US & World Daily Markets Financial Briefing 23-07-2007

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Stocks rise amid buyout news

NEW YORK  - Stocks rose in early trading Monday after a fresh round of buyout news offered evidence that Wall Street's penchant for dealmaking hasn't disappeared.
   
Stocks rebounded from a sell-off Friday after Transocean Inc., an offshore contract drilling services company, and GlobalSantaFe Corp. said Monday the companies struck an agreement to merge. The combined company will have a market value of about $53 billion.
   
In addition, equipment rental company United Rentals Inc. said it agreed to be taken private by affiliates of Cerberus Capital Management LP for about $4 billion in cash. Meanwhile, British bank Barclays PLC said it would raise its offer for ABN Amro Holding NV to $93.2 billion to fight a rival bid from a group led by Royal Bank of Scotland PLC.
   
In addition to buyout news, better-than-expected profit news from Merck & Co. and Schering-Plough Corp. appeared to boost the mood on Wall Street.
   
In the first hour of trading, the Dow Jones industrial average rose 64.46, or 0.47 percent, to 13,915.54. Broader stock indicators also moved higher. The Standard & Poor's 500 index rose 6.79, or 0.44 percent, to 1,540.89 and the Nasdaq composite index rose 6.32, or 0.24 percent, to 2,693.92.

Britain's FTSE 100 rose 0.36 percent, Germany's DAX index rose 0.49 percent, and France's CAC-40 advanced 0.37 percent.
   
Light, sweet crude fell 99 cents to $74.80 per barrel on the New York Mercantile Exchange in part as exports resumed at a key Angolan oil facility.
   
The merger news appeared to help convince Wall Street that stocks have further room to run even after hitting fresh highs last week and pulling back Friday. Concerns have emerged in recent weeks that the merger activity that has helped fuel a run-up in stocks could slow as stocks become more expensive and if access to cheap capital becomes more difficult.
   
But earnings have commanded much of Wall Street's attention in recent weeks. Friday's decline came as lackluster profit reports from Caterpillar Inc. and Google Inc. raised concerns about the overall strength of corporate earnings.
   
Along with better earnings reports Monday, investors applauded the buyout news. Investors generally like to see corporate tie-ups because they can signal companies are bullish about the economy.
   
Stocks in focus

The Transocean/GlobalSantaFe combination also reflects strong demand as energy companies can afford to spend more on difficult-to-extract supplies. Oil prices touched nearly one-year highs last week. Under the terms of the deal, Transocean shareholders will $33.03 and 0.6996 shares of the combined company for each share of Transocean they own, and shareholders of GlobalSantaFe will receive $22.46 and 0.4757 shares of the company for each share of GlobalSantaFe they own.
   
Transocean rose $8.94, or 8.1 percent, to $118.91, while GlobalSantaFe rose $5.19, or 6.9 percent, to $79.93.
   
The United Rentals deal, for $34.50 per share, represents a 7 percent premium over United's closing price Friday. It is also a 25 percent premium to the stock's closing price of $27.55 on April 10, the day the company said it was exploring strategic options. In Monday's trading, United Rentals rose 80 cents, or 2.5 percent, to $33.17.
   
The parade of corporate earnings reports continued Monday, with Merck & Co. reporting a 12 percent increase in its second-quarter earnings. Merck, the best performer Monday among the 30 stocks that comprise the Dow, rose $2.64, or 5.4 percent, to $51.66.
   
Schering-Plough rose 55 cents to $32.04 after reporting its second-quarter profit more than doubled.
   
American Express Co., which like Merck is a Dow component, is expected to release its quarterly results after the close of the market. Wall Street expects the credit card issuer will turn a profit.

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Dollar makes slight recovery from earlier lows

LONDON - The dollar made some slight gains across the board after it earlier scraped to a record all-time low against the euro and a fresh 26-year low against the pound.
   
The US currency's weakness, stemming from concerns about the US sub-prime sector, is the main focus for the market at the start of a light week for economic indicators.
   
"The greenback remains firmly on the back foot amidst heightened uncertainty as to the broader implications of the sub-prime lending debacle," said Simon Derrick at the Bank of New York Mellon.
   
Last week, Federal Reserve chairman Ben Bernanke estimated that losses in the sub-prime market, which has seen widespread defaulting on mortgages to risky borrowers accompanied by a downturn in the housing market, could hit 100 bln usd.
   
These potential losses are causing a widespread sell-off of dollar-denominated assets in the corporate credit markets and concern about the troubles spilling over into the wider economy. Earlier this morning this concern pushed the euro to a fresh high of 1.3844 usd, and the pound to a new 26-year peak of 2.0603 usd.
   
The euro's subsequent fall-off reflects concerns that the sub-prime crisis will spread to Europe, following a downgrade of European sub-prime-backed debt on Friday by ratings agency Standard & Poor's, said Matthew Foster-Smith at Thomson IFR Markets.
   
"Credit spread issues are now not just a US story and many look for the transition into the euro zone to continue," he said.
      
Later in the week in the euro zone, the main focus will be on business sentiment with the release of the French INSEE and German Ifo surveys on Wednesday and Thursday respectively. However analysts do not expect the week's releases to have any major impact on the broad economic outlook for the 13-nation single currency area.
       
Elsewhere, the high-yielding commodity currencies, the Aussie and Kiwi dollars, continued to rise markedly against the US dollar through the morning.
   
The Australian dollar hit a new 18-year high of 0.8841 usd, after second-quarter producer price data came in stronger than expected -- up 1.0 pct on the first quarter -- and the New Zealand dollar rose to a 25-year high of 0.8022 usd on expectations for higher interest rates.
   
"The kiwi (continues) to benefit from the risk that the Reserve Bank of New Zealand will hike its official cash rate by another 25 basis points to 8.25 pct on Thursday," said IFR Markets' Robert Howard, adding that the market is reportedly attaching a 70 pct likelihood that this will occur.
   
Finally the yen remained highly volatile, weakening again against the major currencies.
   
The yen firmed on Friday as appetite for the risky carry trade - where investors borrow in low-yielding currencies to invest in high-yielding ones elsewhere - waned due to concern about movements in the credit markets. It has since risen and fallen sharply and in quick succession.

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Euroshares flat midday, SAP and Alstom gain on M&A talk

LONDON - Europe's largest exchanges were flat in trading midday with individual stocks such as SAP, Fresenius Medical Care AG and Alstom grabbing the spotlight in absence of economic data and further catalysts.
   
At 12.16 pm, the STOXX 50 was up 2.59 points or 0.07 pct to 3,912.59 as the STOXX 600 added 0.16 points or 0.04 pct to 392.75.
   
FMC traded higher as the impact of new US Medicare restrictions on anaemia drugs was seen as less severe than some feared, with no changes expected for FMC's distribution of the drug Epogen, manufactured by Amgen Inc.
   
Analysts said a decision Friday by the Centers for Medicare & Medicaid Services (CMS) to modify its claims monitoring policy will impose greater restrictions on dosages of Epogen, when a patient's level of haemoglobin exceeds 13 grams per deciliter of blood.
   
"The guidelines which CMS set out are already those to which FMC was adhering and the company does not have to fear that it will not be penalized for its use of Epogen," said a local analyst. Shares gained 2.41 pct.
   
Alstom and Areva gained 1.05 pct and 1.62 pct respectively, while Bougyes added 0.80 pct, after a report in Germany's Wirtschaftswoche that French President Nicolas Sarkozy wants to create a nuclear and fossil fuel power engineering giant involving the three companies.
   
Some kind of tie-up involving Areva, Alstom and Bouygues has been mooted for several months. An analyst at a major European broker said such a deal is now "largely expected" and there is "nothing really new" in the German report.
   
Siemens AG, which owns 34 pct of nuclear power plant unit Areva NP, the former Framatome, is going to "resist tooth and nail" as it wants to stay in nuclear power, the analyst said, adding: "It will come down to a political arrangement between France and Germany."
  
Meanwhile, Siemens continues on the centre stage of more M&A talk, as Continental AG and US automotive supplier TRW (in conjunction with Blackstone) have reportedly both raised their bids for the company's VDO unit to more than 12 bln eur according to Handelsblatt.
   
The Blackstone/TRW syndicate has pledged not to close German plants in case of a successful takeover of VDO, according to Frankfurter Allgemeine Zeitung.
   
Continental board member Karl-Thomas Neumann told Financial Times Deutschland that a successful bid by Continental would be advantageous for Germany as a place of business
   
Certain key industries and technologies in Germany should "not get lost", the newspaper quoted Neumann as saying. Shares in Continental were 0.57 pct lower as Siemens dropped 0.40 pct.     

Staying with M&A, the battle over ABN Amro continues after Barclays said it has agreed to sell up to 13.4 bln eur in new shares to two state-backed Asian investors in order to sweeten its offer for the Dutch bank. Shares in ABN Amro gained 0.85 pct while RBS fell 0.16 pct.
   
Franco-Belgian banking group Dexia SA fell sharply midday after rumours emerged that it may launch a counter-bid for public finance group Depfa Bank plc following Hypo Real Estate's 5.7 bln eur offer earlier this morning. The group declined to comment, but shares dropped 1.56 pct, while Hypo Real Estate declined 6.06 pct.
   
Elsewhere, shares in Tele Atlas surged on news that TomTom intends to make a 2 bln eur takeover offer. TomTom said this morning it will make a cash offer of 21.25 eur per ordinary share for Tele Atlas, with the deal expected to close by the end of 2007. Shares in Tele Atlas jumped 28.76 pct as TomTom gained 7.35 pct.
      
Staying with earnings results, Kuehne & Nagel International AG posted solid first half earnings which were in line with expectations, but short-term profit taking put pressure on the stock, and it declined 2.12 pct.

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Asian shares close mixed; China firm as investors bet on strong H1 earnings

MUMBAI - Shares across the Asia-Pacific region closed mixed on Monday as markets reacted to Wall Street's pullback Friday, with Nikkei registering a 194-point drop and China shares closing sharply higher notwithstanding last week's interest rate hike.
   
The yen's appreciation against the dollar weighed on Japanese exporters. Investors were also nervous ahead of some key domestic corporate results this week.
   
The Nikkei 225 index closed down 194.29 points or 1 pct at 17,963.64.  The TOPIX index of all the Tokyo Stock Exchange first-section issues dropped 18.88 points or 1 pct to 1,757.29.
   
In Hong Kong, share prices closed at fresh record highs as investors picked up China stocks, particularly property plays, and some laggard blue chips following sharp gains on mainland bourses.
   
Dealers said there was relief that the overhang of China policy tightening has ended following Friday's announcement of an interest rate hike in China, and that investors are now looking forward to a strong first-half results announcements from major local firms in the next few weeks.
   
The Hang Seng Index closed up 73.66 points or 0.3 pct at 23,365.56, off a low of 23,152.54 and a new all-time high 23,389.94.
   
In South Korea, share prices hit a new closing high after investors downplayed the increase in interest rates in China. The KOSPI closed 9.51 points or 0.5 pct higher at 1,993.05. Shares in banks extended their gains as the release of their quarterly earnings reports approaches. Brokerage houses and insurers outperformed banks on rotational interest.
   
In mainland China, A-shares closed at a one-month high led by steel makers and banks. The Shanghai A-share Index was up 161.86 points or 3.8 pct to 4,419.95, while the Shanghai B-share Index rose 12.96 points at 299.53. The benchmark Shanghai Composite Index, which covers both A- and B-shares listed on the Shanghai Stock Exchange, closed up 154.51 points or 3.8 pct at 4,213.36.
   
Jakarta shares closed higher led by miners and banks, with the main index finishing at a new all-time high, as investors remained upbeat about key corporate earnings for the first-half to June due this week. The composite index closed up 13.81 points, or 0.6 pct, at a new record closing of 2,380.21, its intra-day high, and off a low of 2,344.123.
   
Australian shares ended down on profit-taking, taking their cues from the sell-off on Wall Street Friday. Concerns over the US subprime mortgage market again weighed on global equities, with US-focused Australian companies taking a hit.
   
The S&P/ASX 200 closed down 31.4 points or 0.5 pct at 6,390.4, retreating from Friday's record 6,421.8. The All Ordinaries Index lost 28.9 points or 0.5 pct to settle at 6,427.8.
   
Singapore shares also closed lower on profit-taking after Wall Street's Friday fall. The Straits Times Index (STI) was down 16.03 points or 0.40 pct at 3,635.35, off a low of 3,609.55.
   
Taiwan's Weighted Index closed up 35.67 points, or 0.4 pct, at 9,621.57 as rotational interest offset early losses caused by Wall Street's Friday dip.
   
Elsewhere, shares closed flat in the Philippines amid little activity as investors stayed on the sidelines before President Gloria Arroyo delivers her annual address to Congress later in the day. The composite index ended 0.49 point lower at 3,737.79.
   
Malaysian share prices closed mixed after a volatile session on late profit-taking in big caps after Wall Street's downturn Friday and China's monetary tightening last week.
   
The Kuala Lumpur Composite Index (KLCI) fell marginally by 0.83 points or 0.1 pct to 1,381.53 at the close. The FTSE Bursa Malaysia 30-large cap index was up 2.38 points or 0.1 pct at 8,746.02, while the second board index inched up 0.30 point or 0.3 pct to 118.13.

Indian shares ended higher with the country's two key indices touching record highs on heavy foreign fund buying based on strong company fundamentals, dealers said.
  
The Bombay Stock Exchange's benchmark Sensex closed at 15,732.20 points, up 1.07 pct, or 166.65 points, as it touched an all-time high of 15,773.37 late in the session. The National Stock Exchange's broader S&P CNX Nifty ended at 4,619.35, up 1.17 pct.

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Gold eases on profit taking after recent gains but outlook still upbeat

LONDON - Gold eased slightly on profit taking and as the dollar recovered some lost ground against major currencies, but most analysts said prices were well supported on fund buying and as long term dollar weakness is likely to add to the precious metal's alternative asset appeal.
   
Though the greenback recovered slightly from earlier intraday lows the US currency remains weak against major currencies. US currency weakness makes dollar-denominated gold cheaper for those trading in foreign currency.
       
At 2.11 pm, spot gold was trading at 683.20 usd an ounce, from 684.00 usd in late New York trade Friday. On Friday, prices hit an intraday high of 686.15 usd, the highest price reached since early May. Gold gained more than 2 pct last week from the highs.
   
Players will continue to track the dollar's movements but with little key economic data out this week, US equity markets and further signs of a fall-out in the subprime lending market will be eyed.
   
Elsewhere, analysts also noted fresh interest in gold Exchange Traded Funds (ETF) underpinned the metal. "As well, there is evidence of increased investor interest in gold. Gold holdings at several ETFs have increased over the past week," said analysts at the Commonwealth Bank of Australia.
   
ETFs trade commodity futures and back up every ounce of stock bought on paper with actual physical stock. ETFs therefore squeeze the market as less stock becomes available to the market.
      
In other precious metals, silver was flat at 13.32 usd per ounce, platinum was down at 1,325 usd from 1,332 usd, while palladium was lower at 366 usd from 370 usd at the end of last week.

Sugar prices dip on expectations India might start selling

LONDON - Sugar prices edged lower in quiet trade as funds took profits amid expectations New York raws could come under pressure this week if India starts making unrefined supplies available to the market.
       
India, the world's second-largest sugar producer, has been holding back on unrefined exports for some time now because its internal sugar prices have been higher than global market prices.
   
However, speculation is creeping into the market that with global raw sugar price having risen substantially in recent weeks, India is going to start selling again in a bid to dispose of its record 10-11 mln tonne surplus.
   
At 12.32 pm, on the Euronext Liffe, sugar for October delivery dipped to 312.00 usd a tonne against 312.80 usd at the close Friday.
   
London sugar has been underpinned in recent weeks by a rally in New York raws - sparked by expectations demand for sugar-based ethanol will rise now that oil prices are nearing all time record highs. There have also been reports the harvest from Brazil, the world's largest sugar producer, is going to be delayed.
   
On a longer term view, however, the sugar price outlook remain dim as supply continues to outstrip demand. The market expects Indian output could reach 30 mln tonnes in the year to Sept 2008, from around 28 mln tonnes this year.
   
In other softs traded on Liffe, cocoa for September delivery was down at 1,089 stg a tonne against 1,101 stg at the close Friday.
   
Traders said the market was under pressure as the Commodities Futures Trading Commission's (CFTC) latest Commitment of Traders report suggested cocoa may have become overbought.
   
The report, which showed showed non-commercial or speculative traders held large net long positions - or commitments to buy - last week, suggests a sell-off may be imminent.
     
Elsewhere, Robusta coffee for September delivery was down at 1,862 usd a tonne against 1,877 usd at the close on Friday.

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