US & World Daily Markets Financial Briefing 12-02-2008

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Stocks rise after Buffett offer

In the first hour of trading, the Dow Jones industrial average rose 92.82, or 0.76 percent, to 12,332.84. The blue chip index at times gained more than 100 points.

Broader stock indicators also rose. The Standard & Poor's 500 index advanced 9.06, or 0.68 percent, to 1,348.19, and the Nasdaq composite index rose 12.93, or 0.56 percent, to 2,332.99.

The gain in stocks comes a day after Wall Street achieved moderate gains. The increase Monday followed a week that saw stocks end sharply lower.

The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude fell 53 cents to $93.06 per barrel in electronic trading on the New York Mercantile Exchange.

Buffett's overture to the big bond insurers reassured investors. Buffett said one firm rejected his offer and he is still waiting to hear from the other two.

Bond insurers write policies that promise to cover payments to bondholders if the entity that issued the bonds defaults. Reinsurance provides a second level of insurance on those bonds.

Investors also appeared pleased Tuesday by a plan by the six largest mortgage lenders to help at-risk borrowers with all types of mortgages retain their homes. The plan, called Project Lifeline, is expected to be announced Tuesday by the Treasury Department and the Department of Housing and Urban Development, a person familiar with the plan told The Associated Press. The person confirmed earlier news reports about the plan but spoke on condition of anonymity because it had not yet been made public.

Adding to investors' somewhat upbeat mood, Credit Suisse Group sharply reduced its estimate of how much exposure it has to subprime mortgage debt. Switzerland's second largest bank said its debt tied to subprime mortgages, those given to borrowers with poor credit, fell to 1.6 billion francs ($1.45 billion) from 3.9 billion francs at the end of September. Its fourth-quarter net profit fell 72 percent because of write-downs.

GM rose 28 cents to $27.40 after reporting its fourth-quarter loss totaled $722 million, or $1.28 per share, in the fourth quarter, compared with net income of $950 million a year earlier. Much of the loss relates to $622 million in costs tied to a restructuring at Delphi Corp., GM's former parts business.

Diversified manufacturer 3M said late Monday it would pay a quarterly dividend of 50 cents, an increase of 4.2 percent over its previous payout. The decision by 3M, which makes products such as Scotch tape and Post-It notes, to boost its dividend is welcome news for investors amid a time of economic uncertainty. 3M rose 37 cents to $79.65.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 165.5 million shares.

The Russell 2000 index of smaller companies rose 5.16, or 0.74 percent, to 704.91.

Overseas, Japan's Nikkei stock average closed up 0.04 percent and Hong Kong's Hang Seng index rose 1.35 percent. In afternoon trading, Britain's FTSE 100 rose 1.87 percent, Germany's DAX index rose 2.24 percent, and France's CAC-40 advanced 2.17 percent.

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Forex - Pound claws back earlier losses caused by softer-than-expected inflation

LONDON  - The pound recovered a large chunk of its earlier losses triggered when figures showed UK consumer inflation crept up less than expected during January.

The annual rate of consumer price inflation rose by 2.2 pct on the year in January - up from the 2.1 pct rate seen in December but below analyst expectations for a larger rise to 2.3 pct.

The pound initially dropped sharply following the news as many investors had been fearing the numbers would be even higher than analyst expectations.

However it did little to unseat expectations that inflation will continue to rise above the Bank of England's 2.0 pct target in the coming months, meaning the central bank will be constrained in its ability to cut interest rates.

"With cost pressures still very strong and energy prices set to lift headline inflation further, the Monetary Policy Committee's inflation worries are not about to evaporate overnight," said Jonathan Loynes, chief economist at Capital Economics.

"Rising gas and electricity prices will push the headline rate higher, maintaining concerns over the effect on inflation expectations," he added.

Earlier today a key set of retail sales figures also put a question mark over the likelihood of a BoE rate cut in coming months.

The British Retail Consortium reported that like-for-like sales rose 2.6 pct in January, suggesting heavy discounting in the New Year sales led to the high street having a much stronger month than many economists had expected.

Elsewhere, the euro posted modest gains following a stronger-than-expected German economic sentiment survey.

The ZEW survey rose to -39.5 in February from -41.6, surprising analysts, who had expected a fourth consecutive decline in the headline figure.

The news provided the euro with a slight boost as it indicated the largest economy in the 15-nation single currency zone is holding up better than expected.

"Markets were braced for a further decline in investor expectations... but it looks as though the combination of the recent retreat in the euro against the dollar and the ECB's decision last week to soften its interest rate stance outweighed such considerations," said Martin van Vliet at ING.

Meanwhile the yen continued to weaken as European bourses were trading higher, boosted by stronger-than-expected results from Credit Suisse. Markets are concerned European banks are set to follow their US counterparts and announce increased losses from the subprime crisis this week, but the Swiss bank reported strong profits for last year.

The yen tends to fall on rising equity markets as investors opt for slightly riskier trades and buy higher-yielding currencies at the yen's expense.

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Euroshares add to gains midday as Dow seen higher; earnings news pleases

LONDON  - Leading European exchanges were higher midday as the Dow looks set to continue its recovery in opening trade and as investors this side of the Atlantic took heart from a mostly bullish set of earnings numbers.

Credit Suisse, though, fell back as traders said better-than-expected numbers from the Swiss banking group hid a mixed divisional performance.

At 12.04 am, the STOXX 50 was up 46.22 points or 1.47 pct at 3,183.8, while the STOXX 600 added 4.2 points or 1.33 pct to 316.76.

Spread bettors, IG Index, said the Dow looks set to bounce back another 50 points in opening deals adding to yesterday's gains.

Turning back to Europe, initial enthusiasm for Credit Suisse Group's consensus-beating full-year net profit waned, with some doubting the quality of the numbers released.

A trader at Zuercher Kantonalbank said the numbers were solid with no negative surprises. Another dealer in Zurich said the performance at Wealth Management looked above estimates, but that Investment Banking was lower and Asset Management disappointing.

Shares in Credit Suisse were down 0.71 pct.

Insurers slumped again mid-morning as dealers noted talk that ING -- down 0.65 pct may have to write-down some losses for its US business. But the sector rallied and most plays in the sector were back in the blue by midday after the Dutch insurance group sought to assuage fears.

A spokeswoman said the group is "perfectly aware" of its obligations to inform the market if there are "material" changes from its last statement. The group has previously said it incurred no material impairments or revaluations on its subprime residential mortgage-backed securities or leveraged finance transactions. Shares rallied earlier losses of more than 6 pct to trade only 0.6 pct lower.

The sector received a further boost from rumours influential US financier Warren Buffet is looking to take a stake in AIG.

Staying in the banking industry, IKB pulled back some of the ground lost yesterday after reports the German government is considering granting the troubled bank a loan. Shares fell more than 21 pct yesterday after Sueddeutsche Zeitung, Financial Times Deutschland and Handelsblatt, BaFin head Jochen Sanio considered closing the bank down over the weekend but refrained from doing so for the time being.

In the pharmaceutical sector, Sanofi-Aventis added 1.22 pct -- also rallying from recent losses -- after the French group unveiled an in-line to slightly better set of fourth quarter numbers.

Meanwhile, BilfingerBerger, the German construction group, rose 6.25 pct after it beat expectations with its full-year results and presented a solid outlook.

And Securitas rallied from opening lows as investors warmed to its earnings statement. Deutsche Bank upgraded the shares to 'hold' from 'sell', saying most of the bad news is now priced in.

But Tele2 failed to impress investors as it reported worse than expected numbers, pushing the shares 5.76 pct lower.

In M&A talk, XStrata lost 2.97 pct after the Financial Times this morning reported it has rejected an informal cash and share takeover approach from Brazilian mining group Vale, pitched at just under 40 stg a share or 38.9 bln stg for its entire equity.

Xstrata and Glencore, the Swiss commodities trader that owns 35 pct of the Anglo-Swiss mining group, dismissed the offer and are holding out for a price equivalent to about 45 stg a share, according to people close to the deal, the FT reported.

But MAN AG rose 4.71 following news late last night that Volkswagen has lifted its stake in Swedish truck maker Scania -- raising hopes for a three-way tie up between the three companies' truck operations. Shares in Scania were up 1.13 pct and VW rose 1.71 pct.

Elsewhere in the sector, Peugeot added 2.56 pct ahead of its numbers tomorrow as WestLB lifted its rating to 'add' from 'hold'. Daimler added 3.4 and Renault moved up 3.36 pct ahead of their numbers Thursday.

Defence and car parts group Rheinmetall added 1.47 pct after its numbers this morning.

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Asia ends mixed as AIG troubles keep subprime fallout in the spotlight

In Tokyo, the Nikkei closed up 4.72 points at 13,021.96 and the broader Topix was down 0.1 percent at 1,286.10. Mizuho Financial Group lost 1.4 percent to 430,000 yen and Nomura Holdings shed 1 percent to 1,501.

The S&P/ASX 200 ended up 1.3 percent at 5,608.1 and the All Ordinaries added 1.2 percent to 5,669.4, with benchmarks rebounding from early lows as banks and miners staged a late rally.

"At least the market has got its nose in front, but clearly the market is pretty fractious at the moment as you can see by responses to earnings reports," said Michael Heffernan, a private client advisor at Austock Securities.

Taiwan's Taiex lost 1.6 percent to 7,553.30 as investors caught up with losses in other markets while Taiwan was closed for the Lunar New Year holiday. The Shanghai market remains closed until Wednesday.

The Hang Seng finished up 1.4 percent to 22,921.67. "Hong Kong's property names are attractive and telecommunication shares are screaming for a buy, " said Benjamin Collett, head of hedge fund sales trading at Daiwa Securities SMBC.

The Singapore Straits Times rose 2 percent to 2,926.23, the Malaysian Kuala Lumpur Composite closed up 0.7 percent at 1,417.52 and the Kospi ended up 0.2 percent at 1,643.29. The Indonesian composite index closed down 0.1 percent at 2,592.07.

The Philippines Composite finished up 0.7 percent at 3,200.90.

In other gloomy news for the sector, Banc of America Securities cut first-quarter earnings estimates for Bear Stearns, Goldman Sachs, Lehman Brothers and Morgan Stanley, arguing that the weak investment banking environment will be exacerbated by the soft fixed-income trading environment.

"Investors have already surrendered to the fact that more writeoffs are coming, and we haven't see the bottom of the credit problems," said Jose Vistan, research director of AB Capital Securities in Manila.

High-tech stocks were bid higher in Tokyo after Yahoo rejected Microsoft's bid.

Semiconductor maker Tokyo Electron rose 3.4 percent to 6,310 yen and major electronic parts maker TDK climbed climbed 5.6 percent to 7,230.

Nippon Steel gained 0.9 percent to 547 yen after the Nikkei newspaper reported that Japan's largest steel manufacturer plans to raises prices for steel sheet and plate by 10-20 pct.

Sega Sammy Hldgs Inc shed 17.1 percent to 912, after the company reported Friday a net loss of 15.8 bln yen in the nine months to December as stiffer competition led to weak sales of its gaming machines.

In Hong Kong, Cnooc Ltd was up 2.4 percent at 11.28 dollars and Petrochina rose 2.8 percent to 10.94 as oil prices held above 90 usd a barrel. Retailer Li & Fung rose 6.5 percent to 28 dollars in a rebound from recent lows.

In Seoul, shares of Hyundai Heavy Industries Co, the world's largest shipbuilder, rallied 2.4 percent to 341,500 won, on expectations the company will reap big profits once its smaller shipbuilding unit proceeds with a plan to go public.

Media reports said Hyundai Samho Heavy is taking initial steps towards an initial public offering.

In Singapore, Neptune Orient Lines rose 11 cents at 3.93 dollars, after reporting better-than-expected results for 2007.

NOL said its net profit rose 44 percent to 523 million US dollars last year, beating the average estimate of 444.7 million dollars from 10 analysts polled by Thomson Financial.

The Bombay Stock Exchange's benchmark Sensex closed down 22.90 points or 0.14 pct at 16,608.01 while the National Stock Exchange's 50-share S&P CNX Nifty declined 0.39 pct to 4,838.25 points.

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Metals - Platinum hits new record as SAfrican supply fears fuel buying

LONDON - Platinum rose to another all-time high as investors bought into the metal amid fears over falling supply from major producer South Africa.

The white metal hit a fresh record of 1,969 usd an ounce this morning, before easing back to trading at 1,948 usd per ounce at 9.52 am, against 1,937 usd in late New York trade yesterday.

An announcement by Anglo Platinum, the world's biggest miner of the metal, that it was cutting its 2008 output forecast yesterday pushed prices still closer to the 2,000 usd an ounce mark, analysts said.

The company said it now expects to mine only 2.4 mln ounces in 2008. "Platinum rose to a record as supply problems became increasingly obvious," said Standard Bank analyst Walter de Wet. "After Anglo Platinum announced yesterday that it was likely to produce 150,000 ounces less platinum this year, the metal rapidly gained more than 50 usd."

"Given that Anglo Platinum is expected to produce almost half of South African platinum, we foresee a total production loss of 400,000 ounces this year," he added. "At the current value... we maintain that there is upside to the metal, and recommend going long platinum."

South African platinum production has already suffered over the last year from a spate of stoppages linked to strikes and industrial accidents.

From January, it has also been crimped by an electricity shortage, after state power utility Eskom said could not guarantee supply unless large industrial users such as mines cut usage.

As the world's biggest platinum miner, producing just under 80 pct of total supply, South African production outages have a huge effect on the market. Unlike gold, platinum is readily consumed in industry, chiefly in car manufacturing, and is therefore more sensitive to supply outages than the other metal.

Elsewhere, gold eased a touch to 919.90 usd against 922.80, with news that the G7 has approved gold sales by the IMF dampening sentiment, analysts said.

Declining gold consumption from jewellers as prices soar to new highs is also worrying investors. According to the Bombay Bullion Association, gold imports into India, the world's largest consumer of the precious metal, slumped to just 5 tonnes in January from 62 tonnes a year before.

"High prices have had a major impact on consumption, and this is a worrying signal that the yellow metal could be due a correction," said Fairfax analyst John Meyer.

"However, continued investor sentiment over concerns of inflation and the health of the US market and the US dollar could continue to support prices," he added.

Meanwhile gold's sister metal silver rose to 17.49 usd an ounce against 17.44 usd, and palladium slipped to 435 usd against 440 usd.

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