US & World Daily Markets Financial Briefing 08-05-2007

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Wall Street takes profits after run

NEW YORK - Wall Street pulled back in early trading Tuesday as investors, mindful of the Federal Reserve's upcoming meeting on interest rates, decided to cash in some profits from the market's extended rally.
   
The consolidation, which follows a similar move in overseas markets, comes a day ahead of the Fed meeting. Though central bankers are expected to leave rates unchanged, Wall Street could get further direction about whether a hoped-for rate cut is in the offing.
   
Economic data is expected to wield more influence on the direction of stocks as the pace of earnings announcements slows. But investors will be watching after the bell for reports from Walt Disney Co., one of the 30 companies that make up the Dow, and Cisco Systems Inc.
   
In the first hour of trading, the Dow Jones industrial average fell 59.81, or 0.45 percent, to 13,253.16. The blue chip average had been up 24 of the last 27 sessions, and surpassed the 13,300 mark for the first time on Monday.
   
Broader stock indicators were also declined. The Standard & Poor's 500 index was down 6.25, or 0.41 percent, at 1,503.23, and the Nasdaq composite index shed 12.34, or 0.48 percent, to 2,558.61. The Russell 2000 index of smaller companies was down 6.27, or 0.75 percent, at 825.60.
      
Fixed-income investors began to place their bets ahead of the Fed meeting, sending bonds higher. The yield of the benchmark 10-year Treasury note fell to 4.62 percent from 4.64 percent late Monday.
       
Oil prices picked up on fears of supply disruptions following the bombing of three major oil pipelines by the main militant group in southern Nigeria. A barrel of light, sweet crude rose 20 cents to $61.67 in premarket trading on the New York Mercantile Exchange.
   
In corporate news, Hewlett Packard Co. lifted its second-quarter forecast on strong results in its personal computer and serve business. The stock rose 77 cents to $44.57.
   
Warner Music Group Corp., which owns music label Atlantic and Elektra, rose 71 cents, or 4 percent, to $18.01. The company posted a wider second-quarter loss due to restructuring costs and a decline in revenue.
   
There was also continued acquisition activity. AK Steel Holdings Corp. soared $4.64, or 14.5 percent, to $36.70 after a report the company was being eyed by ArcelorMittal, the world's largest steel maker.
   
Reuters Group PLC fell $1.18 to $75.32 after the news and information company confirmed it was in discussions about a possible combination with rival Thomson Corp. Shares of Thomson fell $2.51, or 5.9 percent, to $40.32.
   

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Dollar stable as quiet newsflow puts focus on central banks

LONDON - The dollar remained stable after strengthening somewhat this morning, as a dearth of economic data today leaves investors looking to central bank meetings later this week.
   
The dollar gained some ground, mainly against the euro and pound, after weakening significantly in past weeks as investors square off their positions ahead of the Federal Reserve's interest rate decision tomorrow. The dollar has recently been pressured by mixed US data, and analysts said today's strength is
a matter of investors unwinding short dollar positions.
   
The next key driver for the dollar will be the Fed, which is widely expected to keep rates unchanged, leaving markets to watch key words, phrases, and forecasts.
   
"Although tomorrow's (Fed) statement is likely to acknowledge core inflation, measures have softened over the last six weeks, this 'dovish' evolution could well be mitigated by an acknowledgement that high energy prices again have the potential to sustain inflation pressures," said Steve Pearson at HBOS, who expects the 'inflation bias' to be maintained.
  
Meanwhile, the euro was little affected by German industrial output data. Industrial production fell 0.1 pct in March from February, better than the 0.2 pct fall predicted by analysts. Manufacturing output rose 0.3 pct.
   
Despite the fall in the headline rate, analysts said the outlook for the sector remains bright, while yesterday's factory orders surprised to the upside, suggesting second quarter output should remain firm.
   
Elsewhere, the pound was on a back foot after a holiday yesterday, with little in the way of data once again putting the focus on the central bank's interest rate decision.
   
The Bank of England is widely expected to raise rates by a quarter point on Thursday, with some market-watchers seeing a small chance of a larger move. A 50 point hike would come as a surprise and would see a significant rally for the pound.

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London

FTSE 100 risers

Home Retail Group 485-1/4 up 17-1/4 Ongoing bid speculation

Reuters Group 636 up 20-1/4  Thomson Corp confirms 8.76 bln stg cash-and-shares bid proposal

Morrison Supermarkets 338 up 8-3/4  Private equity bid speculation; Evolution 'add' with target upped to 340p

Unilever 1,664 up 38   Merrill Lynch ups estimates after better-than-expected Q1 last week

FTSE 100 fallers

BAE Systems 429-3/4 down 16-1/4  Placing shares to partly finance takeover of Armor Holdings

International Power 442 down 12-1/4   Profit-taking after recent strong run

BHP Billiton 1,194 down 24   Rumours it could counterbid for Alcan after Alcoa hostile bid

Hanson 1,050 down 20-1/2  Profit-taking after news Friday of HeidelbergCement bid approach

Athens - Greek shares ended lower as the market paused for breath after recent gains and as investors digested mixed first quarter banking results ahead of announcements expected today by the Fed, dealers said.
   
The ASE general index dropped 1.6 pc to 4,741.6 while the blue chip index fell further, down 1.7 pct to 2,513.3. Mid caps shed 0.5 pct to 6,053.2 while small caps closed flat at 953.1. Decliners outnumbered advancers 167 to 85 while 67 were unchanged.

Zurich -  At 14.50 pm, the Swiss Market Index was 66.83 points lower at 9,387.34, while the Swiss Performance Index fell by 48.40 points to 7,598.77. The SMI extended yesterday's losses as a raft of first quarter earnings failed to inspire and sentiment was still dominated by a mood of consolidation, said a trader with a major bank.
   
Shares of speciality chemicals group Clariant were trading 2.2 pct, or 0.45 sfr, lower at 19.40 in reaction to news that it's first-quarter net dipped by 10 pct to 86 mln sfr, impacted by higher freight and energy costs, a negative forex effect and integration costs for recent acquisitions. Among other chemicals, Lonza fell 1.3 sfr or 1.05 pct to 121.70, while Ciba dipped 0.90 sfr to 76.65 or 1.16 pct.
   
Reinsurer Swiss Re was trading down 2.60 sfr, or 2.23 pct, at 113.80, mainly on profit-taking following sharp gains yesterday even though the group's first-quarter results were in-line with forecasts.

Frankfurt -  At 3.30 pm, the DAX was 88.66 points or 1.18 pct lower at 7,437.03, after trading between 7,515.47 and 7,423.11 earlier today. The MDAX slipped 135.05 points or 1.24 pct to 10,714.79, while the TecDAX lost 13.54 points or 1.55 pct to 859.85. DAX futures lost 97.50 or 1.29 pct to 7,468.50, while bund futures gained 0.11 or 0.10 pct to 113.83.

Altana shares dropped 3.09 eur or 13.80 pct at 19.30, leading blue chips lower after dealers said that a technically-related buying surge - largely caused by investors buying and selling Altana shares for tax reasons - had ended. Continental lost 1.72 eur or 1.60 pct at 105.68. Lufthansa slipped 0.57 eur or 2.54 pct at 21.88.

Madrid - At 12.31 pm, the IBEX-35 index lost 118.2 points to 14,553.9, after trading in a range of 14,545-14,664, on turnover of 2.2 bln eur.

Acerinox led the profit-taking, shedding 0.47 eur or 2.52 pct to 18.20, after yesterday's 5 pct gain, which was fuelled by news of Alcoa Inc's 27 bln usd takeover bid for Alcan Inc. Gas Natural lost 0.27 to 38.61, after a conference call on first quarter results failed to produce major news. First quarter results were slightly above analyst estimates.

Paris -   At 12.08 pm, the CAC-40 index was down 40.52 points or 0.67 pct at 6,030.96 on volume of 1.5 bln eur. On the Matif, May CAC-40 futures were trading. Alstom -- down 2.45 eur or 2.08 pct at 115.55 -- and Bouygues -- off 0.72 or 1.16 pct at 61.36 -- were among the biggest fallers, giving up some of yesterday's sharp gains.
   
Conservative Nicolas Sarkozy's election win had fuelled talk of a tie-up between Alstom -- which makes equipment for the transport and power sectors -- nuclear power group Areva and conglomerate Bouygues, which has a 25 pct stake in Alstom. This scenario was also favoured by fresh speculation of a divestment of Bouygues Telecom, following a report that Dutch telecom operator KPN would be interested in buying the unit.
   
Other stocks to be lifted yesterday by Sarkozy's presidential victory were Gaz de France and Suez, and they continued to outperform the market this morning. GDF shed 0.04 or 0.11 pct to 36.84, keeping almost all of its 4.77 pct rise yesterday, while Suez added 0.21 or 0.49 pct to 43.29, on the back of yesterday's 1.75 pct increase.

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Asian shares close mostly lower on profit taking; China shares sharply higher

HONG KONG - Asian shares closed mixed, with some markets succumbing to profit taking after recent gains but China shares jumping when markets reopened after a one-week holiday.
   
Tokyo share prices closed slightly weaker after investors locked-in gains accumulated in yesterday's sharp rise, although aluminum stocks advanced following the bid overnight by Alcoa Inc of the US for Canadian aluminum rival Alcan Inc.
   
The Nikkei 225 Stock Average closed 12.99 points or 0.07 pct lower at 17,656.84, after trading between 17,587.92 and 17,711.67. The TOPIX index of all first-section issues eased 0.4 point or 0.02 pct to 1,732.63, after moving between 1,728.64 and 1,741.35.
   
Banking stocks were in demand after Moody's Investors Service announced that it had raised its ratings for major Japanese banks.
   
Australian shares closed lower on profit-taking after successive record gains over the past week. Banks and mining stocks led the broader market lower, while the national flag carrier Qantas dropped after the resumption in trade following a failed takeover bid.
   
The S&P/ASX 200 ended down 31.3 points or 0.49 pct at 6,304.4, falling from yesterday's record finish of 6,335.7.
   
Hong Kong shares were lower in afternoon trade on profit-taking in property stocks after the sector's gains in the run-up to today's government land auction. Investors were also cautious as the benchmark index failed to hold the 21,000-point level after crossing the milestone yesterday.
   
At 3.20 pm the Hang Seng Index was down 180.07 points or 0.86 pct at 20,716.57.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply higher after a seven-day break, with turnover at record levels as property and financial stocks gained ground, dealers said. They said the local bourses were reacting to record-breaking runs on Wall Street and other regional markets last week when China's markets were closed.
   
The Shanghai A-share Index was up 112.38 points or 2.78 pct at 4,147.46 and the Shenzhen A-share Index was up 43.73 points or 3.93 pct at 1,157.87.
   
Seoul shares closed slightly lower after recent strong gains, with investors awaiting rate decision meetings in South Korea in the US as well as the expiry of options contracts locally.
  
The market touched a new intraday record in early trade, sparked by another record close by the Dow Jones Industrial Average, but gave back all early gains toward the close as program selling picked up. Brokerages, insurers and lenders posted the steepest losses.
   
The KOSPI index closed down 1.81 points or 0.11 pct at 1,582.65, after rising to a fresh intraday record of 1,589.07. The low for the day was 1,577.18.

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Gold lower as dollar continues to rebound

LONDON - Gold continued lower as the dollar rebounded against the euro and the pound, but the precious metal stayed at elevated levels. Gold also met with some technical resistance at levels nearer 690 usd, slowing the journey towards 700 usd -- the next psychological barrier.
   
At 2.04 pm, spot gold was quoted at its 684.70 usd per ounce against the 688 usd level seen in late New York trade yesterday. Gold dipped to as low as 683.50 usd earlier in the session.
      
However, bullion has added 1.5 pct since last week, boosting investor sentiment somewhat, and re-igniting hopes the 700 usd level could be mounted. Analysts have warned of technical resistance at certain levels.
   
"Gold needs to maintain values of over 685 on a sustained basis in order for confidence not to start dissipating once more," said analysts at JP Morgan.
   
Prices fell today after the dollar gained some ground, mainly against the euro and pound, after weakening significantly in past weeks as investors square-off their positions ahead of the Federal Reserve's interest rate decision tomorrow.
   
The Fed is widely expected to keep rates unchanged, leaving markets to watch key words, phrases, and forecasts.
   
Gold usually moves in line with oil prices, as the metal is seen as a hedge against inflation. The relationship has recently decoupled, however. "With crude oil and other commodities quite weak, gold's ability to hold firm just under 690 usd is quite impressive," said Dennis Gartman, editor of The Gartman Letter.
   
All base metals prices have spent most of the day in negative territory, while oil prices in London are about 4 pct lower than last week.
   
Bullion struck 690.75 usd yesterday, its highest level since April 24. Gold's peak this year was 693.95 usd on April 23.
   
Among other metals, platinum eased to 1,325 usd per ounce against 1,340 usd in late New York trade yesterday, while its sister metal palladium was flat at 374 usd. Silver was also down at 13.39 usd per ounce against 13.52 usd yesterday.

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