US & World Daily Markets Financial Briefing 25-02-2008

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Stocks edge up on Ambac hopes

In the first hour of trading, the Dow Jones industrial average rose 35.65, or 0.29 percent, to 12,416.67. Broader stock indexes were also higher. The Standard & Poor's 500 index added 0.74, or 0.05 percent, to 1,353.85; and the Nasdaq composite index rose 5.40, or 0.23 percent, to 2,308.75.

Despite continuing volatility, the stock market has traded in a range this month as investors hedge their bets as to whether troubled credit markets and the overall economy have stabilized.

Last week, the Dow inched up 0.27 percent, the S&P 500 index rose a modest 0.23 percent and the Nasdaq composite index dipped 0.79 percent. But the three indexes are all down sharply since the start of 2008.

Bond prices fell. The yield on the 10-year Treasury note, which moves opposite its price, rose to 3.81 percent from 3.80 percent late Tuesday. The dollar was higher against most major currencies, while gold prices fell.

Oil prices hovered near $100 a barrel with supply concerns heightened by a Turkish military incursion into northern Iraq and warnings by Iran against further international sanctions. A barrel of light, sweet crude fell 70 cents at $98.11 on the New York Mercantile Exchange.

In corporate news, Visa said it could raise almost $19 billion from an initial public offering, which would easily become the largest IPO in U.S. history. San Francisco-based Visa Inc. said in a Securities and Exchange Commission filing it will offer 406 million shares at $37 to $42 per share.

Shares rose $7.16, or 11 percent, to $78.76.

Lowe's Cos. reported a drop in fourth quarter earnings and cited the weak housing market. However, shares of the home improvement retailer rose 15 to $23.74 amid hopes that the housing slump might soon hit a bottom. Sales of existing homes fell to the lowest level in nearly a decade in January while the median price for a home dropped for the fifth straight month, according to the National Association of Realtors.

The trade group reported Monday that sales of single-family homes and condominiums dropped by .04 percent last month to a seasonally adjusted annual rate of 4.89 million units -- the slowest sales pace on record going back to 1999.

The median price of a home sold in January slid to $201,100, a drop of 4.6 percent from a year ago. It was the fifth straight monthly price decline and underscored the continued pressure facing housing, which is struggling to emerge from its worst slump in a quarter-century.

The Russell 200 index of smaller companies rose 1.83, or 0.33 percent, to 697.26. Advancing issues outpaced decliners by about 3 to 2 on the New York Stock Exchange, where volume came to 186.5 million shares exchanging hands. Overseas, the Tokyo closed 3.07 percent higher. In London, the FTSE 100 rose 1.31 percent, Paris' CAC 40 advanced 0.73 percent, and Frankfurt's DAX gained 1.45 percent.

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Forex - Dollar stays well bid; US data eyed

LONDON - The dollar stayed well bid, with talk of a rescue plan for troubled bond insurer Ambac Financial Group boosting sentiment, although attention is also starting to fall on the raft of US data and events this week.

Fed chief Ben Bernanke's testimony to the US Congress will be a key event for the dollar and will shed more light on whether markets are pricing in too many more rate cuts in the world's biggest economy.

"Last week's inflation numbers which showed a jump in the headline rate presents problems for the FOMC (Federal Open Market Committee) up ahead. Market sentiment remains highly dependent on further rate cuts but further jumps in CPI will force this position onto the defensive," analysts at UBS said in a research note.

Markets are predicting that the Fed will lower rates by at least another 75 basis points over the next 12 months, taking the benchmark rate to 2.25 pct. The Fed has already acted aggressively to lower rates by 125 points this year.

"The Fed has enjoyed more room to ease aggressively within G10 economies due to the absence of inflationary pressures. Any complications to this view would threaten policy stability and new volatility would hit markets as a result of the necessary re-pricing," UBS analysts added.

Market sentiment has been bolstered by a report late Friday of the rescue for Ambac, which had risked losing its AAA credit rating due to losses on securities linked to unpaid housing mortgages.

"News that Ambac looks likely to receive a bail-out has done something to build confidence and the greenback has posted some gains as a result," said Gary Thomson, head of sales trading at CMC Markets.

Later today, attention will turn to the release of US existing home sales data this afternoon, where another drop is expected. For the euro, it was a quiet start to the week but it may well get some direction after a speech tonight by European Central Bank president Jean-Claude Trichet.

Elsewhere, the pound was on the weak side after the latest Hometrack survey showed UK house prices fell for the fifth consecutive month and as investors awaited mortgage lending data from the British Bankers' Association this morning.

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Euroshares open higher after late US recovery; on M&A hopes

At 8.33 am, the DJ STOXX 50 was up 44.87 points, or 1.4 pct, at 3,244.48 and the STOXX 600 was up 4.18 points, or 1.31 pct, at 324.06.

Crude prices moved ever closer to 100 usd per barrel in Asian trade with Turkey's military offensive in northern Iraq and reports Iran would back an OPEC output cut sparking fresh supply concerns.

In morning trade, New York's main contract, light sweet crude for delivery in April, was up 70 cents to 99.51 usd per barrel, having closed 58 cents higher at 98.81 usd on the New York Mercantile Exchange Friday.

In Europe today, the banking sector remains a key focus with Alliance & Leicester up 5.2 pct and Bradford & Bingley up 6.63 pct after weekend reports Lloyds TSB -- up 2.68 pct -- is reportedly weighing up potential takeover approaches, given the opportunities to snap up rivals hit by the credit crunch.

Elsewhere in the banking sector, Intesa Sanpaolo -- up 1.13 pct -- is reportedly interested in strengthening its position in Russia by acquiring a retail bank.

Financials generally were boosted by the more upbeat tone on world financial markets. Credit Agricole added 3.96 pct, Fortis rose 3.21 pct and ING was up 3.19 pct.

Dexia added 3.61 pct as a number of dealers suggested the news was particularly important for the Belgian listed group as it owns AAA-rated US monoline insurer FSA Inc.

Roche added 3.52 pct as majority owned Genentech stormed 8 pct higher on Friday after a surprise decision from the US regulator granted Genentech accelerated approval of AVASTIN in combination with paclitaxel chemotherapy for first-line treatment of a form of breast cancer.

Many analysts had expected the FDA to wait until Genentech submitted more patient data and then make a decision later this year, traders said. Dresdner upgraded Roche's shares to 'add' from 'hold', saying the approval should add 600 mln usd to 2008 sales of the drug. The broker lifted its discounted cash flow-based target to 215 sfr from 205.

Car stocks got a lift as Lehman Brothers added Renault, Peugeot and Daimler to its 'European recommended portfolio'. Renault shares added 2.11 pct and Peugeot moved up 1.83 pct. Daimler moved up 1.49 pct.

But utilities fared less well as investors turned their back on traditional safeplays. EON fell 1.07 pct, Iberdrola fell back 0.92 pct and RWE -- which WestLB cut to 'add' from 'buy' -- was down 0.79 pct.

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Asian stocks gain with Wall Street on hopes for Ambac bailout

Financial stocks rose across the region and pulled benchmarks higher. The Nikkei led the advance, closing up 3.1 percent at 13,914.57. The Topix rose 2.6 percent to 1,355.54.

The S&P/ASX 200 finished up 1.1 percent at 5,621.6 and the All Ordinaries was up 1 percent at 5,699.8. The Australian market recovered from a midsession slump that came on talk that Goldman Sachs JBWere was going to announce another 1.7 billion US dollar write-down in losses on mortgage-backed investments.

The Kospi closed up 1.3 percent to 1,709.13 as President Lee Myung-Bak, a conservative businessman-turned-politician, was sworn in as president with a pledge to revive the economy through sweeping reform and deregulation.

The Singapore Straits Times Index closed 0.5 percent higher at 3,064.95.

But the Chinese market bucked the trend on concerns that a flood of new shares will shortly hit the market. The lock-up periods for shares issued in recent initial public offerings and other issues are due to expire at the end of the month.

China Unicom lost 10 percent to 10.92 yuan amid market talk that it is planning to raise 60 billion yuan through a share issue. The company denied the rumor.

The Shanghai Composite closed down 4.07 percent at 4,192.53. The Hang Seng ended 0.2 percent lower at 23,269. The Kuala Lumpur Composite declined 0.1 percent at 1,370.79. The Philippines market was closed for a public holiday.

In Tokyo, non-life insurers were firmer, with Millea up 8.9 percent at 4,030 yen and Mitsui Sumitomo Insurance up 10.2 percent at 1,107.

Big banks rose. Mitsubishi UFJ Financial gained 4.1 percent at 975, Mizuho Financial gained 4.4 percent at 452,000 and Sumitomo Mitsui Financial rose 4.8 percent to 802,000. Top brokerage Nomura Holdings rose 3.2 percent to 1,741 and Daiwa Securities Group rose 3 percent to 968 yen.

In Hong Kong, retailers led gainers on expectations the government will announce tax rebates and concessions this week when it unveils the budget for the next fiscal year. Investors expect rebates to boost consumer spending. Bouncing back

Meanwhile, Australian banks staged a rebound. The sector has been under pressure after several major lenders admitted lending money to shopping center owner Centro Properties Group, which is struggling to repay billions of dollars of short-term debt.

Commonwealth Bank of Australia led the charge, closing up 4.9 percent to 44.67 dollars, followed by Westpac, up 4.7 percent at 23.52 dollars. St George Bank added 4.4 percent to 25.90 dollars, National Australia Bank gained 1.9 percent to 29.12 dollars and Australia & New Zealand Banking Group firmed 1.1 percent to 22.60 dollars.

Investment bank Babcock & Brown ended 3 percent higher at 18.03 dollars. Babcock last week reported 2007 net profit surged 70 percent to 525.1 million dollars after completing more deals around the world.

Wesfarmers closed up 3.2 percent to 39.14 dollars after the conglomerate ruled out the need to sell assets to pay for the takeover of the nation's second-largest retailer, Coles Group. Wesfarmers last week posted a 53.3 percent increase in net profit for the half year to December.

Woolworths advanced 4.3 percent to 29.01 dollars, Harvey Norman gained 2.6 percent to 4.82 dollars and Just Group jumped 1.6 percent to 3.49 dollars. Troubled fund manager Allco Finance Group ended down 63.6 percent to 1.11 dollars after announcing first-half-to-December net profit fell 10 percent to 83.9 million dollars.

Shanghai Pudong Development Bank ended 2.45 percent lower at 39.00 yuan after the company recently confirmed share sale plans. China Merchants Bank lost 1.88 percent to 29.78 yuan. More than 2.5 billion of the bank's shares will come out of lockup and be available for trading on the Shanghai exchange from Feb 27.

The Bombay Stock Exchange's (BSE) 30-share benchmark Sensex closed up 301.50 points, or 1.74 pct, at 17,650.57 and the National Stock Exchange's (NSE) 50-share S&P CNX Nifty closed up 89.95 points, or 1.76 pct, at 5,200.70.

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Oil prices again near $100 a barrel

Oil prices rose to near US$100 a barrel Monday as the Turkish incursion into northern Iraq and warnings by Iran against further sanctions heightened concerns over potential crude supply disruptions. Turkish troops fired more than 40 salvos of artillery shells Monday across the Iraqi border against Kurdish rebels, a day after the military confirmed a Turkish helicopter crashed in Iraq and eight soldiers were killed.

"The market perception is that (the incursion) could threaten the supply of crude from northern Iraq," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. Turkey serves as an oil and gas transportation hub, and Iraq is a major crude supplier to Europe.

Light, sweet crude for April delivery rose 35 cents to US$99.16 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. It has climbed as high as US$99.70 a barrel earlier in the electronic session.

On Friday, the contract settled 58 cents, or 0.6 percent, higher at US$98.81 a barrel. In London, Brent crude rose 23 cents to US$97.24 a barrel on the ICE Futures exchange. Some analysts noted a concentration of long positions -- speculating that prices will rise -- in the hand "of a few market makers," which could cause rising volatility.

"Apart from speculative funds pursuing technical targets, we find that the overall picture still fails to properly define the rationale for the continuation of the rally to new record highs," said Olivier Jakob, of Petromatrix in Switzerland. Also driving prices higher was a threat by Iranian President Mahmoud Ahmadinejad on Saturday that Tehran would take unspecified "decisive reciprocal measures" against any country that imposed additional sanctions against his country.

Ahmadinejad's warning came after the International Atomic Energy Agency said Friday that many past questions about Iran's nuclear program had been resolved, but still highlighted Tehran's refusal to halt uranium enrichment, paving the way for the next set of sanctions.

Iran is already under two sets of U.N. Security Council sanctions for refusing to suspend uranium enrichment. The five permanent members of the Security Council and Germany have agreed on a draft resolution for a third set of sanctions.

"The IAEA's latest report last week on Iran again turned a focus on Iran's nuclear program which raises questions about sanctions, and that has in turn added to the mix that has left oil prices higher," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney.

Tehran insists its program is intended only to produce energy. The U.S. and some of its allies suspect it could lead to weapons development. In other Nymex trading, heating oil futures added 0.40 cent to US$2.7831 a gallon (3.8 liters) while gasoline prices rose 1.84 cents to US$2.5521 a gallon. Natural gas futures added 15.4 cents to US$9.30 per 1,000 cubic feet.

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