US & World Daily Markets Financial Briefing 19-12-2008

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This is the last World Market News Bulletins we will be sending out until the 5 January 2009

US Stocks at a Glance

US STOCKS-Wall St rises after auto aid package

NEW YORK - U.S. stocks rose on Friday after the U.S. government said it would throw a $17.4 billion emergency lifeline to automakers grappling with falling consumer demand in the face of a year-long recession.

Shares of General Motors jumped 16 percent. A senior administration official said the government expects GM and Chrysler LLC to access the money immediately.

"The markets want some kind of resolve on the auto deal and at least this gets us into next year," said Frank Lesh, futures analyst and broker at FuturePath Trading LLC in Chicago.

"It really just buys them some time. We certainly didn't need any huge portion of unemployed into the market right now."

The Nasdaq outperformed the other indexes, boosted by gains in Oracle Corp and Research In Motion the day after both companies reported quarterly results that were better than lowered expectations.

The Dow Jones industrial average rose 151.49 points, or 1.76 percent, to 8,756.48. The Standard & Poor's 500 Index gained 16.83 points, or 1.90 percent, to 902.11. The Nasdaq Composite Index  jumped 33.89 points, or 2.18 percent, to 1,586.26.

Investors had feared wide-reaching fallout from the potential failure of one of the three big Detroit automakers . The government loans would be called back if they cannot prove they are viable by March 31, an administration official said.

GM shot up 16.7 percent at $4.27, while rival Ford (F.N) gained 6.3 percent to $3.02. BlackBerry maker Research In Motion jumped more than 8 percent to $41.58. After the bell on Thursday, the company gave a better-than-expected growth forecast for its smartphone devices.

Oracle also gave a strong lift, rising 8.4 percent to $18.00, the day after the business software maker reported a drop in new sales that was not as bad as some had feared. Beaten-down energy shares bounced back as the price of oil popped up after falling below $34 a barrel to its lowest in almost five years. Dow component Chevron broke a two-day losing streak to gain 1.6 percent to $74.19.

Building products maker and homebuilder Weyerhaeuser Co was the latest company to give a gloomy outlook, saying the housing slump and weakening pulp market would lead to significantly lower fourth-quarter earnings. The company also cut its quarterly dividend, while its stock tumbled 5.5 percent to $35.10.

Late on Thursday, Standard & Poor's lowered the minimum value required for inclusion in its S&P 500 index for the second time in nearly three months, underscoring the rapidly shrinking capitalization of U.S. companies.

On the index, 148 companies fall short of the old minimum market cap of $4 billion, and 106 are below the new minimum of $3 billion. There are 202 companies below what had been the long-standing minimum of $5 billion.

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FOREX-Euro falls broadly, dollar stays weak vs yen

LONDON- The euro fell broadly on Friday, as traders locked in profits from the currency's rally to a 2 1/2-month high against the dollar and its strongest level ever against sterling this week.

The dollar fell closer to a 13-year low against the yen, reversing brief gains made after the Bank of Japan cut interest rates, as a dismal U.S. economic outlook continued to sting the currency.

The euro fell below $1.40 for the first time since Wednesday, as traders reckoned that its broad surge this week may have been overdone. The single currency is on track to post a weekly gain of roughly 5 percent against the dollar, one of its biggest since the euro was launched in 1999.

"There have been year-end related flows in the past couple of weeks (pushing up the euro) and such flows seem to be subsiding a bit," said Ian Stannard, strategist at BNP Paribas.

That prompted traders to take profits as they were adverse to holding risk in illiquid year-end market conditions.

By 1150 GMT, the euro was down almost 2.0 percent at $1.4009 after hitting a low of $1.3987, according to Reuters data, dropping more than 3 cents from a session high.

"We've seen a lot of volatility in the market in the past few days so people are in some sense keeping risk light and taking positions which are shorter-term," said Phyllis Papadavid, currency strategist at Societe Generale in London.

The single currency has retreated from $1.4720 touched on electronic trading platform EBS on Thursday, its strongest since late September.

Some in the market said that euro losses were also part of a delayed reaction to the European Central Bank's move on Thursday to cut the return it gives banks for holding cash at the ECB and prod interbank money markets back to normality.

The single currency also fell 2.5 percent to 124.40 yen, down from 131.03 yen hit on Thursday, its highest in nearly two months.

Against sterling, it fell 1.7 percent to 93.24 pence, retreating from a record high of 95.56 pence hit according to Reuters data on Thursday.

The dollar fell 0.4 percent to 89.04 yen, sliding within range of 87.13 yen reached on electronic trading platform EBS earlier in the week, for the first time since mid-1995.

The yen was broadly supported as ongoing concerns about the global economy prompted more investors to dump risky positions including carry trades, where the low-yielding Japanese currency in past years was used to buy assets in higher-yielding currencies.

The BOJ's decision to cut rates to 0.1 percent on Friday had provided a brief boost to the dollar as the monetary easing took the policy target rates of Japan and the U.S. to more or less equal footing.

But the dollar quickly reversed those gains as the BOJ's move to put more funds into the market to ease the credit crunch was seen as positive for Japan's economy, boosting the yen.

In addition, the possibility of a delay by the U.S. government on whether to bail out the country's ailing automakers and a fall in oil prices to their lowest in more than four years kept the U.S. currency under selling pressure.

Bridge loans to carry the companies for several months could be announced as early as Friday, according sources not authorised to publically discuss negotiations on the issue.

The possibility that the firms could fail could have a deep, negative impact on the wider economy stung the dollar, while a fall in oil prices to their lowest in more than four years also illustrated shrinking demand as a global recession takes hold.

"The automakers' issue is a problem for the entire U.S. economy ... and the fall in oil prices is part of a global economic story because of demand issues, and that's dragging on the dollar," said James Hughes, markets analyst at CMC Markets in London.

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Europe stocks fall on weak oils, bank rating cut

LONDON - European stocks fell 1.2 percent by midday on Friday as a drop in the price of crude to its lowest in nearly five years punctured oil shares and underlined fears of a deep recession in major economies.

At 1159 GMT, the FTSEurofirst 300 index of top European shares was down 1.2 percent at 816.87 points, with oils accounting for more than a third of losses.

France's Total and Britain's BP took most points off the index, falling more than 4.5 percent, while Italy's ENI, Royal Dutch Shell and BG fell 3.1-5.7 percent.

New York January crude futures CLc1, which expire later in the day, traded down 7.5 percent at $33.52 a barrel, while the February futures CLc2 were down 0.6 percent to just over $41.42. "The oil price is a real-time indicator for the global economy," said Gerhard Schwarz, head of global equity strategy at UniCredit in Munich.

"It is a zero sum game: a lower oil price shifts purchasing power from oil producing countries to consumers in oil-importing countries," he said. "The predominant factor for product demand in Western economies is the large amount of uncertainty around jobs in the next year."

While a lower oil price relieves pressure on input and transport costs, it is widely being seen as an indicator of a global slowdown. To illustrate the link between rising oil prices, economic growth and share prices: an equities upswing between March 2003 and July 2007 was accompanied by steadily rising oil prices.

And after a financial crisis stopped the equities bull run in its tracks, oil still went on to hit a peak of $147 in July, 2008. The impact of the financial crisis on growth then hit home, and oil began its downward journey. Banks were also broadly lower as rating agency Standard & Poor's announced downgrades and outlook changes to the ratings of 12 major U.S. and European financial institutions.

HSBC were off 2.9 percent, BNP Paribas down 5 percent and UBS fell 3 percent. Italy's UniCredit fell 2 percent after it said 2008 net profit would be 23 percent less than forecast if it does not manage to sell property assets.

European banks face another "very tough" year in 2009, mainly due to deteriorating asset quality and the negative impacts of deleveraging, Merrill Lynch said in a note.

Across Europe, Britain's FTSE was down 2.2 percent, Germany's DAX down 1.3 percent and France's CAC fell 1.6 percent.

Traders said European markets would be volatile due to quadruple witching -- or the expiry of options and future contracts -- at different points during the day. "Volumes are thin and prices are going to move around quite a lot. But the long only guys have gone very quiet -- many have closed books ahead of the Christmas and New Year break," said one trader.

Potentially supportive was a fall in the euro as traders locked in profits from the currency's rally to a 2-1/2 month high against the dollar and its strongest level ever against sterling.

Miners were also big losers as copper hit a new four-year low. Antofagasta, and Anglo American fell by more than 8 percent while Rio Tinto lost 4.5 percent. "Mining stocks are still trading at relatively high multiples and I believe that we will see some hefty downwards revisions in that sector," said Darren Winder, head of strategy research at Cazenove.

The FTSEurofirst 300 has lost more than 46 percent this year, knocked down by a crisis in the credit markets that sparked a global economic downturn.

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Tokyo Stocks Decline In Spite Of Rate Cut, Stimulus

Japanese stocks finished lower at the end of an eventful and volatile trading session Friday, with banks such as Mizuho Financial Group advancing, while Toyota Motor Corp. and energy-related shares extended losses. The Bank of Japan cut its benchmark interest rate to 0.1% from 0.3%, as expected, in response to weakening economic fundamentals. .

Separately, the government reportedly approved an emergency stimulus package worth 43 trillion yen ($489 billion), including 20 trillion yen for purchasing equity holdings from banks to improve their liquidity.

The Nikkei 225 Average ended 0.9% lower at 8,588.52, while the broader Topix index dropped 0.5% to 834.43, after changing direction a few times during the session.

Yoji Takeda, head of regional equities at RBC Investment, said the Bank of Japan rate cut wasn't as big a surprise as the U.S. Federal Reserve's sharp reduction in the Fed funds rate earlier this week, but added the liquidity boosting measures by the central bank were a positive.

"Had they not done that, market sentiment would have been very negative," said Takeda. Still, "investors are sort of skeptical at the moment. They want to see some [positive impact] on the economy, and that might take a while."

Banking shares gained on the stimulus plan report, with Mitsubishi UFJ Financial Group (MTU) ending 3.3% higher, while Mizuho (MFG) shares climbed 1.2%.

Shares of Toyota Motor (TM) dropped 2% after the Nikkei business daily reported the automobile giant was likely to post its first-ever operating loss during the year ending March 31 on plunging worldwide sales.

Other markets in the region ended mixed after also wavering through the session, with indexes in Sydney, Shanghai, Mumbai, Seoul, Singapore and Taipei changing direction at least once.

The choppiness came as overnight losses on Wall Street added to selling pressure, with some funds still keen to buy to boost their year-end portfolios.

In Hong Kong, the Hang Seng Index ended 2.4% lower at 15,127.51. The widely-watched Hang Seng China Enterprises Index, also called the H share index, dropped a more modest 1.4% to 8,435.31, declining for the first time this week.

Steve Cheng, associate director at Shenyin Wanguo in Hong Kong, said in spite of the day's losses, the Hong Kong market seemed "very resilient, as we are getting a lot of support" from Chinese shares traded in Hong Kong.

"The reason might be that people are still expecting more measures from China, especially something like a cut in interest rates or bank reserve ratio. This happens before every weekend, but this time it seems more likely," said Cheng.

Australia's S&P/ASX 200 finished up 1% at 3,615.70, reversing early declines, and South Korea's Kospi rose 0.4% to 1,180.97.

Elsewhere, China's Shanghai Composite rose 0.1% to 2,018.46, Taiwan's Taiex was little changed at 4,694.52 and New Zealand's NZX 50 index lost 1.9% to 2,655.31.  By late afternoon, India's Sensitive Index, or Sensex, gained 0.8% to 10,152.30, while Singapore's Straits Times Index slipped 0.1% to 1,796.68.

Hong Kong stocks were weighed down as market heavyweight HSBC Holdings (HBC) tumbled 6.2%, on top of Thursday's 3.4% decline, on market speculation it may raise capital. Energy-related stocks dropped across the region, with Woodside Petroleum (WOPEY) slumping 4% and BHP Billiton (BHP) sliding 3.5% in Sydney.

Inpex Corp. tumbled 5.9% in Tokyo, Cnooc (CEO) lost 4.9% in Hong Kong and Oil & Natural Gas Corp. fell 2.5% in Mumbai afternoon trading. January crude-oil futures rose as much as 18 cents to $36.40 a barrel in electronic trading, after sliding 9.6%, or $3.84, to $36.22 a barrel Thursday on the New York Mercantile Exchange.

In Sydney, banks rebounded on bargain-buying after recent losses, with Commonwealth Bank of Australia (CBA.AU) rising 4.9% and Westpac Banking Corp. (WBK) gaining 8.6%.  In Asian currency trading, the U.S. dollar changed hands for 88.76 yen, compared to 89.20 yen Thursday.

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PRECIOUS-Gold drops more than 2 pct as euro falls

LONDON - Gold dropped more than 2 percent in thin volumes on Friday as the euro lost ground against the dollar and bullion's recent rally slowed the pace of physical purchases, traders and analysts said.

Spot gold fell to $833.70 an ounce by 1116 GMT, against $852.15 an ounce late in New York on Thursday. It had traded as high as $853.10. "The euro took a bit of a big hit this morning," said Tom Kendall, precious metals strategist at Mitsubishi. "I think that's going to be the feature of the day," he said.

The euro fell broadly as traders locked in profits from the currency's rally to a 2 1/2-month high against the dollar and its strongest level ever against sterling. Bullion rallied to a two-month high of $881.20 this week, boosted by the gains in the euro, which had been on track to post a weekly rise of more than 5 percent against the dollar, its biggest since the single currency was launched in 1999.

Bullion tends to move in the opposite direction to the dollar as a strong U.S. currency makes gold more expensive for local currency holders. "We are going to be bouncing around the range but the tendency is towards the downside for gold," Kendall said, adding oil's falls this week was also putting pressure on bullion.

Crude oil, which fell to its lowest levels since 2004 on Thursday, is now more than $110 off its July peak, having shed a third of its value this month.

U.S. light crude for January delivery was 51 cents lower at $35.71 a barrel at 1106 GMT ahead of the contract's expiry later on Friday. Crude for February delivery was slightly firmer at $42.15. Despite gold's impressive 20 percent rally in December alone, some thought the outlook remained bearish.

"The economic outlook is as bad as it has been at any time in the past 100 years. Gold cannot be immune to this," said Fortis Metals in a research note. "It will be hit by a decline in jewellery demand, at least of the adornment variety."

Local jewellers in Dubai's traditional gold markets said this week that sales had collapsed as much as 80 percent in the last couple of weeks. "Volatility is more of a deterrent than the absolute price level to people particularly in jewellery business," Kendall at Mitsubishi said.

Technicals offered little support, others added. "Gold was in an overbought zone and warranted a correction," said precious metals analyst Pradeep Unni at Richcomm Global Services in Dubai. "Technically, gold is still very weak and hence a swift sell off to $820 and lower cannot be ruled out, as most momentum indicators are hovering in the uncomfortable overbought zones and have started to turn back," he said.

Spot platinum was at $847.50 an ounce versus $849.50 while spot palladium was $1 higher at $175.50 an ounce. Silver edged down to $10.80 from $10.93. COMEX gold futures for February delivery GCG9 were down 2.39 percent at $840.00 per ounce. The contract fell $7.90 on the New York Mercantile Exchange on Thursday.

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