US & World Daily Markets Financial Briefing 17-03-2006

U.S. stocks trade mixed; GM down on earnings revision

NEW YORK - U.S. stocks traded mixed Friday as investors mulled a report on industrial production, with General Motors Corp. under pressure after the automaker posted a steeper 2005 loss than originally reported.
   
The Dow Jones Industrial Average rose 19 points to 11,272.
   
The Nasdaq Composite Index fell 3 points to 2,297 while the S&P 500 Index rose 1 point to 1,306.
   
The market will be seeing a lot of volume because of quadruple witching, according to Art Hogan, chief market strategist at Jefferies & Co.
   
Quadruple witching is the expiration of options, index options, futures contracts and individual stock futures.
   
On Thursday, stocks ended mixed after a spike in oil prices due to ongoing international tensions took some of the shine off inflation data that suggested the Federal Reserve could raise interest rates sooner rather than later.
   
On the data front, U.S. industrial output increased 0.7% in February as cooler weather boosted utility production, the Federal Reserve said.
   
With auto production falling 0.8%, manufacturing output was flat, the slowest growth since September. High-tech output rose 2.3%. Utility output jumped 7.9%. Capacity utilization in industry -- a key gauge of supply-side inflationary pressures -- rose to 81.2%, matching the high for this expansion.
   
Economists polled by MarketWatch were expecting output to rise 0.8% after a revised 0.3% decline in January. Capacity utilization was expected to rise to 81.4% from 80.8%
   
Also, a consumer sentiment report out of the University of Michigan came in below consensus estimates.

Insurance sector in focus
   
Shares in American International Group Inc. fell 85 cents to $68.38 after the insurance group's profit tumbled 72% in the fourth quarter after booking more than $2 billion in charges for regulatory settlements. The company also took a $1.19 billion after-tax charge for increased reserves for losses and loss expenses.
   
The insurer may also be facing a bigger rival, if a report from The Wall Street Journal that St Paul Travelers is looking to buy Zurich Financial, comes to fruition. Zurich shares rose as much as 12% on the report. St Paul shares were off 2.4% at $41.91.
   
Other stock standouts
   
Shares in General Motors Corp. fell 3.2% to $21.52 after it said its 2005 loss will be $2 billion steeper than it originally reported. The automaker revised its reported loss for the year to $10.6 billion from the $8.6 billion it announced in January.

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Dollar falls to seven-week low vs. euro

NEW YORK - The dollar fell for a sixth straight session against the euro Friday, hitting a fresh seven-week low versus Europe's common currency, amid concerns that the dollar's interest rate advantage may narrow soon.
   
At the same time, the greenback hit a two-week low against the yen as the Japanese currency was boosted by some repatriation-related buying ahead of the fiscal year end.
   
"Our one to three month outlook remains biased towards dollar weakness. Factor supporting this view include, Fed tightening expectations receding further, geo-political risks lurking and increased U.S. dollar diversification flows from, in particular, oil exporting countries," said analysts from UBS.
   
The U.S. dollar weakened against the Japanese yen on expectations the cycle of U.S. interest-rate increases may be coming to an end.
   
The dollar was off 0.7% at 116.08. The greenback held up better against the euro. The euro was unchanged against the greenback at $1.2170.
   
The dollar had a limited reaction to a Federal Reserve report that showed U.S. industrial output increased 0.7% in February.
   
Capacity utilization in industry - a key gauge of supply-side inflationary pressures - rose to 81.2%, matching the high for this expansion. Over the past 33 years, capacity utilization has averaged 81%.
   
Economists polled by MarketWatch were expecting output to rise 0.8% after a revised 0.3% decline in January. Capacity utilization was expected to rise to 81.4% from 80.8%.
   
The March consumer sentiment survey will be released later today.
   
The dollar weakened sharply this week on falling interest rate expectations and concerns about the ability of the U.S. to finance its swelling deficits. The decline accelerated Thursday after a tame core consumer price inflation report encouraged investors to further unwind hawkish bets that U.S. interest rates would peak at 5.25%.
   
Markets are now expecting the Fed to raise interest rates by a quarter of a percentage point to 4.75% later this month. The odds of a rate hike in May fell from 86% Wednesday to 65% Thursday. The odds were quoted at 100% Monday.
   
Futures markets now expect the federal funds rate to peak at 5% in May, rather than at 5.25% in June as expected just four days ago. The Fed has increased borrowing costs 14 times since June 2004, to the current 4.5%.

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London

For a list of FTSE risers and fallers at 15.00 GMT click here

Paris

Paris shares up midday; Vinci, Total post large gains

At 12.30 pm the CAC-40 index was up 28.38 points or 0.55 pct to 5,154.33, on volume of 2.70 bln eur. Among CAC-40 stocks, 26 were higher, 13 were lower and Thomson was unchanged.
   
On the Matif, March CAC-40 futures were trading 24.5 points higher at 5,154.0.
Vinci surged 3.60 eur or 4.58 pct to 81.15 after JP Morgan raised its target price for the share to 105 eur.
   
Total made major gains of 4.50 eur or 2.11 pct to 217.40. Yesterday, market speculation resurfaced that it would be interested in acquiring the Spanish oil group Repsol YPF.
   
Amid talk of merger activity in the European insurance sector, Axa was up 0.70 eur or 2.40 pct to 29.88, and AGF up 1.25 eur or 1.35 pct to 93.65.
   
L'Oreal gained 0.55 eur or 0.74 pct to 75.15 after it unveiled a 652.3 mln stg cash bid for the Body Shop, a deal expected to begin boosting profits from 2007. L'Oreal earlier announced a 22 pct dividend increase to 1 eur per share.
   
Vivendi Universal rose 0.42 eur or 1.53 pct to 27.92. It was reported last night that the company was one of three on the final shortlist for a 35 pct stake in Tunisia's Tunisie Telecom.

Suez lost 0.77 eur or 2.21 pct to 34.40 as investors awaited news of a possible takeover bid from Enel, though any attempt could be hampered by new French legislation that would allow a company to issue equity warrants to shareholders in case of a hostile bid.
   
Veolia Environnement was the other main decliner of the morning, dropping 0.88 eur or 1.95 pct 44.23.

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German shares flat midafternoon as US seen weak ahead of confidence data
 
At 2:32 pm, the DAX 30 index was 0.43 points or 0.01 pct higher at 5,898.22,
having moved between 5,895.59-5947.43 so far this session. The MDAX was at 8,602.80, up 68.11 points or 0.80 pct, while the TecDAX was at 728.36, up 1.32 points or 0.18 pct.
   
The DAX futures contract was at 5,926.00, up 33.00 points or 0.56 pct, while
bund futures were at 118.24, up 0.07 point.
 
Adidas-Salomon led large-caps higher, gaining 5.99 eur or 3.84 pct to 161.98, as Credit Suisse reinitiated coverage of the issue with an 'outperform' rating and a 218.50 eur price target, welcoming its takeover of Reebok International and arguing that the shares look significantly undervalued.
   
The broker argued that the potential for significant cost savings and efficiency enhancement will be the key driver for shareholder value, rather than Reebok sales growth, which the market has been fretting about.
   
"We view the current negative market sentiment as an attractive buying opportunity," said Credit Suisse.

Commerzbank jumped 1.05 to 30.62, as Morgan Stanley initiated coverage of the stock with an 'overweight' rating and a 40 eur price target, which implies some 33 pct upside to its current share price, branding it its 'top pick' among German banks.
 
Peer Deutsche Bank was another bright spot, adding 1.20 to 95.22.
   
Fellow financial Allianz was up 1.09 at 135.74, recovering from yesterday's losses, as JP Morgan raised its price target on the stock to 159 eur from 155 and reiterated its 'overweight' rating.
 
However, investors steered clear of peer DaimlerChrysler, which led today's losers, down 0.95 eur or 1.99 pct at 46.84, as the Financial Times reported that Chrysler has launched a new wave of customer incentives to push up retail sales and reduce inventories in the ferociously competitive US car market.
   
Elsewhere among the fallers, Hypo Real Estate dropped 0.97 to 52.78, while Lufthansa slipped 0.13 to 13.67.

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Asian shares close mixed, Tokyo buoyed by easing rate-hike fears

HONG KONG - Share prices across the Asia-Pacific region ended mixed with shares in Japan sharply higher, led by finance-related stocks, dealers said.
   
Investors in Tokyo were cheered as fears eased over a possible near term increase in the Bank of Japan's key interest rate, they said.
   
They noted however that trading volumes fell back as some institutional investors moved to the sidelines ahead of the fiscal year-end closing of books.
   
The Nikkei 225 Stock Average closed up 243.52 points or 1.5 pct at 16,339.73.
   
The broader-based TOPIX index of all first-section shares rose 18.92 points or 1.15 pct at 1,663.98.
   
For the week, the Nikkei 225 index gained 1.4 pct while the TOPIX rose 1.0 pct.
   
Remarks by BoJ governor Toshihiko Fukui who reiterated yesterday that the central bank was likely to keep its key interest rate at near zero pct for sometime helped boost market sentiment, dealers said.
   
Fukui told the upper house of parliament that the bank will continue to guide its overnight call rate at near zero pct "for the time being".
   
"The market has regained calmness after Fukui signaled that the BoJ will not raise interest rates anytime soon," said Ryuta Otsuka, a strategist at Toyo Securities.
   
Share prices in Australia finished off record highs as late profit taking sent the market into negative territory and offset positive sentiment from the rise on Wall Street overnight, dealers said.
   
They said the key S&P/ASX 200 index rallied in early trading to a fresh intra-day record high of 4,997.8 points, falling short of the psychologically important 5,000 mark as traders closed out positions ahead of the weekend.
   
Dealers said index-leading resources stocks BHP Billiton and Rio Tinto were supported higher despite mixed outcomes for base metal prices overnight.
   
However, the shares of the nation's leading telco, Telstra Corp, fell to their lowest level since December 1997 as some analysts cast doubt about the company's ability to maintain its dividend payments.
   
The S&P/ASX 200 fell 6.2 points or 0.12 pct to close at 4,971.7, slipping from the record high of 4,977.9 set yesterday.
   
In Hong Kong, share prices were trading higher after stronger-than-expected annual results from China Mobile and tame US inflation data, dealers said.
   
At 3:37 pm, the Hang Seng Index was up 103.79 points or 0.66 pct at 15,832.83.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower on concerns over prospective liquidity pressure with automakers and power generators losing ground, dealers said.
   
The Shanghai A-share Index lost 4.83 points to 1,331.64 on turnover of 9.03 bln yuan and the Shenzhen A-share Index was down 1.04 points at 319.26 on turnover of 5.46 bln yuan.
   
Share prices in Seoul ended slightly higher, rising for a third day as investors focused on chipmakers and other selected blue chips in the absence of positive cues from Wall Street, dealers said.
   
KT&G was in the spotlight, losing more than two pct, as its shareholders elected only one of the three board candidates put forward by its major foreign shareholders at an AGM today, they added.
   
The KOSPI index closed up 5.14 points or 0.38 pct at 1,341.12.

Asian Bourse Round-Up

For a full list of closing prices, click here

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Gold futures traded higher, extending a four-session winning streak. Weakness in the dollar and analyst expectations that gold is set to reach the $600-an-ounce level underpinned gains.
   
Gold for April delivery was last up 10 cents at $555.50 an ounce.
   
On the bond market, long-term Treasury prices were lower, sending yields higher. The yield on the benchmark 10-year note was last at 4.67%.
   
Crude-oil futures traded slightly lower early Friday, pulling back from their sharp gains of the previous session after the Organization of Petroleum Exporting Countries cut its 2006 oil demand growth view by 100,000 barrels a day.
   
Crude for April delivery was last down 20 cents at $63.38 a barrel.

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