US & World Daily Markets Financial Briefing 13-10-2008

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US STOCKS-Market jumps on bank rescue optimism, Morgan

NEW YORK - U.S. stocks soared on Monday as a global push by governments to pump cash into banks fueled a rebound in financial shares and credit markets showed some signs of loosening up.
      
Governments, including those of Germany and France, stepped up efforts to restore confidence in the tottering banking system by offering multibillion-dollar bank rescues after weekend talks in Washington.
      
Morgan Stanley was among the standouts: its shares soared more than 50 percent after Japan's Mitsubishi UFJ Financial Group said it paid $9 billion for a 21 percent stake in the beaten-down U.S. securities firm that has turned itself into a bank holding company.
      
Shares of Wachovia rose nearly 6 percent after the U.S. Federal Reserve approved the $12.46 billion purchase of the beleaguered U.S. bank by Wells Fargo & Co. The S&P financial index rose 4.1 percent.
      
"It's clearly an oversold bounce, but also with any luck, it allows us to move past this hour-to-hour and day-to-day time-frame to tackle longer-term issues over the next few quarters," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "Sometime last week it seemed like we faced Armageddon, so to have a coordinated plan on stabilizing banks is huge progress."
      
The Dow Jones industrial average jumped 436.31 points, or 5.16 percent, to 8,887.50. The Standard & Poor's 500 Index gained 48.96 points, or 5.44 percent, to 948.18. The Nasdaq Composite Index shot up 91.01 points, or 5.52 percent, to 1,740.52.
     
Wall Street capped its worst week ever on Friday as investors feared the credit crisis was spiraling out of control and the global economy was threatened by deep recession.
      
Stock markets leaped in Asia overnight and again in Europe, where the FTSEurofirst 300, an index of leading European shares, shot up more than 7 percent.
      
In an unprecedented move, Britain said it would spend up to $64 billion to buy into top UK banks, and Germany and France drew up similar steps. U.S. Treasury Secretary Henry Paulson said Washington was developing plans to buy equity in financial institutions to halt the prolonged financial market turmoil.
      
Morgan Stanley shares vaulted 54.3 percent to $14.94 on the New York Stock Exchange, while those of Wachovia rose 5.4 percent to $5.43. The optimism over bank rescues, however, collided with a U.S. bank sector downgrade by Citigroup, which contributed to declines in other bank shares, including JPMorgan, off 2.7 percent at $40.51.
      
On Nasdaq, shares of Apple Inc led advancers, with a gain of 7.2 percent to $103.79. Citigroup raised its recommendation on the U.S. technology hardware and equipment sector to "market weight" from "underweight."
      
U.S. trading was light, however, with the U.S. bond market closed for the Columbus Day holiday. Japanese markets were also closed for a national holiday on Monday. Shares of General Motors climbed 26 percent to $6.17 following news that the automaker has held merger talks with Chrysler LLC and rival Ford Motor Co, whose shares were up 25 percent at $2.51.
      
In a sign that credit markets may be loosening up, the cost for banks to borrow dollars, sterling and euros from each other over three months fell.

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FOREX-Euro, sterling rally as Europe pledges to rescue banks

NEW YORK - The euro surged on Monday after a unified European government plan to rescue banks from collapse helped the currency sprint away from a 1-1/2-year low against the dollar.
      
Sterling also rose against the dollar after the British government said it would pump $64 billion into three of its biggest banks, part of a plan to restore confidence in what has become the worst global financial crisis since the 1930s.
      
European shares surged and Wall Street was headed for a rally as signs of looser credit conditions led investors to take on more risk after running for the hills on Friday.
      
Germany approved a 400 billion euro rescue plan on Monday, and the French government was set to create a $55 billion fund to take stakes in its banks, media reports said.
      
The bank bailout "is the first positive step in the right direction and demonstrates the ability of officials to act in concert, which should provide the euro with a boost of confidence for the time being," said Boris Schlossberg, director of research at GFT Forex in New York.
      
The euro was up 1.8 percent in early New York trade at $1.3648, near a session peak of $1.3671. On Friday, it sank to $1.3257, its lowest level since March 2007.

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Europe shares surge after govts, cenbanks step in

LONDON - European shares surged in early trade on Monday, bouncing from Friday's slide, after Eurozone governments announced guarantee measures for banks and central banks moved to boost liquidity.
     
At 0828 GMT, the FTSEurofirst 300 index of leading European shares was up 6.7 percent at 908.10 points after a 22 percent fall last week.
      
The index, which plunged to a 5-year low last week, has lost nearly 40 percent so far this year, punctured by a credit crisis that has led to big losses at the region's banks, frozen interbank lending and slowed the economy.
      
After an emergency meeting in Paris over the weekend, European governments agreed to provide capital for banks caught short of funds because of frozen money markets and to insure or buy into new debt issues.
      
Banks were the top weighted gainers, with BNP Paribas  and Deutsche Bank rising between 6.1 and 14 percent. Credit Suisse gained 12 percent after Merrill Lynch upgraded it to "neutral"  from "underperform", saying last week's 40 percent fall was overdone. Baer Holdings rose 12 percent after Deutsche Bank upgraded it to "hold" from "sell".
      
The world's top central banks on Monday announced further measures to improve liquidity in short-term U.S. dollar funding markets. European central banks said on Monday they would lend out as much U.S. dollar liquidity as commercial banks needed in a further joint bid to resolve money market tensions.
      
In a joint announcement with the U.S. Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank said they would meet all bids from commercial banks at a fixed interest rate.
"You'd expect a rally after the freefall last week," said Bernard McAlinden, investment strategist at NCB Stockbrokers.
      
"The 15 members of the eurozone agreeing guarantees and bank recapitalisation measures, that's positive, and there's talk of the U.S. bringing guarantees into the toolbox. The patchwork quilt is filling out in
terms of guarantees and other remedies." The interbank cost of borrowing three-month sterling and euro funds eased on Monday.
       
Three major British banks could take 37 billion pounds ($64 billion) in government money to boost their capital, the UK Treasury said. In Paris, a report by Dow Jones Newswires said the French government would create a 40 billion euro ($55 billion) fund to take stakes in banks.
      
The French presidential office declined to comment on the report.  A German financial rescue plan includes a fund to provide up to 400 billion euros in guarantees for banks, according to a draft bill seen by Reuters on Monday.
      
The terms of Lloyds' acquisition of HBOS have been renegotiated. HBOS shareholders will now receive 0.605 Lloyds shares for each HBOS share, down from 0.83 previously. HBOS shares fell 6.3 percent, while Lloyds was up 10.6 percent. Barclays, which said it was not taking government money but would raise cash from investors, gained 14 percent, and RBS was up 2.2 percent.
      
Oils also played a major part in boosting the index, after crude prices, which fell 10 percent on Friday, gained nearly $4. Oil was recently trading at $81.43 a barrel.
      
Total, ENI, BP and Royal Dutch Shell gained between 5.4 and 6.2 percent.  Mining shares also rebounded, as gold and copper prices regained some lost ground. Rio was up 13 percent and Anglo American, BHP Billiton, and Xstrata were up 8.9-11 percent.
      
Dutch company Philips Electronics was down 1.3 percent after the company said it posted a 71 percent fall in third-quarter core profit as a charge for asbestos claims and restructuring costs impacted the group result.
      
It was one of just four fallers in the index. NCB's McAlinden said a significant rally was unlikely. "The other side is that we've got more Q3 earnings reports coming up, which may contain bad news, but it would take bad earnings news to justify the steep falls we've had," he said.
      
"The market has capitulated a few times already. We are reluctant to say this is the final capitulation. If this is the bottom, it will be a while before we know it. We won't be going up quickly."

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Asian stock market summary

SOUTH KOREA
The Korea Composite Stock Price Index ended 3.79 percent higher at 1,288.53, with banks and exporters rising on strengthening hopes over central bankers' and government leaders' measures over the weekend to solve the financial crisis.
   
AUSTRALIA
The benchmark S&P/ASX 200 index closed up 5.6 percent at 4,180.7, ending a three-day losing streak, after the government extended a blanket guarantee to all bank deposits and breathed some life back into battered bank stocks.
   
The market, which suffered its heaviest one-day fall since the 1987 market crash on Friday, climbed as investors greeted the guarantee as a rare piece of good news amid gloomy talk of global recession and market meltdown.
   
The rally was led by the four major banks Australia and New Zealand Banking Group, National Australia Bank, Commonwealth Bank of Australia and Westpac Bank. 

CHINA
The Shanghai Composite Index rose 3.65 percent to close at 2,073.57, ending a six-day run of declines, reversing early losses after a significant rebound by banks, as governments worldwide appeared to be moving toward a coordinated rescue effort for areas of the economy hit by the credit crisis.
   
Banks were also supported by expectations that Central Huijin, an investment arm of the sovereign wealth fund, will buy more shares in the major banks. Property developers also recovered on speculation of some support measures.
   
The Shanghai A-share Index rose 3.65 percent to 2,177.92, while the Shenzhen A-share Index was up 1.83 percent at 568.58.
  
The Shanghai B-share Index rose 4.27 percent at 115.43, while the Shenzhen B-share Index was up 3.31 percent at 274.06.

TAIWAN
The weighted index closed down 2.15 percent at 5,020.44, following big declines on global markets on Friday, when the Taiwan bourse was closed for a public holiday.
   
Dealers said the benchmark index managed to defend the psychologically key 5,000 points level on apparent support from government-related funds in late trade.

JAPAN
Market closed on the occasion of National holiday.

HONG KONG
The Hang Seng index closed up 1,515.29 points or 10.24 pct at 16,312.16, off a high of 16,376.42 and low of 14,754.64. It marks the index's fifth-biggest single day points gain ever.

INDIA
The Bombay Stock Exchange's benchmark Sensitive Index ended 804.38 points or 7.64 percent higher at 11,332.23, boosted by the Finance Minister's statement. The National Stock Exchange's S&P CNX Nifty also soared 210.75 points or 6.43 percent to close at 3,490.70.

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Gold rises as dollar weakens, commodities recover

LONDON  - Gold rose in Europe on Monday as the dollar weakened, boosting the precious metal's appeal as an alternative investment, and as oil prices climbed.
      
Commodities recovered almost across the board after Friday's market rout, with crude futures, industrial metals, sugar, grains and coffee all rising.  Spot gold was at $862.25/865.25 an ounce at 0911 GMT, up from $847.40 in late New York trade on Friday. The metal swung in a range of more than $100 that session as turmoil on the financial markets spooked investors.
      
"Gold at this level is attractive, and we are looking for higher prices -- towards $900," said Commerzbank analyst Eugen Weinberg.
      
Gold was supported by a slip in the dollar versus the euro, usually a key external driver of bullion prices. The euro rallied broadly after European governments said they would work together to stabilise the banking sector.
      
"(A) correction in the dollar, coupled with the wide credit spreads, should bode well for precious metals today," said Standard Bank analyst Manqoba Madinane.
     
Analysts will be watching developments on other financial markets closely, both for their influence on the dollar and on demand for gold as a haven from risk.
      
Chaos on the equity markets last week boosted demand for bullion, as investors sought safer assets than stocks. While currencies were supportive on Monday, steadier equity markets were likely to dampen investors' appetite for gold. 
       
If the markets settled, gold was expected to revert to following its usual external drivers, the dollar and oil. "If stock markets calm down and the fear index declines, then gold is likely to follow again the usual fundamental drivers," said Dresdner Kleinwort in a note.
      
Crude futures supported gold on Monday, rising more than $3 after Friday's more than 10 percent dive.  Traders will also be eyeing investment interest in gold exchange-traded funds. The world's largest gold-backed ETF, the SPDR Gold Trust, said its holdings rose to a record 770.64 tonnes on Friday.
      
Silver climbed more than 5 percent to a session high of $10.81 an ounce, up from $10.14 in late New York trade on Friday. Later it was trading at $10.79/10.87. More settled financial markets were expected to support the industrial precious metals -- including silver, platinum and palladium -- much more than gold.
      
Analysts were hoping a more settled outlook to the financial markets would underpin demand for industrial metals. "Platinum and palladium should benefit from confidence coming back into the industrial metals," said Weinberg.
      
Palladium also climbed nearly 5 percent to a high of $197 an ounce, before settling back to trade at $196/201 an ounce against $188. Platinum languished, however, on fears demand from carmakers will be lacklustre this year and into next year. Spot platinum was at $968/998 an ounce against $980.50.

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