US & World Daily Markets Financial Briefing 10-10-2007

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Stocks dip after rally, profit warnings

NEW YORK  - Wall Street fell in early trading Wednesday, giving back some of the prior session's advance that came on renewed optimism about lower interest rates.
   
Investors appeared largely unfazed by profit warnings from International Paper Co. and Chevron Corp. A pullback was to be expected after the rally Tuesday that sent the Dow Jones industrial average and the Standard & Poor's 500 index to new closing highs.
   
With little fresh news to weigh, Wall Street waited for economic readings later in the week on employment and inflation.
   
Stocks surged Tuesday after some investors read minutes from the Federal Reserve's last meeting as implying further rate cuts might be in the offing. The Fed's Sept. 18 decision to lower short-term interest rates by a larger-than-expected half percentage point stoked a recovery in stocks that had been hurt by concerns about tight access to credit and an economic slowdown.
   
In the first hour of trading, the Dow fell 38.94, or 0.27 percent, to 14,125.59 after rising 120 points on Tuesday.
  
Broader stock indexes were narrowly lower. The S&P 500 dipped 4.19, or 0.27 percent, to 1,560.96, and the Nasdaq composite fell 0.19, or 0.01 percent, to 2,803.72.
   
Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.68 percent from 4.65 percent late Tuesday.
   
Light, sweet crude rose 2 cents to $80.24 per barrel on the New York Mercantile Exchange. The Energy Department's forecast for winter demand helped support prices, but investors were still concerned that a warm winter could take futures lower.
   
International Paper lowered its projection for how much it expects to take in from sales of land in the third quarter, news that sent shares falling 84 cents, or 2.3 percent, to $36.22. Chevron fell $1.75 to $91.05 after the company warned that its third-quarter profit will come in well below the $5.4 billion it earned in the second quarter.
   
However, Wall Street also received upbeat news from companies including Costco Wholesale Corp., which reported better-than-expected results. Shares of the retailer rose $5.56, or 8.8 percent, to $68.86.
   
The Russell 2000 index of smaller companies fell 0.69, or 0.08 percent, at 845.03.
   
Overseas, Britain's FTSE 100 fell 0.12 percent, Germany's DAX index was unchanged, and France's CAC-40 fell 0.42 percent.

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Pound comes off highs after hawkish comments from BoE's King

LONDON - The pound came off highs generated by relatively hawkish comments made last night by Bank of England governor Mervyn King, which dampened prospects for a cut in interest rates any time soon.
   
Yesterday in Belfast, King told business professionals that the central bank would not lower interest rates simply to make it easier for the financial sector, despite the ongoing liquidity problems, and emphasised that it would continue to monitor inflationary risks.
   
"When we combine the intended effect of his words with the evidence of the continued strength of activity and of pricing pressures in this week's data, it seems likely that the widely anticipated first cut in interest rates will come in the first quarter of 2008, rather than in November of this year," said Mark Miller, economist at Bank of Scotland Treasury.
   
Looking ahead, market participants will focus on RICS's house price survey tomorrow for any signs that housing activity in the UK has been affected by either the BoE's higher borrowing rates or the recent credit crunch turmoil.
   
"The RICS index dipped into negative territory in August and further deterioration at this front in September would add to the concerns that the UK housing market is facing a sharp slowdown," said Michael Ramon Klawitter at Dresdner Kleinwort.
   
Meanwhile, as expected there were no takers again for the BoE's third auction of 10 bln stg in the 3-month interbank market, which was offered at a penalty rate of at least 6.75 pct, significantly above the current three-month Libor rate of 6.27 pct.
   
Elsewhere, the dollar remained on the backfoot as capital flows continued to move into higher yielding currencies and commodity-linked currencies.
   
The euro strengthened against the pound as a large deal in euros went through the market.
   
"There's a large order clearly going through the market in euro-sterling," said Stephen Pearson, chief currency strategist at HBOS, adding that it was possibly related to a banking sector M&A deal.
   
The Royal Bank of Scotland Group, Banco Santander, and Fortis consortium today declared that its 71.1 bln eur offer for ABN Amro was now wholly unconditional.
   
The yen remained stable against the dollar ahead of the Bank of Japan's monetary policy announcement tomorrow. Interest rates are expected to be kept on hold at 0.5 pct for the ninth consecutive time.

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Euroshares flat midday, Atos Origin outshines peers, Northern Rock surges 34 pct

LONDON - European blue chips were flat midday with relatively low volumes, while Atos Origin stood out as investors hoped for a faster turnaround, and with Northern Rock surging more than 34 pct following reports that Europe's second largest hedge fund GLG Partners mistakenly took a 3 pct short position in the stock.
   
At 12.24 pm, the Dow Jones STOXX 50 was trading 1.31 points or 0.03 pct lower at 3,897.24, while the STOXX 600 added 0.35 points or 0.09 pct to 388.19.
   
In Europe, Atos Origin outshone its peers, rising 3.97 pct, after Centaurus and Pardus said they are seeking board representation, which intensified hopes the group will step up its restructuring efforts.
   
"With board seats, it's very clear they (Pardus and Centaurus) are going to put pressure on the management to improve margins and take the necessary steps," a Paris-based dealer said.
   
And ailing UK mortgage bank Northern Rock soared 34.10 pct.
   
The Times reported that Europe's second largest hedge fund, GLG Partners mistakenly exposed itself to a large short position after a miscommunication with Takeover Pane. Yesterday, the hedge fund revealed to the London Stock Exchange that it held short positions of more than 3 pct.
       
In the automotive sector, Scania AB, VW and MAN AG were all on the rise as speculation over an imminent three-way tie up resurfaced yet again. Scania added 0.65 pct with VW rising 1.04 pct and MAN AG gaining 2.83 pct.
   
French telecoms were also in focus with Vivendi gaining 2.42 pct and France Telecom 0.68 pct higher, as France's ARCEP rejected French internet service provider Free's request for a fourth 3G mobile telecom licence, saying that it had not met the required financial conditions.
   
Oddo Securities said this was good news for other mobile operators like SFR and Orange -- owned by Vivendi and France Telecom respectively.
   
Shares in Iliad jumped 3.68 pct as investors had earlier shown concern about the hefty price tag of the licence.
   
Elsewhere, Premiere shed 8.85 pct after media mogul Leo Kirch told the Frankfurter Allgemeine Zeitung newspaper that he plans to challenge Premiere for the broadcasting rights for German soccer, with traders noting Kirch would be prepared to dish out some 3 bln eur.
       
Shares in Royal Dutch Shell shed 1.52 pct amid vague reports the group is calling analysts, asking them to trim their forecast for the oil group.
   
The airline sector is in focus, as Goldman Sachs initiated ratings on four airlines, among which Austrian Airlines with a 'neutral' rating.  The broker highlighted Norwegian, with a 'buy' and said the industry is moving "irrevocably into three segments - the global flags, the legacy second tier and the new entrant low-cost carriers".
   
Global flags Lufthansa and Air France-KLM were boosted by the note and gained 2.34 pct and 2.64 pct respectively.
   
Separately, Vueling Airlines SA soared 5.62 pct, after core shareholder Inversiones Hemisferio called on the airline to hold an EGM to replace the group's current management.

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Asian stocks continue record-setting rally as Wall Street scales highs

SINGAPORE - Fresh records on Wall Street overnight sent stock markets across Asia higher Wednesday with benchmarks in Shanghai, South Korea, Australia, Indonesia and Singapore climbing to all-time highs as investors continued to bet on the region.
   
The KOSPI in south Korea closed up 1.3 pct at 2,041, buoyed by stronger-than-expected earnings from technology giant LG Philips LCD. The display panel maker kicked off the Korean earnings season late Tuesday with earnings that were well ahead of analyst estimates.
   
In Singapore, the Straits Times Index set a record above 3,900 with blue-chips in demand after third-quarter GDP data fueled optimism about the economy. However, the index ended 1.3 pct lower at 3,814.45 after profit-taking in the afternoon session.
   
Australian shares closed at record highs for the third straight day on Wednesday as foreign investors waded into the market, buying large cap stocks such as BHP Billiton. The S&P/ASX 200 closed up 60.5 points or 0.9 percent at a record 6,738.3, after touching a fresh intraday high of 6,743.2, beating Tuesday's record peak of 6,685.9. The low for the day was 6,697.3.
   
The broader All Ordinaries index ended up 56.9 points or 0.9 percent at a record 6,744.6 after reaching a fresh intraday high of 6,749.5. That was up from Tuesday's record of 6,695.9.
   
In New Zealand, the benchmark NZX-50 index fell 0.45 points to close at 4,279.79 on turnover worth 107.8 million New Zealand dollars. The number of rising stocks outnumbered falls 56 to 45.

Japan's Nikkei 225 closed up 0.1 pct at 17,177.89 while the broader Topix edged down 0.1 pct to 1,658.

In Hong Kong, the Hang Seng rose 341 points, or 1.2 pct to a record 28,569 as investors digested Hong Kong Chief Executive Donald Tsang's announcement of a package of economic measures that include tax cuts and new infrastructure projects. The measures are expected to fuel the city's thriving economy, analysts and economists said.
   
Indian shares jumped over 2 pct to another record closing, led by capital goods and information technology shares, on the back of heavy inflow of foreign funds and boosted by a steady flow of corporate news.
   
The Bombay Stock Exchange's benchmark Sensex rose 2.07 pct or 378.01 points to a record closing of 18,658.25. It had also struck an all-time high of 18,703.67 points in the afternoon. The National Stock Exchange's S&P CNX Nifty was up 2.14 pct at 5,441.45 points.
   
Among the BSE 30, 24 shares advanced, and 6 declined. In the broader market 1,326 shares gained, 1,415 lost and 64 were unchanged. Shares from the IT pack were in demand ahead of the results of bellwether Infosys Technologies Ltd, scheduled for tomorrow.

Elsewhere, the Jakarta Composite rose 1.8 pct to 2,591.5, led by coal giant Bumi Resources. Philippine composite index ended up 58.71 points or 1.6 pct at 3,834.71, with property developers and banks leading the pack while Manila Water Co surged to record highs on attractive valuation. The stock finished up 1.25 pesos or 8.2 pct at 16.50 pesos.
   
The Kuala Lumpur Composite closed up 0.6 pct at 1,377. The Shanghai Composite added 1 pct to close at 5,771.

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Gold higher on slight dollar weakness, eyes break out from recent range

LONDON - Gold inched higher in London as the dollar weakened slightly, with the precious metal eyeing a break out from the range it has traded in since hitting a near 28-year high last Monday.
   
"We've seen traders trying to short the market on several occasions, but we're not seeing any long liquidation from Comex speculators, so it's continued to edge higher with the euro (against the dollar)," said UBS analyst, John Reade.
   
"I expect after trying it a few times they've realised it's not going to happen, and we could see it push up from here. The markets not particularly liquid right now so it shouldn't take much to push it to the 750 usd level," he added.
   
The dollar has eased after yesterday's release of the minutes from the last meeting of the Federal Reserve Open Markets Committee -- where interest rates were cut by 0.5 pct points -- were interpreted by many market players as indicating a further 0.25 pct point cut was in the offing.
   
Gold generally moves in the opposite direction to the dollar, as it serves as an alternative investment to the US currency.
   
At 1.28 pm, gold was up at 744.45 usd per ounce against 737.25 usd in late New York trade yesterday. Earlier, it hit an intraday high of 745.85 usd, less than two dollars off last Monday's high of 747.75 usd.
   
Gold prices fluctuated yesterday, first heading south as the dollar strengthened, before rising back up to the 740 usd level as the greenback again weakened ahead of the FOMC minutes release. With the minutes largely in line with expectations, gold prices held firm towards the upper end of their recent range.
   
"The bulls drew a line in the sand yesterday and said they weren't going to let it go any lower," said Standard Bank trader, Richard England. "When the dollar weakened slightly they took that opportunity to grab it by the horns and drag it back up to the 740 usd level. At some stage you have got to ask are the bears going to run out of ammo -- the market's exceptionally long at the moment and it looks like it's going to go higher."
   
Gold has gained over 100 usd since late August, before pausing for breath as the rally ran out of steam. Gold's recent gains, predicated on the dollar's weakness and the recent financial turmoil, have been kept in check by low demand from key consumer India.
   
However, the peak demand season in India is about to get into its stride, and the levels of physical buying from the sub-continent could provide an indication as to whether gold's recent highs can be supported by the market. If buying volumes hold up, many analysts predict that gold will continue to push higher.
      
Elsewhere, silver was up to 13.62 usd an ounce from 13.25 usd. Platinum was up at 1,388 usd against 1,362 usd, while its sister metal palladium crept up to 368 usd against 360.50 usd.

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