US & World Daily Markets Financial Briefing 29-08-2008

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US STOCKS-Disappointing Dell earnings, oil weigh on Wall St

NEW YORK - U.S. stocks fell on Friday after the previous session's sharp gains, as the price of oil rose and computer maker Dell posted a surprisingly steep drop in quarterly earnings.

Economic data added to the market jitters heading into the long Labor Day weekend. A government report before the opening  bell showed U.S. personal income tumbled unexpectedly in July and spending slowed as the effects of a government stimulus package wore off and an inflation measure hit a 17-year high.

Dell Inc's  comments that companies worldwide are cutting back on technology spending sparked fears of weakness in the whole tech sector. Shares of the world's second-largest computer maker fell 12 percent, with other tech shares such as International Business Machines Corp  also declining.

Shares of companies sensitive to higher fuel costs, such as retailers and airlines, tumbled as oil rose above $118 a barrel. Tropical Storm Gustav was poised to enter the Gulf of Mexico, raising concerns about its impact on U.S. offshore oil and gas output.

"Today we're being influenced primarily because oil is up $2 ahead of a long weekend. Investors are very nervous," said  Al Goldman, chief market strategist at Wachovia Securities in St. Louis.

The U.S. bond market was set to close early on Friday ahead of the Labor Day holiday, and Goldman noted that stock trading volume was likely to thin even further in the afternoon.

The Dow Jones industrial average fell 73.85 points, or 0.63 percent, to 11,641.33, while the Standard & Poor's 500 Index slipped 7.95 points, or 0.61 percent, to 1,292.73. The Nasdaq Composite Index was down 30.00 points, or 1.24 percent, at 2,381.64.

Chipmakers were under pressure after diversified U.S. chipmaker Marvell Technology Group Ltd  gave a conservative outlook for the third quarter, sending its shares down 3.7 percent to $14.21.

Marvell, whose chips are used in Apple's  iPhone and Research In Motion Ltd's  BlackBerry, said it is still uncertain of the impact of the weakening U.S. economy. An index of semiconductor stocks fell nearly 2 percent.

An index of airline stocks fell 1.9 percent, while an index of retail stocks  dropped almost 1.1 percent. Dell shares fell 12.2 percent to $22.14. IBM shares dropped 1.1 percent to $123.23.

There were some bright spots in the economic data, however: Business activity in the U.S. Midwest expanded strongly in August as new orders jumped, the Institute for Supply Management-Chicago business barometer showed, even as the rate of hiring plummeted to a four-month low.

The Reuters/University of Michigan report on consumer confidence, meanwhile, showed confidence recovered somewhat from depressed levels helped by moderating gasoline prices.

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FOREX - Dollar slips, but eyes best month in over 10 years

LONDON - The dollar slipped on Friday, shrugging off surprisingly strong U.S. growth figures from the previous day as dealers opted to take more profits from the currency's steepest monthly rise in over a decade.
   
The euro was resilient in the face of lower than forecast euro zone inflation and sentiment indicators, as hawkish rhetoric from policymakers kept the currency well-bid. European Central Bank Governing Council member Klaus Liebscher echoed comments from other policymakers earlier in the week that inflation is too high for more on the euro zone data.
   
The dollar was hit by a one-percent rebound for oil prices as Tropical Storm Gustav headed for the U.S. Gulf Coast and a newspaper reported Russia might tighten supply. But as August comes to an end, the greenback is up more than 5 percent against a basket of currencies, heading for its biggest monthly gain since January 1997, Reuters charts show.
   
"If you'd have said at the start of the month that the euro would be trading around $1.47 now, most people would say you were slightly bonkers," said Jeremy Stretch, strategist at Rabobank. "But for the moment (hawkish rhetoric from ECB policymakers) is putting a floor under euro dollar."
   
At 1038 GMT the dollar index was down a quarter percent on the day at 76.958. The euro was up 0.2 percent at $1.4728, but more than 13 cents off its peak of $1.6038, set in mid-July. The dollar  was down two thirds of a percent against the yen at 108.76 yen and sterling was down a quarter of a percent against the euro at 80.60 pence per euro .
   
Sterling has had an even steeper fall against the dollar in August than the euro, down over 8 percent, its biggest drop since it crashed out of the Exchange Rate Mechanism in 1992. The pound plumbed a new 12-year low on a trade-weighted basis on Friday on growing concern about the UK economy's weakness.
   
"The UK economic picture is deteriorating so rapidly, and the recent housing market data is confirming that. The market is rushing to revise down its growth forecast for the UK," said Ian Stannard, senior foreign exchange strategist at BNP Paribas.
  
"Things are getting worse, not better, for sterling." Friday is likely to be a shortened global session as U.S. traders leave early for Monday's Labor Day holiday and the main focus was expected to be U.S. inflation data and the latest snapshot of regional U.S. business activity.
   
Dealers were expected to try to square positions by selling into any dollar strength before the end of the month and before next week's August U.S. employment report and central bank policy decisions in the euro zone and UK.
   
The dollar came under some pressure on Friday from oil's rise back above $117 a barrel , boosted by a report in Britain's Daily Telegraph that Russia may restrict oil shipments in the coming days in response to the European Union's threat of sanctions over its military action in Georgia.

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European shares rise as strong banks offset techs

LONDON - European shares rose by midday on Friday, with gains in banks and miners offsetting losses in techs and autos, while a reassuring update boosted French retailer Carrefour .
   
At 1034 GMT, the FTSEurofirst 300 index of top European shares was up 0.25 percent at 1,193.84 points, taking its gains for August to 1.3 percent and raising the prospect of the index recording only its second month of gains in the last 10.
   
Banks rose, with UBS , Credit Suisse , Dexia  and Natixis  up 1.3 to 4.2 percent, though Commerzbank  fell 2.5 percent on reports that it was set to buy Allianz's  Dresdner unit. Defensive drug stocks were higher, led by Novartis , which rose 1.2 percent.
   
Carrefour jumped 6.7 percent to top European gainers after it posted a rise in first-half operating profit and reiterated its 2008 targets. Global equities rose sharply after news on Thursday that the U.S. economy grew at a surprisingly robust clip in the second quarter.
   
"The Q2 GDP numbers were driven by net exports, and of course were good but we need to see how and when housing markets stabilise," said Tuomas Komulainen, Helsinki-based strategist at Danske Market Securities.
   
The FTSEurofirst 300 is down nearly 21 percent this year, hammered by bank writedowns, a slowing economy and uncertainty over interest rates. August was marked by the customary lull in trading, but analysts expected the action to pick up soon.
   
"The European equity markets continue to trade in the vortex of macroeconomic risks and slight improvements in the intermarket environment," UniCredit said in a note. "The concomitant lethargic share performance of recent weeks should, however, end soon given the quarterly reports pending from the U.S. investment banks from mid-September and the return of many investors from the summer break."
   
Miners rose along with gold prices, with Xstrata  up 1.1 percent and Rio Tinto  up 1.2 percent. Across Europe, Britain's FTSE 100 was up 0.4 percent, while Germany's DAX was flat and France's CAC rose 0.5 percent.
   
Shares in the world's top cellphone maker Nokia  took most points off the index with a 3 percent fall after its closest rival Samsung Electronics raised fears of economic downturn hurting demand for consumer products during key sales period before Christmas, traders said.
  
UK mobile phone group Vodafone  also weighed on the index, with traders attributing its 1.7 percent fall to news mobile phone operators may face a European Commission crackdown on overcharging.  Auto stocks were hit by a rise in the euro , with Daimler , Volkswagen , Peugeot  and Renault  falling 1 to 2.8 percent.
   
Inflation in the euro zone fell more than expected to 3.8 percent year-on-year in August, while business sentiment indicators declined. The unemployment rate remained unchanged in July from June. "The eurozone inflation numbers should moderate and should be even lower in September and beyond due the impact of lower oil and the base effect," said Komulainen.
   
"The European Central Bank will stay tough because of the wage negotiations in Germany but hopefully should start taking the tone down," he added. Komulainen said the central bank would, at some point, have to cancel out its July rate increase of 25 basis points, and he expected a softening in the
rhetoric followed by a rate cut possibly early in 2009. The ECB is due to announce its next rate decision on Sept 4.

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Asian stock market summary

JAPAN
The benchmark Nikkei 225 Stock Average rose 2.4 percent to 13,072.87, after U.S. economic data and a fall in oil prices lifted sentiment. Gains were broad-based, but steel and financial issues led the advance.
The broader Topix index gained 2.9 percent to 1,254.71.
  
SOUTH KOREA
Seoul shares ended flat, with falls in Doosan Group-associated shares dragging on the index after a group unit announced financing plans, while financials and steelmakers rose after extended losses. The Korea Composite Stock Price Index closed up 0.01 percent at 1,474.24 points.

AUSTRALIA
The benchmark S&P/ASX 200 rose 1.4 percent to 5,135.6, led higher by financial stocks such as Macquarie Group Ltd., as concerns about the global economy eased following strong U.S. economic growth figures.
   
CHINA
The benchmark Shanghai Composite Index closed up 2.01 pct at 2,397.37, led by property stocks amid speculation that the government will announce new measures to support the markets over the weekend.
Steelmakers rose after Baoshan Iron & Steel reported an 18 pct rise in first-half profit, while securities firms continued their rally.
   
The Shanghai A-share Index was up 2.00 percent at 2,516.78 and the Shenzhen A-share Index rose 2.63 percent to 690.44. The Shanghai B-share Index rose 3.98 percent to 151.76 and the Shenzhen B-share Index gained 2.51 percent to 384.42.
   
TAIWAN
The weighted index closed up 0.18 percent at 7,046.11, off early highs, as profit-taking placed a lid on gains driven by the overnight rally on Wall Street.

HONG KONG
The Hang Seng index closed up 289.6 points or 1.38 pct at 21,261.89, off a low of 21,223,99 and high of 21,474.31.
   
For the week, the index is up 869 points or 4.26 pct, while for the month of August it is down 1,470 points or 6.47 pct. Turnover was 63.44 bln hkd.

INDIA
The Bombay Stock Exchange's benchmark 30-share Sensex closed up 516.19 points or 3.67 percent at 14,564.53 points, nearly 285.51 points higher than its opening level. The S&P CNX Nifty of the National Stock Exchange closed 3.46 percent higher at 4,360 points.

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Oil prices rise as Gustav threat looms

LONDON - Oil prices rebounded on Friday as Tropical Storm Gustav risked becoming a hurricane once more and threatening energy production in the Gulf of Mexico, home to U.S. refineries, traders said. New York's main contract, light sweet crude for delivery in October, jumped $1.40 to $116.99 per barrel in electronic deals.
   
London's Brent North Sea crude for October gained $1.15 to $115.32 per barrel. British oil groups BP and Royal Dutch Shell and U.S. rival ConocoPhillips had evacuated workers from their energy installations in the Gulf of Mexico on Thursday, as Gustav loomed.
   
ExxonMobil said it was preparing for the storm and "identifying personnel for possible evacuation to shore."About a quarter of U.S. crude oil installations are located in the Gulf of Mexico.
   
Oil prices had fallen sharply on Thursday as traders discounted the threat of the storm. But on Friday, Newedge energy analyst Ken Hasegawa warned: "Still we have to worry about the hurricane's effect on this market."
  
Tropical Storm Gustav battered Jamaica on Friday, dumping rain and ripping roofs off homes and threatened to grow into a hurricane after leaving 59 people dead in Haiti and the Dominican Republic.
   
Anxiety also grew on the U.S. Gulf Coast on the third anniversary of Hurricane Katrina and authorities in New Orleans were planning a possible mandatory evacuation to prevent a repeat of the devastation and deaths wreaked earlier.
   
Authorities in Louisiana and Mississippi have already declared states of emergency before Gustav's expected landfall late Monday as a hurricane. Gustav had made landfall in Haiti on Tuesday as a Category One hurricane -- the lowest on the five-level Saffir-Simpson scale -- before weakening into a tropical storm.
   
Meanwhile, the eighth tropical storm of the hurricane season, dubbed Hanna, was churning in the Atlantic on Friday and has the potential to become a hurricane.

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