US & World Daily Markets Financial Briefing 12-10-2006

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Stocks surged Thursday, with the Dow Jones industrial average crossing 11,900 for the first time, after big consumer names like McDonald's Corp. gave investors hope that earnings would be strong despite a slowing economy.

The widely followed Dow index rose as high as 11,909.92 Thursday, topping a previous intraday high of 11,872.94. On Tuesday, the Dow closed at 11,867.17, its fourth record close in two weeks. Also Thursday, the Standard & Poor's 500 index reached a 52-week intraday high.

The markets were more upbeat than on Wednesday, which saw a lackluster start to earnings season, though there was still concern about the economy's health.

The Commerce Department reported that the country's trade deficit rose to a record high in August. A separate report showed that the number of newly laid off workers seeking unemployment benefits grew by 4,000 last week to a seasonally adjusted total of 308,000. Unemployment remains low, however.

Investors were also awaiting the release, set for later Thursday, of the Federal Reserve's Beige Book, which summarizes regional economic activity.

In the first hour of trading, the Dow Jones industrial average was up 44.02, or 0.37 percent, at 11,896.15.

Broader stock indicators were also higher. The Standard & Poor's 500 index was up 5.17, or 0.38 percent, at 1,355.12, and the Nasdaq composite index advanced 15.05, or 0.65 percent, to 2,323.32.

Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.76 percent from 4.78 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices rose.

The price of a barrel of light, sweet crude, which settled at a low for the year on Wednesday, gained 15 cents at $57.74 in premarket electronic trading on the  New York Mercantile Exchange. Doubts remained about whether OPEC's members will be able to agree on an immediate production cut.

McDonald's rose $1.17, or 2.84 percent, to $42.42, after saying systemwide same-store sales, or sales at stores open at least a year, rose 9.8 percent in September. The world's largest fast-food chain also said its third-quarter profit would top Wall Street's expectation.

Warehouse chain Costco Wholesale Corp., advanced $2.22, or 4.43 percent, to $52.29 after reporting its fiscal fourth-quarter profit rose 1 percent.

The Russell 2000 index of smaller companies was up 5.67, or 0.76 percent, at 747.38.

Overseas, Japan's Nikkei stock average closed down 0.19 percent. In afternoon trading, Britain's FTSE 100 was up 0.50 percent, Germany's DAX index was up 0.49 percent, and France's CAC-40 was 0.67 percent.

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The dollar managed to shrug off the worst US trade deficit as the US currency continues to benefit from improving interest rate differentials.
  
Katzive noted the more hawkish tone of Fed speakers as well as yesterday's minutes to the September 20 FOMC meeting, which have combined to reduce the market's odds of a rate cut this year.

While the minutes to the FOMC meeting noted that activity has decelerated, rate-setters highlighted the upside risks to the inflation outlook and played down the importance of the housing market slowdown on consumption.

The FOMC has kept its key Fed funds rate unchanged at 5.25 pct at its last two meetings, after deciding to pause on Aug 8 following 17 consecutive quarter-point increases.

Analysts said this modest re-widening of future interest rate spreads between the US and its major competitors has helped the dollar to post impressive gains in recent sessions.

This focus on yield factors helped the dollar take the news of a 2.7 pct widening in the US trade deficit to 69.9 bln usd in its stride, especially as lower oil prices are expected to become evident in September's data.

Elsewhere, the pound was solid against the euro after another strong housing survey reinforced expectations that the Bank of England will raise its key repo rate another quarter point to 5.00 pct in November.

According to the Royal Institution of Chartered Surveyors, house prices in the UK rose for the eleventh month running and at their fastest rate in four years during September.

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LONDON - Leading shares remained firm at midday, flirting with five-month highs, with miners helping to lift sentiment and a flurry of M&A rumours also helping to bolster blue chip stocks.

The FTSE 250 provided the main focus of the day's news after Carphone Warehouse announced it has lost its Vodafone reselling contract, dealers said.

PARIS - Share prices were up in active trading at midday, building on the 5-year closing high reached yesterday as the steady news of merger and acquisition moves, either anticipated or underway, reinforce investor hopes of further upside potential for equities, dealers said.

At 12.24 pm, the CAC-40 index was 11.14 points firmer or 0.2 pct at 5,324.33, on volume of 2.4 bln eur.

FRANKFURT - German shares were higher midday after a late Wall St rebound and as MAN lifted its offer for Swedish truckmaker Scania, but gains were limited as newsflow was relatively thin, dealers said.

At 11.41, the DAX was up 15.5 points, or 0.24 pct, at 6134.9, while the MDAX was up 20.25, or 0.23 pct, at 8,654.20 and the tecDAX was up 4.48, or 0.67 pct, at 677.84.

AMSTERDAM - Shares prices were slightly higher in early afternoon trade, recovering from a negative start, ahead of an expected higher start to trade on US markets, dealers said.

At 1.31 pm, the AEX index was up 0.36 pct or 1.75 point at 491.76 after opening at its low of 489.42.

MILAN - Shares were flat at midday, with Fastweb outperforming on consensus-beating third quarter results.

At 11.47 am, the Mibtel index gained 0.02 pct to 30,126 points and the S&P/Mib was unchanged at 39,490.

MADRID - Madrid shares were higher in quiet midday trade, as most domestic investors enjoyed a national holiday, with Sacyr Vallehermoso, BBVA and SCH still buoyed by M&A talk, dealers said.

At 12.25 pm, the IBEX-35 index climbed 68.9 points to 13,329.7 after trading in a range of 13245.1-13,351, on turnover of 1 bln eur.

BRUSSELS - Shares were higher in mid-morning trade amid a rush of corporate news and a strong rise at Agfa-Gevaert, traders said.

At 10.46 am, the Bel 20 was up 27.91 points or 0.68 pct at 4157.19.

STOCKHOLM - Shares remained in slightly positive territory in midday trade, extending the morning's gains as the blue chip engineers continued to climb, with Scania maintaining its gains sparked by forecast-busting third quarter results, and news of aggressive share buys by MAN, dealers said.

At 12.20 pm, the OMX Stockholm index was up 0.95 pct at 348.67 points, while the OMX Stockholm 30 index was up 0.78 pct at 1,088.62.

HELSINKI - Shares were slightly higher in midday trade, with Nokia underperforming the broader market on profit-taking, brokers said.

At 12.13 pm, the OMX Helsinki 25 was 0.27 pct higher at 2,674.37 and the OMX Helsinki was up 0.10 pct to 9,079.81 on 354 mln eur turnover.

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Shares across the Asia-Pacific region closed mostly lower on a fall on Wall Street and interest rate concerns, dealers said.

Tokyo shares finished lower after a choppy session, led by losses in technology stocks and blue chips in response to Wall Street's retreat overnight, dealers said.

The Nikkei 225 Stock Average closed down 31.76 points or 0.19 pct at 16,368.81, after moving between 16,343.49 and 16,495.54.

The broader TOPIX index of all first-section issues dropped 8.43 points or 0.52 pct to finish at its day-low of 1,613.64.

Australian shares ended lower as the market drifted into negative territory following the release of stronger-than-expected jobs data, which raised interest rate concerns, dealers said.

Australia's unemployment rate in September was steady at a seasonally-adjusted 4.8 pct from August - a 30-year low.

The outcome was below market expectations of 4.9 pct while the August unemployment rate was revised down to 4.8 pct from the previous estimated rate of 4.9 pct.

The S&P/ASX 200 ended down 23.0 points or 0.44 pct at its low for the day of 5,259.8 and below the high of 5,288.4.

Hong Kong shares were steady in afternoon trade as investors turned cautious amid uncertainty over US economic prospects and interest rates, dealers said.

Minutes of the last US Federal Reserve meeting, released overnight, indicated that US policy makers remain concerned about inflation despite an economic slowdown, they noted.

At 3.24 pm the Hang Seng Index was down 17.24 points or 0.10 pct at 17,845.55.

In mainland China, A-shares in Shanghai and Shenzhen closed lower on profit-taking, with property developers and telecom companies coming under pressure, dealers said.

The Shanghai A-share Index fell 12.15 points or 0.65 pct to 1,868.43 and the Shenzhen A-share Index was down 3.33 points or 0.71 pct at 462.11.

Seoul shares closed higher after the Bank of Korea held interest rates steady, as expected, and as Washington committed itself to seeking a diplomatic rather than military solution to the standoff with North Korea, dealers said.

The central bank kept its benchmark call rate target for October unchanged at 4.5 pct, citing uncertainty over the North Korean nuclear issue.

The KOSPI index closed up 6.29 points or 0.47 pct at 1,331.78, off a low of 1,323.80 and a high of 1,337.70.

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Gold prices edged up, finding support from Asian demand and a dip in the US dollar.

Analysts warned, however, that sagging oil prices could continue to weigh on gold as they reduce the metal's appeal as a hedge against inflation.

At 1.58 pm, spot gold, which earlier hit a high of 576.40 usd an ounce, was quoted at 574.45 usd, up from from the 572.40 usd level reached when the COMEX market closed in New York yesterday.

Other precious metals were also higher.

Spot silver was up at 11.28 usd against 11.25 usd, platinum rose to 1,072.50 usd against 1,069.00 usd, while palladium climbed to 307.00 usd against 302.00 usd.

Uruguay Mineral Exploration Inc said it is to farm out certain base metals assets as well as its diamond projects and focus on gold operations to achieve further growth, in a statement released at today's annual shareholders meetings.

The AIM-listed miner said although gold production in the first quarter has been lower than expected and progress in overall exploration progress has been slow in last 18 months, it  is still confident about the future and is proposing to pay a maiden dividend.

In London, metal and mining stocks were in demand again, helping to underpin the market's overall strength, as commodity prices firmed overnight with gold and copper recovering from recent falls.

Sentiment was further buoyed amid growing expectations a revenue-based royalty tax on the South African mining industry will come in lower than originally feared.

UBS pointed out to clients this morning that the South African government has proposed a new draft of the Mining Royalty Bill applicable to revenues on South African operations from 2009.

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