US & World Daily Markets Financial Briefing 16-03-2007

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Stocks Post Modest Gains

NEW YORK - Stocks tried for a modest advance Friday after Wall Street found some relief in an inflation reading that was better than the market feared and as industrial production showed a stronger-than-expected increase.
   
The Labor Department's report that its Consumer Price Index rose by 0.4 percent in February stirred some of the concerns that dogged stocks on Thursday. The increase was double that of January and the largest rise since a similar increase in December. Rising costs for gasoline, food and citrus crops helped boost prices. Wall Street had expected an increase of 0.3 percent.
   
However, the important core figure, which excludes often volatile food and energy prices, perhaps brought some relief to Wall Street as the 0.2 percent increase met expectations.
   
The Federal Reserve also reported industrial production rose 1 percent in February, well above the 0.3 percent increase analysts expected.
   
In midmorning trading, the Dow Jones industrial average rose 21.87, or 0.18 percent, to 12,181.55.
   
Broader stock indicators also moved modestly higher. The Standard & Poor's 500 index rose 4.05, or 0.29 percent, to 1,396.33, and the Nasdaq composite index advanced 5.04, or 0.21 percent, to 2,383.74.
   
Bonds fell following the CPI report, with the yield on the benchmark 10-year Treasury note rising to 4.56 percent from 4.54 percent late Thursday.  Light, sweet crude rose 37 cents to $57.92 per barrel on the New York Mercantile Exchange.
   
Advancing issues outpaced decliners by about 3 to 2 on the New York Stock Exchange, where volume came to a heavy 717.2 million shares as options contracts expired.
   
Investors appeared undeterred by word that consumer confidence fell to a six-month low in mid-March. The Reuters/University of Michigan consumer sentiment index fell to 88.8 from 91.3 in February. Wall Street had expected a reading of about 90.
   
The volatility and heavy volume that has returned to Wall Street after months of unusual calm surfaced again Friday with the expiration of stock index futures, stock index options, stock options and single stock futures -- a confluence of expirations that Wall Street refers to as quadruple witching. The choppiness wasn't limited to Friday this week because rule changes have given investors more time during which they can jockey for new positions.
   
In corporate news, drug developer Hollis-Eden Pharmaceuticals Inc. rose 59 cents, or 23.5 percent, to $3.10 after it reported a narrower fourth-quarter loss when excluding a charge from a year earlier and said it would halt development of a treatment for radiation sickness. The Department of Health and Human Services earlier this month rejected the treatment for use in a national defense program.
   
Hard-hit subprime mortgage lenders rallied Friday on word that the companies were taking steps to raise capital. Accredited Home Lenders Holding Co. jumped $2.82, or 29.9 percent, to $12.25 after the subprime mortgage lender announced plans to sell some of its loans at a discount to raise cash necessary to meet margin calls.
   
Fremont General Corp. rose $1.94, or 26.2 percent, to $9.34 after Credit Suisse boosted the company's credit line to $1 billion. The company said it received several proposals for additional credit.
   
The Russell 2000 index of smaller companies rose 0.82, or 0.10 percent, to 784.43.
   
In afternoon trading, Britain's FTSE 100 fell 0.05 percent, Germany's DAX index rose 0.25 percent, and France's CAC-40 advanced 0.29 percent.

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Euro stays above 1.33 usd as players shrug off US inflation data

LONDON - The euro continued its steady climb above the 1.33 usd level with slightly higher than expected US inflation data failing to make an impact.
   
The single European currency today broke past the 1.33 usd mark for the first time in 2007 on mounting concerns the stalling US housing market will drag the rest of the economy down.
   
Analysts said the dollar's weakness appears to be no longer limited to low yielding currencies like the yen. 
   
"Dollar weakness since the big equity market sell-off began at the end of February has largely been confined to lower-yielding currencies as carry trades have come under pressure, but over the past two days the dollar has come under broader pressure," said Daniel Katzive at UBS.
   
There was little impact from the afternoon's US inflation data, which came in slightly above predictions. Headline US consumer price inflation beat expectations in February while the core rate, which excludes volatile food and energy prices, rose just as predicted.
   
Katzive said the dollar had been unable to benefit from higher US bond yields in the wake of yesterday's firm producer price figures -- a fact that highlights the extent to which equity market sentiment is driving currency markets at present.
   
A firm US inflation figure may be negative for the dollar, as equity markets might react badly to the reduced likelihood US rate setters will lower borrowing costs.
   
Markets are worried about a slowdown in the US. These concerns have been stoked in particular by the difficulties facing the sub-prime lenders, who lend money to borrowers who do not qualify for conventional loans.    
   
As the economy slows, these will tend to default at a much higher rate than ordinary loans. Talk of trouble in this section of the market is particularly worrying amid ongoing talk of a US housing market slowdown.
   
Overnight, former US Federal Reserve chairman Alan Greenspan warned there was a risk rising defaults in sub-prime US mortgage lending markets could spill over into other economic sectors.
   
Though the problems in the US are unlikely to prompt the Fed from cutting its key Fed funds rate on Wednesday next week from the current 5.25 pct, the accompanying statement may be a little more dovish, analysts said.
   
"This should contrast well with the latest UK inflation data that's due on Tuesday where any suggestion that the Bank of England's (BoE) recent rate hikes aren't yet proving effective could see divergence of rates across the Atlantic," said David Jones, chief markets analyst at CMC Markets.
   
"Either way, both the pound and the dollar should be in for an active week," he added.
   
Sterling has suffered somewhat this week after a soft housing market survey from the Royal Institution of Chartered Surveyors.

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Top Stories in Europe at 11.05 GMT

Frankfurt - Commerzbank AG is selling its UK asset management unit Jupiter for around 1 bln eur to a consortium formed out of Jupiter management itself and US financial investor TA Associates, Handelsblatt said, citing sources. A spokesman for Commerzbank and another for Jupiter declined comment to the newspaper.

Vodafone Group PLC is planning to acquire the remaining stakes in its German fixed-line unit Arcor from shareholders Deutsche Bank AG and Deutsche Bahn, reported dpa-AFX news agency, citing CEO of Vodafone Deutschland Friedrich Joussen. Joussen declined to offer a time frame, but stated: "It is important that we find the right time to do this."

Paris - A consortium involving EADS, Thales, Rolls Royce and others is about to win an 18.5 bln eur contract from the British defence ministry for fuel tanker planes, the daily La Tribune said, citing sources close to the matter. The consortium, AirTanker, also includes UK companies Cobham and VT Group.

About 1,000 Airbus employees in its headquarters city of Toulouse staged a strike to protest the restructuring plan in which the troubled EADS unit would cut 10,000 jobs throughout Europe. Another 100 employees were protesting outside EADS' French headquarters in Paris, according to a reporter from Agence France-Presse.

Amsterdam - Getronics NV is preparing to be bought by Dutch telecoms group Royal KPN NV, newspaper De Telegraaf reported citing unnamned sources close to Getronics. Getronics' crediting banks are fed up with the "unending financial box of tricks" used by heavily-criticised Getronics CEO Klaas Wagenaar and have instructed new CFO Maarten Henderson to put the finances in order and prepare for a sale, sources told the Dutch newspaper.

Madrid - Caja Madrid's board is not likely to vote in favour of accepting EON AG's offer for Endesa SA, in which it holds 10 pct, following political pressure, El Economista reported without citing a source. According to the newspaper, regional politicians from both leading Spanish parties seek to avoid the savings bank's decision "becoming a political weapon" in Madrid elections scheduled for May.

Milan - Two banking consortia are vying for Pirelli & C SpA's stake in Telecom Italia SpA and new developments are expected in the coming days, daily La Stampa said without giving a source. One consortium is led by Intesa Sanpaolo SpA and the other by Capitalia SpA and Mediobanca SpA, the daily said.

Brussels - Vivendi's Universal Music has told the European Commission it is ready to divest a package of song rights to overcome reservations about the group's bid to take over BMG's music publishing business, the Financial Times reported.
 
The music group has offered to sell the rights to songs by a wide range of artists including Bruce Springsteen, Britney Spears, the Backstreet Boys, Bryan Adams, the Stone Roses and the Spice Girls, the newspaper quoted people familiar with the case as saying.

Zurich - Swiss Re's recently unveiled reorganisation of its legal structure in the EU is expected to generate statury capital savings of about 500 mln sfr, the Financial Times reported, citing a company spokesman.
 
The new structure, under which the reinsurer is placing the bulk of the region's operations under the auspices of three new Luxembourg-based legal entities, should allow for a more efficient management of capital, the newspaper said.

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Asian shares close mostly lower on caution ahead of US data releases

HONG KONG - Shares across the Asia-Pacific region closed mostly lower on investor caution ahead of the release of US economic data tonight and next week.
   
Tokyo shares ended lower after investors locked in profits on yesterday's gains, showing their anxiety about the health of the US economy. Investors refrained from buying as they awaited the release later today of the US consumer price index for last month, the release next week of US housing data and next week's meeting of the Federal Open Market Committee.
   
The blue-chip Nikkei 225 Stock Average closed 116.24 points or 0.69 pct lower at 16,744.15, off a low of 16,643.76 and a high of 16,939.43. Over the week, the index lost 2.45 pct.
   
The TOPIX index of all first-section issues slid 17.12 points or 1.01 pct to close at 1,677.06, off a low of 1,671.19 and a high of 1,696.75. Over the week, the index fell 3.08 pct.
   
Market watchers said they expect the Nikkei 225 to trade between 16,500 and 17,000 points next week. The market will be closed Wednesday for a public holiday.
   
Hiroyuki Nakai, chief strategist at Tokai Tokyo Research Center, said market attention is firmly fixed on next week's series of economic data from the US. He said the market widely expects the US Federal Reserve to keep interest rates on hold next week, but the accompanying statement at the end of its meeting will be assessed carefully for clues to US monetary policy direction in coming months.
   
Australian shares ended down as investors remain cautious after the gyrations of the past two weeks. Investor sentiment is likely to remain wary, particularly with growing concerns over the US housing market and its consequences for the wider economy.
   
The S&P/ASX 200 closed down 16.7 points or 0.29 pct at 5,836.3. The key index closed above the day's low of 5,814.6 and well below the day's high of 5,874.5. Over the trading week, the benchmark index gained 6.1 points, or 0.10 pct.
   
Hong Kong shares were steady in afternoon trade as buying in China Mobile and CITIC Pacific helped the market reverse early losses driven by worries over possible policy-tightening measures in mainland China. At 3.20 pm the Hang Seng Index was up 49.31 points or 0.26 pct at 19,081.75.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower on profit-taking ahead of the weekend with financial stocks and steel makers losing ground. The Shanghai A-share Index ended down 22.15 points or 0.71 pct at 3,079.09 and the Shenzhen A-share Index finished down 11.89 points or 1.45 pct at 808.77.
   
Seoul share prices closed little changed but off their lows for the day, with corporates and brokerages building positions after a firm close on Wall Street.
   
The market, after recouping all its early losses, briefly touched 1,430 points in late trade but this was not enough to outweigh the cautious mood ahead of rate decisions in both the US and Japan and worries over possible policy-tightening measures in China.
   
The KOSPI index closed up 0.95 points or 0.07 pct at 1,427.88, after moving between 1,416.30 and 1,431.75. It ended the week with a gain of 4.3 points or 0.3 pct.

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Nickel, tin hit fresh all time highs amid dwindling supplies; gold up

LONDON - Nickel and tin hit unprecedented highs as LME stocks fell again on the day.
   
Nickel has since backed off slightly alongside falls in most other industrial metals as a volatile week in markets worldwide comes to an end.
   
LME nickel for 3 month delivery hit a high of 48,500 usd earlier in the session, but retreated to 46,900 usd at 1.33 pm compared with yesterday's close of 47,100 usd.
   
Tin was up to 13,850 usd from 13,775 usd yesterday.
   
Nickel stocks stored in LME certified warehouses worldwide fell by 30 tonnes to 3,564 usd on the day, leaving less than a day's worth of the metal available to the market.
   
Tin inventories fell by a hefty 195 tonnes to 9,250 tonnes, said the LME in its daily report. Tin prices rose as falling daily stocks outweighed reports that Indonesia, the world's second largest tin producer, pledged to maintain annual supply of 90,000 metric tons in a bid to stabilise prices.
   
Indonesian output in 2007 will be 28 pct lower than the 125,000 tonnes produced last year, said tin industry organisation ITRI.
   
In other metals, aluminium was down at 2,777 usd against 2,790 usd, copper was down at 6,500 usd against 6,540 usd, and lead was down at 1,887 usd compared with 1,915 usd at yesterday's close.

Gold edged up, benefiting from the dollar's losses but further gains are seen unlikely ahead of key US data later today.
   
At 11.44 am gold rose to 651.15 against 647 usd in late New York trades yesterday.
   
"The stronger euro (against the dollar) this morning leaves the gold market somewhat cheap relative to currency markets and ought to see gold challenge the 655 usd per ounce level," said JP Morgan analyst, Michael Jansen.
   
Traders will also be keeping a close eye on US inflation figures, due to be released at 12.30 GMT. If the figures add to concerns about rising inflationary pressures, gold's safe-haven status may be boosted.
   
In the longer term, analysts are still looking for gold to strike the 700 usd level by the end of this year, despite recent dips which have impeded its journey to that milestone.
   
In other precious metals, platinum was up at 1,215 usd against 1,211 usd, palladium was up at 349 usd against 342 usd, while silver was up at 13.05 usd against 13.04 usd.

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