US & World Daily Markets Financial Briefing 08-10-2008

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US STOCKS-Wall St opens lower on credit worries

NEW YORK - U.S. stocks opened lower on Wednesday as investors feared that coordinated rate cuts by global central banks led by the U.S. Federal Reserve won't do enough to unfreeze the credit markets and avert a global recession.
    
The Dow Jones industrial average was down 71.76 points, or 0.76 percent, at 9,375.35. The Standard & Poor's 500 Index was down 12.61 points, or 1.27 percent, at 983.62. The Nasdaq Composite Index was down 23.37 points, or 1.33 percent, at 1,731.51

U.S August pending home sales jump 7.4 pct - NAR

Pending sales of existing U.S. homes unexpectedly jumped in August to the highest in over a year, data from a real estate trade group showed on Wednesday.

The National Association of Realtors Pending Home Sales Index, based on signed contracts, rose 7.4 percent in August to 93.4 from an upwardly revised 87.0 in July on pent-up demand as affordability improved.
      
The jump may be fleeting, however, as global financial markets chaos has since escalated, some analysts said. August's reading was 8.8 percent higher than a year earlier and was the highest since 101.4 in June 2007. Economists polled by Reuters had expected sales to drop by 1.8 percent.
      
"What we're seeing is the momentum of people taking advantage of low home prices," the association's senior economist Lawrence Yun said in a statement. "Home buyers in July were hampered by overly stringent lending criteria in the months before the government takeover of Fannie and Freddie," in early
September, he said. "August shows some unleashing of pent-up demand before the credit crisis accelerated in September."
      
Home funding giants Fannie Mae and Freddie Mac, the largest buyers of U.S. mortgage bonds, were taken under government control on Sept. 7. Yun said it is unclear how contract activity will be disrupted by the crisis on Wall St, "but we're hopeful most of the increase will translate into closed existing-home sales."
     
Pending home sales gained across all regions in August: up 18.4 percent in the West, 8.4 percent in the Northeast, 3.6 percent in the Midwest and 2.3 percent in the South. "The pending home sales data is not a signal of where we are going. Foreclosed homes at bargain prices have probably been supporting it," said Nigel Gault, chief U.S. economist at Global Insight in Lexington, Massachusetts.
      
"We shall see if these sales close and if those people will go through the transaction because people's finances have worsened since that time," he added. "Housing at first impacted the economy and the economy is now impacting housing in a vicious cycle."
      
The 30-year fixed mortgage rate will average 6.1 percent in the fourth quarter, rising to 6.6 percent by the end of next year, the NAR predicts. The trade group forecasts U.S. existing home sales at 5.04 million this
year, rising to 5.41 million in 2009, and new home sales of 503,000, falling to 471,000 next year.
      
Housing starts, including multifamily units, should drop  28.2 percent to 973,000 units this year, and fall further to 843,000 in 2009 as builders clear inventory, it added.

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FOREX-Dollar loses traction after coordinated rate cuts

LONDON - The dollar fell against a basket of currencies on Wednesday after leading global central banks announced rate cuts in an effort to stem haemorrhaging markets engulfed in the worst financial crisis since the 1930s.
   
The Fed said it was cutting its key federal funds rate by 50 basis points to 1.5 percent. China, the European Central Bank (ECB) and central banks in Britain, Canada, Sweden and Switzerland also cut rates in the coordinated response which analysts had been demanding.
   
Prior to the central bank action, currency investors had pushed the Japanese yen to multi-year highs against the euro and high yielding currencies in a rush to offload risk as global stock markets plummeted.
  
Analysts said the long-called for central bank action may mark a turning point in investors approach to risk, which could see the U.S. currency fall further as it had previously benefitted from repatriation and dollar-funding flows.
   
"The coordinated action is aiming to stabilise investor risk appetite and that is seen as a negative for the dollar, as it has been a sort of safe-haven. Investors had lost complete confidence in global assets," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi-UFJ.
   
"This may be a turning point of extreme risk aversion if we continue to see decisive action from financial authorities."  By 1206 GMT, the dollar had fallen 0.6 percent against a basket of six major currencies to 80.602. Earlier this week the dollar index had hit its highest since August last year at 81.745.
   
The U.S. dollar pared earlier losses against the yen to stand at 100.73 having earlier hit 6-1/2 month lows below 99 yen.
   
Prior to the coordinated rate action, the U.S. unit had been on track for its biggest weekly loss against the Japanese currency since the 1998 Long Term Capital Management crisis.
   
Meanwhile the euro, which had earlier hit three-year lows at 134.20 yen steadied to 138.11. The single currency also rose 0.7 percent against the dollar to $1.3712.
   
Stock markets cut hefty losses, with the MSCI world equity index paring losses to come off earlier four-year lows. It last stood down 1.5 percent on the day.
  
Attention will now turn to Washington, where finance ministers and central bank governors of the Group of Seven countries meet on Friday.

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Europe shares at 5-yr low on credit, economy fears

LONDON - European shares sank to five-year lows on Wednesday as investor jitters about financial sector ructions and their impact on the global economy grew despite a bailout package for UK banks.
     
At 0940 GMT, the FTSEurofirst 300 index of top European shares was down 5.5 percent at 948.42 points after hitting a low of 923.86 -- the lowest level since late 2003. The index has lost 12.9 percent this week and 37 percent this year.
      
Trading on France's CAC 40 was suspended for about 15 minutes in early trade as a number of stocks, representing about 35 percent of the index's total market capitalisation, were halted limit down, Euronext said.
      
Banks were the hardest hit, with Dexia falling 14.6 percent, Societe Generale slipping 7.7 percent and Credit Agricole shedding 6.2 percent.
 
"There is somehow a disbelief in the ability of the system to repair itself. It may just be that the system has been so incapacitated that what's called for is a different modus operandi which is yet to be found," said Mike Lenhoff, chief strategist at Brewin Dolphin.
      
"Certainly it's a very distressing situation we have got into. It's wrong to say that the world is coming to an end -- that's a wrong bet to make -- but what you want to do is to be fairly defensive in the treatment of your
portfolios."  The worst financial crisis since the Great Depression forced Britain to announce a multi-billion pound rescue package for banks that included plans to inject up to 50 billion pounds of government money into the country's biggest operators.
      
The decision followed days of crippling pressure on banks, some of which have lost nearly half their value on the stock market amid investor fears they could collapse if they are not handed a massive liquidity lifeline.
     
British bank HBOS surged 43.8 percent and Royal Bank of Scotland jumped 11 percent,  but Barclays fell 8.5 percent and Lloyds fell 6.7 percent. "The provision of extra liquidity will hope to free up lending in the short to medium term. The hope is that this will kick-start the banking sector once again, and breathe a much needed air of confidence back into the system," said Chris Hossain, senior sales manager at ODL Securities Ltd.
      
Spanish Prime Minister Jose Luis Rodriguez Zapatero late on Tuesday said Spain will raise its guarantee for deposits in its banks to 100,000 euros and set up a 30 billion euro fund to buy assets from banks and keep credit flowing to the economy.     
      
Energy stocks also fell on Wednesday, tracking a sharp drop in crude prices that retreated below $88 a barrel as concerns the global financial crisis will crimp oil demand overshadowed signs that OPEC producers may consider a supply cut.
     
BP, Royal Dutch Shell, gas producer BG Group and Tullow Oil shed between 5.4 and 8.4 percent. Mining stocks were also sharply lower. BHP Billiton, Anglo American, Vedanta Resources, Lonmin  and Rio Tinto fell between 4.9 and 11 percent.

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Asian Market Summary

Japan
The benchmark Nikkei slid 952.58 points to 9,203.32, its lowest close since June 2003.  The broader Topix lost 8.0 percent to 899.01.

China
The Shanghai A-share Index fell 68.83 points or 3.04 pct to 2,197.27, while the Shenzhen A-share Index was down 15.93 points or 2.59 pct at 599.68.

The benchmark Shanghai Composite Index closed down 65.62 points or 3.04 pct at 2,092.22 points. The index fell nearly 202 points or about 8.8 pct in the first three trading days of this month.
  
Turnover fell to 40.76 bln yuan from 47.17 bln yesterday.

South Korea
Seoul shares closed down 5.81 percent as foreign investors sold a net 45.7 billion won worth of stocks in the country's main exchange.

Australia
Australian shares sank 5 percent on Wednesday, a three-year closing low, caught up in a global share market meltdown on fears the credit crisis would cause a worldwide recession.
   
By 0510 GMT, the benchmark S&P/ASX 200 index lost 230.6 points to end at 4,388.1, based on the latest available data, wiping out a 1.7 percent gain on Tuesday.
   
New Zealand's benchmark NZX-50 index was fell 1.9 percent to 2,948.3, after touching a fresh 3- year low of 2,937.6.

HONG KONG
The Hang Seng index closed down 1,372.03 points or 8.17 pct at the day's low of 15,431.73, after hitting a high of 16,422.52.
   
Today marks the lowest close for the index since since June 14, 2006 when it ended at 15,247.92. Turnover was 77.78 bln hkd.
   
"The Japanese market's plunge today indicated that the global economy is headed for a slump over the next six to 12 months," said Eric Yuen, head of research at Dao Heng Securities. Tokyo's benchmark index tumbled 9.4 pct today, in its biggest fall in two decades.

India 
The Bombay Stock Exchange's 30-share Sensex finished 366.88 points or 3.14 percent lower at 11,328.36, off the day's low of 10,740.76, while the National Stock Exchange's S&P CNX Nifty slipped 2.58 percent to 3,513.65 points.
   
There were four declines for every Sensex share that advanced. Private engineering firm Jaiprakash Associates Ltd. fell the most, sinking 9.9 percent to 90.95 rupees.
  
No. 1 private lender ICICI Bank Ltd. dipped 6.53 percent to 453.50 rupees, while biggest engineering firm Larsen & Toubro Ltd. slid 4.11 percent to 966.65 rupees.
   
Bellwether software company Infosys Technologies Ltd. pared 3.81 percent to 1,254.35 rupees and Reliance Industries Ltd., the most-weighted Sensex company, retreated 1.54 percent to 1,649.60 rupees.

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Gold jumps 3 pct as investors rush to safety

LONDON - Gold rallied more than 3 percent on Wednesday as investors rushed to buy safer assets while the worst financial crisis in nearly 80 years battered stock markets across the globe.

World stocks dropped to four-year lows while European shares plummeted more than 7 percent to five-year lows as rescue packages failed to calm down market jitters around the globe Silver jumped nearly 5 percent while palladium rallied 3 percent, tracking gains in gold. One exception was platinum, which tumbled by as much as 6 percent at one point, due to poor demand prospects.

Gold was trading at $911.35 an ounce, up $24.75 from 886.60 an ounce late in New York on Tuesday, after jumping to $915.30 an ounce, its highest since September 29.  "It is absolute fear out there right now," said Standard Bank analyst Walter de Wet. "And it is driving all of the assets down but safer assets like gold is rising."

Gold has gained 25 percent since mid-September as a deepening financial crisis, spreading to European banks after U.S. has prompted investors to sell their investments in equity markets and seek refuge in safer assets. It is still below a lifetime high of $1,030.80 an ounce struck in March.

Physical demand for gold also has shot up, analysts say, as the banks being taken over by governments or sold to their rivals prompted consumers to invest in gold coins.  The U.S. Mint said on Tuesday that because of the extreme fluctuating market conditions for 2008, as well as current market conditions, gold and silver demand is "unprecedented".

"There is a lot of tightness in the market," said Jeremy East, global head of metals trading at Standard Chartered . "It may well continue -- there is a big demand for physical gold and for ETFs," he said.

Holdings in the world's largest gold-backed ETF, the SPDR Gold Trust GLD, rose to 745.22 tonnes as of Oct. 8 from 744.54 tonne as of Oct. 7.
 
"This is a good time to buy gold. Stock prices are not so good. ETF is a good support for gold prices. This is the actual investment buying," said Yukuji Sonoda, precious metals analyst at Daiichi Commodities in Tokyo.

Oil prices fell $4 as the continuation of the global financial crisis heightened the anticipated decline in crude oil demand while the dollar fell to a fresh 6-month low against the yen.

Platinum was trading at $990.00 an ounce, down from $1,004.00 an ounce in New York on Tuesday after falling as low as $940 an ounce.

The metal has been hit by heavy selling on fears of falling demand for autocatalysts. It tumbled to $920 an ounce on Monday, its lowest level since November 2005, on the back of poor car sales, especially in the United States.  Prices are well below a lifetime high of $2,290 an ounce struck in March.
 
New York gold futures GCZ8 jumped more than 3 percent to $916.4 an ounce Spot silver jumped nearly 5 percent and was at $11.90/11.97 versus $11.51, while spot palladium was at $199/203 versus $194.00 late in New York on Tuesday.

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