US & World Daily Markets Financial Briefing 28-09-2006

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Dow industrials pass record-high close

NEW YORK - The Dow Jones industrial average topped its record-high close this morning, reaching a milestone in Wall Street's recovery from nearly seven years of corporate upheaval, economic recession and the impact of terrorism. The high close was 11,722.98 set on Jan. 14, 2000.
   
Lifted by growing optimism about stable interest rates and a soft landing for the economy, the Dow rose to 11,724.86 in morning trading, before slipping back to 11,699.08. It faced one more milestone, its intraday high of 11,750.28, before it could move into uncharted territory.
   
Wall Street's other two widely followed indexes, the Standard & Poor's 500 and the Nasdaq composite, lagged the Dow although they also reached closing highs around the same time.
   
The S&P, down 0.31, at 1,336.28, is still 191.18 points below its closing high of 1,527.46, although it is trading at a 5 1/2-year high. The Nasdaq, up 1.92 at 2,265.31, is not expected to approach its high close of 5,048.62 any time soon. The Russell 2000 index of smaller companies rose 1.01, or 0.14 percent, to 733.52.
   
The Dow, whose 30 large-cap stocks range from aluminum producer Alcoa Inc. to discount retailer Wal-Mart Stores Inc., was the first big index to recover because it did not rise as much in value as the S&P 500 and the Nasdaq in 2000.
   
The last time the Dow stood at these levels, Wall Street was propelled by wide-eyed investors eager for a slice of the wealth being generated by the dot-com and housing booms. Traders raced to buy any stocks that looked remotely promising, catapulting the major indexes sharply higher.
   
But after early 2000, the market began to crumble, slowly at first as doubts about the high-tech boom set in. Signs of recession accelerated the decline, and then the Sept. 11, 2001, terror attacks and their aftermath, including earnings declines and losses in many industries, sent stocks plunging.
   
It didn't stop there -- corporate scandals including the collapse of Enron Corp. and WorldCom Inc. also shook Wall Street. The combination of all these factors devastated stocks, sending the Dow to a five-year closing low of 7,286.27 on Oct. 9, 2002, nearly 38 percent off its record high close.
   
Wall Street made its way back slowly, with investors behaving more cautiously and limiting their exposure to risk as they slowly regained faith in stocks. What has also helped is more than four years of sturdy corporate profit growth despite the threat that energy prices and interest rates would hurt consumer spending and companies' bottom lines.
   
More recently, the Federal Reserve's decision to pause after more than two years of interest rate hikes and evidence the economy is moderating, not heading for a hard landing, gave investors the impetus to push the Dow past its high close.
   
On Thursday, the economic news was mixed. While jobless claims fell, dropping close to economists' expectations, the Commerce Department revised its gross domestic product number for spring to 2.6 percent from 2.9 percent.
   
The number of new people signing up for unemployment benefits dropped last week. The Labor Department reported Thursday that new applications filed for unemployment insurance declined by a seasonally adjusted 6,000 to 316,000 for the work week ending Sept. 23. The latest showing on claims was close to economists' expectations for claims to total around 315,000 last week.
   
Bonds fell, with the yield on the 10-year Treasury note at 4.61 percent, up from 4.59 percent Thursday. The dollar was higher against other major currencies in European trading. Gold prices rose.
   
Crude oil futures rose. A barrel of light crude was quoted at $62.98, up 2 cents, in electronic pre-opening trading on the New York Mercantile Exchange.

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Dollar steady despite downward US GDP growth revision

LONDON - The dollar remained steady even on the news that the US economy grew by less than anticipated during the second quarter of the year.
   
The Commerce Department reported that growth in the second quarter stood at an annualised 2.6 pct, down on the previous 2.9 pct estimate, and more than half lower than the robust 5.6 pct recorded in the first quarter.
   
The change reflected a downward revision to private inventory investment, an upward revision to imports of services and a downward revision to residential fixed investment that were partly offset by an upward revision to spending for services.   
   
Despite the downward revision, analysts said the data is unlikely to prompt any change in the likely trajectory of US borrowing costs in the months to come, and the consequent impact on the dollar, especially as Fed officials appear to be growing increasingly concerned by mounting wage costs.
     
Even though the Fed is expected to keep its benchmark rate on hold at 5.25 pct for a few months yet, the dollar has not suffered too many losses of late as other currencies have had their problems too.
   
Analysts noted that sterling is suffering as the market has reined in its expectations about how far the Bank of England will raise interest rates, while the contrary comments about the yen from Japanese officials have given the Japanese a bumpy ride.
   
While the new Japanese finance minister Koji Omi appeared to exhibit disinterest in the rate of euro/yen, which is near all-time highs, the vice finance minister Hideto Fujii said the recent decline has been "a little rough".

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The European Markets at 11.30 GMT

London - London shares pushed higher at midday, again led by a strong mining sector, while persistent bid talk on Hanson and Brambles also helped the FTSE climb to within reach of the 6,000 level.
   
By 12.10 pm, the FTSE 100 index was up 31.7 points at 5,961.8, while the broader indices were also firmer. Volume was average, with 932.4 mln shares changing hands in 113,344 deals.

Frankfurt -  German shares were up midday, with gains in MAN AG leading the index higher on renewed speculation Volkswagen AG could be eyeing the stock, and with utility groups still in focus on the back of M&A speculation. At 1.02 pm, the DAX 30 was trading 4.28 points firmer at 5,993.99.

Paris - Share prices were up at midday, adding to a three-day run of higher closes on the back of fresh takeover talk for STMicroelectronics and a string of upbeat corporate announcements. At 12.33 pm, the CAC-40 index was 9.05 points higher or 0.2 pct at 5,252.15, on volume of 1.7 bln euro.

Amsterdam - Shares in Amsterdam rose at midday, spurred on by US futures indicating a higher opening on Wall Street, while DSM made strong gains after issuing a strategy update late yesterday. At 12.18 pm, the AEX was up 1.08 points or 0.22 pct to 482.98, after trading in a range of 481.48-484.01.

Madrid - Share prices were lower midday, as profit-taking set in after recent stellar gains, with energy stocks lower and property sector issues in the limelight amid further M&A deals. At 12.34 pm, the IBEX-35 index lost 3.3 points to 12,950.5, after trading in a range of 12,838-12,954, on solid turnover of 2.57 bln eur.

Milan - Share prices were higher at mid-session, supported by utilities on merger speculation, and oil stocks on the higher crude price. At 12.45 pm, the Mibtel index was up 0.34 pct to 29,369 points and the S&P/Mib was 0.31 pct higher at 38,446.

Zurich - Swiss shares were flat in thin midday trade with investors taking a break after the recent rally. At 12.19 pm, the Swiss Market Index was down 9.6 points at 8,403.47, and the Swiss Performance Index lost 4.91 points to 6,548.77.
   
The euro was firmer against the Swiss franc to 1.5838, while the dollar rose to 1.2451 sfr.
   
Stockholm - Shares were little changed at midday, with the market pausing after yesterday's strong rally amid uncertainty over how Wall Street will open later today. At 12.00 pm, the OMX Stockholm index was up 0.15 pct at 335.01, and the OMX Stockholm 30 up 0.14 pct at 1,042.14.

Helsinki - Helsinki shares were flat at midday, with Nokia outperforming the broader market on news of co-operation with US' Intel, and with Neste Oil seen extending yesterday's sharp gains. At 12.17 pm, the OMX Helsinki 25 was 0.02 pct higher at 2,575.60 and OMX Helsinki added 0.40 pct to 8,826.27 on 263 mln eur turnover.

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Asian shares close higher on Wall St rise

HONG KONG - Shares across the Asia-Pacific region closed higher on continued gains by Wall Street, with the Dow Jones Industrial Average rising to its second highest closing level yet.
   
Tokyo shares finished higher in tandem with Wall Street after the US Commerce Department said new home sales had risen 4.1 pct last month, the biggest increase in five months.
   
But the benchmark Nikkei index closed below its high for the day because of profit-taking due to caution among investors as they await the release tomorrow of the consumer price index, industrial output and household spending data for last month.
   
The Bank of Japan's latest Tankan survey of corporate sentiment will also be released on Monday. Concern about continued selling by foreign investors also weighed on the top side.
   
The blue-chip Nikkei 225 Stock Average closed 76.98 points or 0.48 pct higher at 16,024.865, finishing above 16,000 points for the first time since Sept 8. But it was off its high for the day of 16,032.98 points.
   
The broader TOPIX index of all first-section issues closed 11.53 points or 0.72 pct higher at 1,602.57, off a high of 1,603.27.
       
Australian shares ended higher with investor sentiment again boosted by the rally in US stocks, dealers said.
   
They said the market was given a solid underpinning by the release of stronger-than-expected US housing data, which pushed the Dow Jones Industrial Average rose to near its record high.
   
The S&P/ASX 200 rose 20.7 points or 0.41 pct to close at 5,113.9, below the day's high of 5,120.3 and above a low of 5,095.8.
   
Hong Kong shares gained in afternoon trade ahead of the settlement of September futures contracts later today.
   
Wall Street's strength helped the local market stay in positive territory but trade was cautious as many investors moved to the sidelines ahead of holidays in Hong Kong and China next week.
   
At 3.26 pm the Hang Seng Index was up 43.18 points or 0.25 pct at 17,564.69.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on hopes for fund inflows, with metal and financial stocks gaining ground. The Shanghai A share Index added 12.16 points or 0.67 pct to 1,824.46 and the Shenzhen A-share Index was up 3.84 points or 0.86 pct at 451.05.
   
Seoul shares closed higher, with broad sentiment buoyed by the continued
strength of Wall Street and easing worries over a US economic slowdown.
   
The KOSPI index closed up 11.40 points or 0.84 pct at 1,371.43, after moving
between 1,359.47 and 1,372.22. Stronger-than-expected Korean industrial output data for August also boosted sentiment.
   
The National Statistical Office said South Korea's industrial output expanded 10.6 pct year-on-year last month, supported by robust production of semiconductor chips, display panels, ships and cars.
   
The latest monthly output data beats market expectations of a 9.7 pct rise and was also well above the 4.3 pct advance in the previous month.

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Base metals rise in line with oil, gold; LME inventories fall

LONDON - Base metals were higher after putting in a fairly strong performance yesterday, as gains in oil and gold prices combined with further stock declines on the LME overshadowed fears over the impact of slowing US economic growth on demand.
   
At 12.55 pm, LME copper for 3-month delivery was up at 7,655.00 usd against 7,610.00 usd at the close yesterday, aluminium rose to 2,572.50 usd against 2,532.00 usd, lead was up at 1,385.00 usd against 1,389.00 usd, while nickel climbed to 29,000.00 usd from 28,500.00 usd.
   
Zinc and tin bucked the trend, however. Zinc fell to 3,390.00 usd from 3,400.00 usd, while tin went down to 9,030.00 usd from 9,050.00 usd.
   
"With oil and gold heading higher again, with gold back above 600 usd an ounce, it seems the bases are now in place," said BaseMetals.com analyst William Adams.
   
He added, however, that the fundamentals are mixed. "There is still considerable concern over the health of the US economy", he said.
   
The slowdown of the US economy is well documented and while analysts are still uncertain about its severity, they remain concerned about its potential impact on metal demand.
   
Chinese copper imports have declined this year, while the country's output is on the rise, meaning the world's biggest copper consumer has been dipping heavily into stocks.

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