US & World Daily Markets Financial Briefing 18-12-2007

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Stocks rise on tender by ECB

Wall Street rebounded Tuesday from recent losses, pleased about the European Central Bank's issuance of $500 billion in loans to the world's commercial banks. Investors grew more optimistic that the decision by central banks in the United States, Europe and Britain to lend billions of dollars in multiweek loans will help boost demand in the struggling areas of the credit markets.

After announcing Monday that it would supply euro-zone institutions unlimited two week funds at a fixed rate, the European Central Bank said Tuesday it awarded a higher-than-estimated 348.6 billion euros, or $500 billion, in a 16-day tender. The Bank of England also said it will offer additional reserves to lenders Tuesday, after the U.S. Federal Reserve on Monday conducted a $20 billion auction of 28-day credit.

Meanwhile, Wall Street -- worried about the health of the banking industry and U.S. consumers -- was relieved to see better-than-expected earnings from the investment bank Goldman Sachs Group Inc. and the electronics retailer Best Buy Co. However, the two companies' stocks fell in early trading.

The Dow Jones industrial average rose 77.87, or 0.59 percent, to 13,245.07. Broader stock indicators also advanced. The Standard & Poor's 500 index gained 10.48, or 0.72 percent, to 1,456.38, and the Nasdaq composite index advanced 19.37, or 0.75 percent, to 2,593.83.

All three major indexes on Monday lost at least 1 percent due to ongoing worries about the possibility that prices will keeping rising despite a weakening economy. The Commerce Department said Tuesday that housing starts and building permits fell, bolstering investors' belief that the economy will continue to feel the housing market's drag in the new year.

Housing starts fell 3.7 percent to the lowest rate in more than 16 years, while building permits fell 1.5 percent to the lowest rate in more than 14 years. Government bonds were little changed. The yield on the 10-year Treasury note, which moves opposite its price, slipped to 4.14 percent from 4.15 percent late Monday.

The dollar was mixed against other major currencies, while gold prices rose. Light, sweet crude rose $1.70 to $92.33 a barrel in premarket trading on the New York Mercantile Exchange.

Overseas, Japan's Nikkei stock average fell 0.27 percent, and Hong Kong's Hang Seng index rose 0.51 percent. Britain's FTSE 100 rose 0.73 percent, Germany's DAX index rose 1.18 percent and France's CAC-40 rose 0.87 percent.

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Forex - Dollar range-bound ahead of US housing figures

The dollar remained range-bound ahead of the release of fresh US housing figures today, with investors squaring up their year-end positions helping to keep the greenback well supported.

The crucial year-end period, when institutions rush to shore up their balance sheets, means many funds are being converted back into dollars and risk appetite is particularly low.

"Market bias towards position unwinding is strong, and the dollar -- which was subject to sustained selling throughout the year -- remains in position to benefit from the consequent flows," said Alina Anishchanka, currency strategist at UBS.

The dollar's new momentum was triggered at the end of last week when higher-than-anticipated US retail sales and inflation data diminished market expectations of aggressive monetary easing moves from the US Federal Reserve, which last week cut its benchmark funds rate another quarter point to 4.25 pct.

But despite the dollar's current march forward, most currency watchers remain cautious about whether it can be sustained, especially if today's US housing starts data disappoint. Economists polled by Thomson Financial News think the annual rate of housing starts will fall to 1.178 mln from 1.229 mln in October.

"Today's housing starts and building permits are likely to continue their free fall and should remind investors of the precarious situation of the US housing market," said Commerzbank's Praefcke. "This is likely to weigh on the dollar."

Meanwhile, the euro was steady following a major injection of liqudity by the European Central Bank. The ECB awarded 348.6 bln eur of funds at today's main refinancing operation at a bid rate of 4.21 pct -- 200 bln eur more than its benchmark requirement -- in a bid to bring down interbank borrowing rates.

In the UK, the pound was lower following news that UK inflation remained steady during November, supporting expectations that the Bank of England will cut interest rates in the coming months.

Annual growth in the Consumer Price Index was 2.1 pct in November, the same as in October. While this is a touch above the BoE's target rate of 2.0 pct, it undercuts analysts' expectations for an acceleration to 2.2 pct and shows that higher costs for fuels are not having a marked effect on inflation as yet.

"For markets, the softer headline year-on-year rate and the subdued core measure will keep the pound under pressure," said Daragh Maher, FX strategist at Calyon.

However the pound's losses were limited due to comments from Bank of England governor that credit market conditions should improve by early next year. Appearing before the influential Treasury Select Committee, King said he sees a "more sustainable position" emerging once banking losses have been revealed and financial institutions recapitalised.

King said the private sector needs to reprice and restructure the complicated financial instruments that have largely got the money markets into such problems in the last few months, and added that the job of the central bank is to make sure that this breakdown in lending between banks does not affect the wider economy.

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Euroshares flat after opening as BoE, ECB move to free up credit markets

At 9.25 am, the Dow Jones STOXX 50 Index was off 1.15 points at 3,658.81 while the DJ STOXX 600 Index rose 0.26 point to 361.09.

The Bank of England is auctioning 11.3 bln stg in credit this morning. The European Central Bank, meanwhile, is also set to offer today unlimited funds at below market interest rates in a special operation to head off a year-end liquidity crisis.

The intervention on the credit markets by the two banks comes a day after the US Federal Reserve auctioned off 20 bln usd in 28-day credit. Results of that auction will be known tomorrow.

Turning back to equity, shares in Neuf Cegetel were suspended in Paris at the request of the company, pending a press release, a spokesman for bourse operator NYSE-Euronext said.

French daily Le Figaro today claimed Vivendi unit SFR, which already holds 40.5 pct of Neuf Cegetel, has been in talks for the past few weeks to buy a further 29.5 pct share in Neuf Cegetel from principal shareholder Louis Dreyfus.

The claims follow yesterday's story in La Lettre de l'Expansion which reported that SFR is planning to launch a bid for Neuf Cegetel at 40 eur per share. Vivendi shares were last up 0.4 pct.

In other corporate takeover news, Alitalia was down 2.7 pct on an Italian news report that the airline's board is likely to announce today that it is delaying its decision on its preferred choice for exclusive talks over the sale of the government's 49.9 pct stake in the company.

The two frontrunners in the bid to take over Alitalia are Air France-KLM and AP Holding, which is backed by Intesa Sanpaolo SpA.

On the earnings front, shares in Norwegian shipbuilder Aker Yards ASA plunged 18.7 pct after it cut its 2007 forecast for earnings before interest, tax, depreciation and amortization to about 500 mln nkr from 900 mln nkr previously following further trouble at its Finland ferry unit, dealers said.

Arcandor was up 0.8 pct posted a sharp rise in earnings and reiterated its 2007 guidance. Shares in Zodiac rose 1.31 pct after the aerospace equipment maker revealed that sales from continuing operations edged up to 488.2 mln eur in its first quarter to November from 485.3 mln a year earlier.

In other news, Sogecable SA rose 3.3 pct after a Madrid court yesterday ruled in favour of its Audiovisual Sport (AVS) unit regarding the continuing football broadcasting rights dispute with Mediapro.

In broker action, Nestle shares fell 1.6 pct, hurt by a cut in recommendation by Deutsche Bank to 'hold' from 'buy' and by UBS to 'neutral' from 'buy. UBS also cut its price target on the Swiss food group to 585 sfr from 575 sfr.

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Asian shares mixed in late trade as US economic concerns weigh

The S&P/ASX 200 fell 0.4 pct to 6,236.9 though it was well above its morning low of 6,105.6. The index has lost nearly 4 pct in just two sessions, coming under pressure Monday after shopping centre operator Centro Properties Group issued a profit warning.

The All Ordinaries finished down 0.6 pct at 6,292.6. "The market is very fragile at the moment," said Michael Heffernan, senior client advisor at Austock Securities. The Nikkei closed down 0.3 pct at 15,207.86, marking its fifth consecutive decline. The broader Topix was down 0.2 pct at 1,469.77.

The Shanghai Composite closed down 0.8 pct at 4,836.17. The Hang Seng rose 0.5 pct to close at 26,732.87 after earlier falling as low as 26,093. The Kospi closed up 1.2 pct to 1,861.47, staging a rebound from early losses after support held above 1,800.

The Korean market will be closed Wednesday for a presidential election, with the leading candidate, Lee Myung-Bak, appealing to voters to overlook a fraud investigation and back his tilt at power. Stagflation worry

High-tech Japanese stocks tracked their US peers lower, with TDK Corp closing down 2 pct to 8,180 yen. Camera maker Nikon Corp declined 4.7 pct to 3,870 yen, while Matsushita Electric Industrial Co fell 3 pct to 2,250 yen.

Investors sought bargains among steel and shipping issues, with Nippon Steel Corp up 1.8 pct at 616 yen and Mitsui OSK Lines up 0.9 pct at 1,449 yen. KDDI Corp closed up 1.4 pct at 790,000 yen on a Nikkei report that the government has decided to issue licenses for next-generation wireless broadband services to a group led by KDDI.

In Australia, resource stocks fell along with sliding metal prices amid fears that the US subprime crisis will crimp global economic growth. Nickel fell by 3.1 pct in London on Monday, lead lost 2.8 pct and copper lost 2.5 pct.

The price of gold was largely stable with a lower oil price and higher US dollar providing the guidance. The most-active February Comex gold price rose by 1.30 usd to 799.30 usd an ounce. BHP Billiton closed down 27 cents at 40.10 aud and Rio Tinto lost 1.9 pct to 129.41 aud.

Centro lost another 41 pct of its value to 80.5 Australian cents. The company is struggling to refinance short-term debt due to the turmoil in credit markets.

Major banks were mixed, with National Australia Bank down 1.6 pct at 36.91 aud. Australia & New Zealand Banking Group ended up 1.1 pct at 27.24 aud after announcing plans to double its profit to more than 8 bln aud by 2012.

ANZ's performance seemed to rub off on Westpac, which gained 1.8 pct to 28.80 aud, while Commonwealth Bank closed unchanged at 60 aud. Air China fell 5.2 pct to 9.02 hkd. China's biggest international carrier said Tuesday that its stockholders have approved its plan to issue 400 mln additional shares in Shanghai within 12 months.

The price has not yet been set. The airline will use some of the proceeds to acquire 54 new aircraft and set aside 1.5 bln yuan for working capital. Elsewhere, the Malaysian Kuala Lumpur Composite Index closed down 0.4 pct at 1,385.45, and the Philippines Composite fell 0.5 pct to 3,470.21. Singapore's Straits Times Index rose 0.5 pct to 3,369.31. The Taiwan weighted index closed down 0.3 pct at 7,807.39, while the Jakarta Index fell 0.7 pct to 2,646.23.

Indian shares close lower on continuing bearish trend

The Bombay Stock Exchange's 30-share Sensex closed 181.71 points, or 0.94 pct, below at 19,079.64 while the National Stock Exchange's 50-share S&P CNX Nifty fell 0.60 pct to close at 5,742.30 points.

Among the top losers today was Gillette India Ltd, which fell 6.39 pct to 1,315.50 rupees and Jindal Steel & Power that dropped 6.11 pct to 13,487.00 rupees a share. Among the blue-chips ACC Ltd, India's biggest cement producer, fell 3.71 pct to 858.50 rupees a share.

Shares of Nicholas Piramal India, which rose 7.29 pct to 368.15 rupees, was among the gainers while pharma company Cipla gained 3.78 pct to close at 215.75 rupees.

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Metals - Copper continues below 6,400 usd on slowing demand

At 10.23 am, LME copper for three-month delivery was down at 6,335 usd per tonne against 6,381 usd at the close yesterday. Earlier it hit 6,317 usd, its lowest point since mid-March.

"The reasons for the plunge are easy to identify," said analysts at Dresdner Kleinwort, noting slowing demand in the US, a stronger dollar making purchases more expensive for overseas investors and rising stockpiles of the red metal.

Yesterday, the New York Fed said its Empire State Manufacturing Survey index plummeted 17 points to 10.31 in December, the lowest reading since May. Analysts had expected a much higher reading in the region of 21.50.

Inventories of copper at LME-monitored warehouses rose again today, up 1,200 tonnes to 195,600 tonnes, providing the physical evidence for lower demand coming out of current economic turmoil. Copper prices have dropped from above 8,000 usd in October as market players fret over lower demand stemming from a possible economic slowdown.

In other metals traded on the LME, lead was up at 2,429.75 usd per tonne, basis three months, against 2,420 usd. Prices have bounced slightly this morning after slipping to a 6-month low below the 2,400 usd mark yesterday.

Price have been hit hard by rising stockpiles of the metal, which were up again today, rising by 1,650 usd tonnes to total 43,425 tonnes at LME registered warehouses.

Stockpiles have almost doubled since mid-October. The market is under increasing pressure from expectations supplies will continue rising next year. Australia's state environmental protection agency said last week it does not see any environmental risks should Ivernia Inc resume lead exports through the alternative port of Freemantle.

The company had lead shipments from its Magellan mine, which were previously transported through the Esperance port, halted in March this year amid fears of contamination.

Nickel for delivery in three months edged higher at 25,725 usd per tonne against 25,700 usd, tin was up at 16,125 usd per tonne from 16,100 usd while zinc dropped to 2,287 usd per tonne from 2,299 usd. Finally, aluminium eased to 2,408 usd per tonne, basis three months, from 2,410 usd.

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