the economic outlook and the weakening prospects for oil demand. "People are still very worried about the outlook for the international economy," said David Moore of the Commonwealth Bank of Australia.
      
Oil has plummeted from a record high of $147.27 a barrel hit in July as high fuel prices and the growing financial crisis slow oil demand in top consumer the United States and other industrialised nations.
      
Analysts are watching oil demand from China -- which helped drive oil's rally from $20 in early 2002 -- for signs the crisis is hitting consumption in the world's second-largest consumer.
      
Oil's drop has caused worry for some members of the Organization of the Petroleum Exporting Countries. An Iranian official said on Tuesday Tehran was concerned about demand as the global financial crisis deepens.
      
News that Mexico's state-owned oil company Pemex was evacuating four offshore oil platforms due to tropical storm Marco could become supportive for prices.

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