US & World Daily Markets Financial Briefing 16-02-2009

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Wall St slides as banks eclipse housing optimism

U.S. stocks fell on Friday as persistent worries about banks eclipsed news the government would announce a plan next week to prop up the housing sector by helping homeowners avoid foreclosures.

Initial enthusiasm over the prospect of relief on the housing front proved to be short-lived after the White House cautioned against unreasonable expectations and doubts lingered about how banks will cleanse their books of toxic assets.

The Dow on Friday had its lowest close since the bear market closing low of Nov. 20, capping a week when financial stocks were repeatedly pummeled as the government's latest bank rescue plan failed to allay investor worries.

Shares of JPMorgan  shed 3.3 percent to $25.30 on Friday, making the stock one of the top drags on the Dow. The KBW Bank index fell 5.3 percent and ended down 14 percent for the week.

"The banks are still a concern, plus we have a long weekend coming up," said Peter Jankovskis, director of research at OakBrook Investments LLC in Lisle, Illinois. "There are people that may be deciding they want to be out of the market for a few days.

The market will be closed on Monday for the Presidents Day holiday.

The Dow Jones industrial average fell 82.35 points, or 1.04 percent, to 7,850.41. The Standard & Poor's 500 Index dropped 8.35 points, or 1.00 percent, to 826.84. The Nasdaq Composite Index shed 7.35 points, or 0.48 percent, to 1,534.36.

Only three of the Dow's 30 components finished higher.

The close for the Dow marked its worst showing since the Nov. 20 bear-market closing low and the index is now off 10.6 percent year-to-date after sliding 5.2 percent for the week.

For the week, the S&P 500 was down 4.8 percent for its worst weekly showing since the bear market low of late November.

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Britain's Lloyds Banking Group  stoked banking sector concerns after it said its HBOS unit had a pretax loss of 8.5 billion pounds ($12.3 billion) for 2008, driven by 7 billion pounds loans, raising fears that the already partly nationalized bank will need further state help.

Some big manufacturers, however, moved higher, on expectations they will benefit from the $787 billion economic stimulus plan that the U.S. Congress is expected to approve later on Friday.

Planemaker Boeing  climbed 1.6 percent to $40.48, while United Technologies , the world's largest manufacturer of elevators and air conditioners, added 0.4 percent to $47.09.

Consumer stocks dropped on skepticism whether consumers will rush to spend the tax cuts that are part of the $787 billion stimulus package; the U.S. House of Representatives approved the package on Friday afternoon and the Senate was due to vote on the bill starting at 5:30 p.m. (2230 GMT).

U.S. consumer confidence in February fell to its lowest level in three months as sentiment grew increasingly gloomy over an economic downturn that most expected to last more than five years, a survey showed on Friday.

Wal-Mart Stores Inc  shares fell 3.3 percent to $46.53, making it the top drag in the Dow. Home Depot  dropped 3.5 percent to $21.22. The S&P Retail index slid 2.1 percent.

The Nasdaq was weighed down by a 3.8 percent decline in Research in Motion  after Credit Suisse cut its rating on the stock to "underperform" from "neutral" as it forecast lower average selling prices for the BlackBerry.

The index fell 3.6 percent for the week.

Volume was light on the New York Stock Exchange, where about 1.24 billion shares changed hands, below last year's estimated daily average volume of 1.49 billion shares. On the Nasdaq, about 2 billion shares traded, also below last year's daily average of 2.28 billion.

Decliners outnumbered advancers on the NYSE by a ratio of about 3 to 2, while on the Nasdaq, the ratio was about five to four.

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Brazilian stocks and currency slid on Monday in thin trade as investors waited for more details on U.S. government plans to shore up its economy.

The Bovespa index of the Sao Paulo stock exchange fell 1.2 percent to 41,176.74 points, with mining company Vale and BM&F Bovespa, which operates Brazil's largest stock and derivatives exchanges, leading the drop.

U.S. markets were closed on Monday for the President's Day Holiday, leaving the Brazilian stock market without a source of guidance.

Vale , the world's top iron ore producer, was 1.5 percent lower at 30.22 reais, tracking a slump of more than 3 percent in copper prices.

The slide in metals prices also weighed on local steelmakers, with Usiminas falling 2.1 percent to 28.5 reais and Gerdau dropping 1.95 percent to 15.61 reais.

BM&F Bovespa shed 2.6 percent to 6.78 reais.

The expiration of stock options contracts also weighted on Brazilian markets.

Thin trade also hit the foreign exchange market, where Brazil's real BRBY dipped 0.09 percent to 2.268 reais per U.S. dollar.

"The market is still in alert, waiting for new developments of Obama's plan," said Julio Cesar Vogeler, foreign exchange trader at Didier Levy brokerage in Sao Paulo.

U.S. president Barack Obama is due to sign on Tuesday the $787 bln stimulus plan which was passed in the Congress last week. Investors were also looking for some clarity on how Washington plans to rescue the banking sector and the economy.

Brazil's central bank is set to offer about $2.2 billion in currency swaps in an auction on Monday in a bid to add liquidity and reduce volatility in the foreign exchange market.

The bank will offer 44,300 contracts in the auction, rolling over contracts approaching their due date of March 2. The bank sold nearly $5 billion worth of swaps in two previous auctions last week.

Interest rate futures were lower across the board on expectations the central bank will continue to ease monetary policy.

In a weekly central bank survey published on Monday, analysts forecasted another 1 percentage point cut in interest rates in March, which would bring the Selic benchmark rate to 11.75 percent.

Yield on January 2010 interest contracts was below 11 percent, pointing to a lower Selic rate by the end of 2009.

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Japan's Nikkei stock average fell 0.4 percent on Monday as buying appetite waned after data showed Japan's economy suffered its biggest fall in over three decades, with exporters like Sony Corp  down as the yen edged up. Chip-linked shares such as TDK Corp that climbed last week were hit by selling, dragging on the tech-heavy Nikkei, though broad buying of defensive shares provided support.

Nippon Paper Group Inc, Japan's second-largest paper maker, rose 1.2 percent after saying on Monday it would acquire Australian Paper from Australia's Paperlinx Ltd for $A600 million ($391 million).

The market largely brushed off data showing Japan's economy shrank 3.3 percent in the fourth quarter, the biggest drop since 1974 and further confirmation that the world's second-biggest economy is in a severe recession as the global economic crisis deepens.

With the United States closed on Monday for a holiday, trade thinned as market players turned their attention to Tuesday's deadline for struggling U.S. automakers to submit a new restructuring plan to the U.S. government.

General Motors Corp  and Chrysler LLC [CBSare required to submit new turnaround plans by Tuesday showing how they can be made viable after receiving $13.4 billion in emergency aid.

The benchmark Nikkei lost 29.23 points to 7,750.17 while the broader Topix rose 0.7 percent to 770.10, buoyed by buying of defensive shares.

ECONOMIC ANGST Japan's gross domestic product figure translated into an annualised fall of 12.7 percent, more than economists' median forecast for an 11.7 percent contraction.

The yen gained against the dollar after the data was released just prior to the opening, and this advance was having a greater direct impact on the market than the GDP figures, which market players said were basically old news.

The dollar had erased most of its losses against the yen but still was down 0.1 percent at 91.77 yen.

Sony slipped 1.3 percent to 1,699 yen and Canon Inc  lost 1.2 percent to 2,415 yen. Honda Motor Corp  slipped 1.6 percent and Toyota Motor Corp  lost 0.7 percent, which some market players said might be due to nervousness before the U.S. carmakers' deadline.

Chip-related shares slid as well, with TDK losing 4.9 percent to 3,510 yen and Kyocera Corp  falling 2 percent to 5,760 yen. Advantest Corp  fell 3.4 percent to 1,351 yen.

But overall falls were braked by gains in Obayashi Corp  and Shimizu Corp , two of Japan's major general contractors, which surged after Nomura Securities upgraded its rating on them from "neutral" to "buy".

Analyst Yoshiaki Komatsu said that while Shimizu's overseas operations are on track for a loss in the current business year ending March 31, improving margins on domestic construction could drive overall prices higher in the 2009/10 business year.

Obayashi rose 4 percent to 412 yen and Shimizu climbed 6.3 percent to 374 yen.

Defensive shares gained broadly, with drugmaker Daiichi Sankyo  rising 3.6 percent to 2,040 yen and East Japan Railway  gaining 4.2 percent to 5,920 yen.

Trade was thin, with 1.56 billion shares changing hands on the Tokyo exchange's first section compared with last week's daily average of 1.92 billion.

Advancing shares outnumbered declining ones by more than 2 to 1.

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Gold was little changed in Europe on Monday, consolidating after last week's more than 3 percent rise, with strong demand for physical investment products such as gold-backed exchange-traded funds supporting prices.

The closure of the U.S. markets for the Presidents Day holiday is likely to keep traders on the sidelines this session.

Spot gold  was little changed at $940.20/942.20 an ounce at 1233 GMT from $939.40 late in New York late on Friday.

Bullion prices rose nearly $30 an ounce last week as concern over the economic outlook and turmoil in the financial sector prompted investors to buy the metal as a haven from risk.

Wolfgang Wrzesniok-Rossbach, head of sales at precious metals group Heraeus, said however that with jewellery demand soft, gold was likely to consolidate before its next leg higher.

But turmoil in the financial markets and economic worries are still supporting demand for gold as a safe store of value.

Equities fell on Monday after a lack of concrete action following a G7 meeting this weekend and as data showed Japan is sinking deeper into recession. Japan reported its worst quarterly contraction in 35 years on Monday.

Fear-driven demand for investment products is helping balance a drop-off in jewellery buying in traditional gold markets such as China, India and the Middle East.

The world's largest gold-backed ETF, New York's SPDR Gold Trust GLD, said its holdings rose more than 15 tonnes to a record 985.86 tonnes on Friday. The trust's gold holdings are up more than 205 tonnes or 26 percent so far this year.

But India's gold demand was slack on Monday as high prices put traders off purchases. "Gold demand is very sluggish, and everybody is waiting for a dip to $900-$920," said a dealer at a state-run bank in Mumbai.

The head of the Bombay Bullion Association said on Friday that there have been no gold imports into India so far in February.

Scrap supply from India and China is rising, however, as the climb in spot prices prompts existing gold holders to cash in gains.

DIRECTION

Gold took little direction from its usual main external drivers, the dollar and oil prices.

The dollar gained ground versus the euro as grim Japanese data intensified global recession fears and encouraged buying of safer assets.

Gold typically trades in the opposite direction to the U.S. currency, as it is often bought as a hedge against dollar weakness. However, both are currently benefiting from rising risk aversion.

Oil prices were steady just above $37 a barrel, pausing after Friday's 10 percent rally, as investors awaited further direction from the signing of a U.S. stimulus package later this week.

Among other precious metals, silver also took support from strong investment.

Holdings of the biggest silver ETF, the IShares Silver Trust SLV, were at a record 7,607 tonnes on Friday. Spot silver  edged down to $13.53/13.61 an ounce from $13.62.

Platinum and palladium remain under considerable pressure from the sluggish outlook for the car industry, a major user of the metals as a component in catalytic converters.

President Barack Obama has decided to launch a government task force for restructuring the struggling U.S. auto industry, a senior administration official said on Sunday.

Platinum  edged up to $1,065/1,070 an ounce from $1,059.50, while palladium  was at $215/220 an ounce from $214.

London-based ETF Securities said holdings of its palladium-backed exchange-traded commodity rose 30 percent last week as a recovery in platinum and palladium prices cheered investors.

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