US & World Daily Markets Financial Briefing 30-05-2006

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U.S. stocks fall in early trading; higher oil, dollar fall weigh

NEW YORK - U.S. stocks lost ground in early trading Tuesday as investors returned from a three-day weekend to confront dollar weakness, higher oil prices, disappointing May sales from Wal-Mart Stores, and a broker downgrade of General Motors Corp.
   
The Dow Jones Industrial Average was down 71 points at 11,207.
   
The Nasdaq Composite Index dropped 16 points to 2,195 while the S&P 500 Index was off 6.5 points at 1,274.
   
Stocks on the move
   
Shares in Goldman Sachs fell 1% to $151.35 amid uncertainty over who would replace Henry Paulson as chief executive following his nomination to the post of U.S. Treasury Secretary.
  
Dow component Wal-Mart Stores Inc was down 2% to $48.66. On Saturday the retailer said it expects same-store sales to show a 2.3% increase for this month, at the low end of its previous forecast and below the average Wall Street estimate.
   
"Wal-Mart continues to see higher gasoline and utility prices impacting its customers, as discussed during its first-quarter earnings call. As a result, the company has seen more pronounced paycheck cycles," analysts at Citigroup said.
   
General Motors Corp fell 3.1% to $27.20. Deutsche Bank cut the stock to sell, citing valuation and concerns over moderating retail vehicle sales. Analyst Rod Lache changed his rating less than a month after upgrading it. He also cut his stock price target to $24 from $25.
   
Sun Microsystems was upgraded to buy at UBS, which speculated the company may be planning job cuts. The stock rose 1.8% to $4.50 in early trading.

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Dollar off lows as Paulson named Treasury chief

NEW YORK - The dollar remained lower against major currencies early Tuesday, but was off lows of the day, after the news that Goldman Sachs chief Henry Paulson will become the next Treasury secretary.
   
The dollar had been heavily sold off earlier in the session on concern that Donald Evans, the former Commerce secretary, would get the nod to replace John Snow at Treasury. But it recovered some losses after Paulson, instead, got the nod.
   
The announcement "appears to be giving the dollar a lift in the short-term as markets interpret the appointment of a Wall Street veteran as more likely to support a stronger dollar," said Brian Dolan, director of research at Gain Capital. "However, the major issue facing Paulson is the orderly resolution of global imbalances, with a weaker dollar against Asian currencies acting as one of the key levers."
   
"To the extent that Paulson has greater credibility with financial markets, the dollar is likely to experience renewed weakness against Asia as Paulson's new Treasury team more effectively presses the case for Asian currencies to strengthen and is less tolerant of Asian central bank/finance ministry efforts to slow currency adjustments," he said.
   
The euro was last up 0.8% at $1.2848. Against the yen, the dollar fell 0.3% to 112.24. The British pound was fetching $1.8766, up from $1.8601. The dollar changed hands at 1.213 Swiss francs versus 1.225 francs.
   
At 10 a.m. the Conference Board will release its consumer confidence report for May. The MarketWatch forecast, based on a poll of economists, is for a decline to 100.7 from 109.6 in April. Higher gas prices and a weakening house market in some parts of the country may have dented the optimism of consumers.
   
Market participants are also awaiting the release of the latest Federal Open Market Committee meeting minutes on Wednesday for clues about the Fed's likely monetary policy move at the June 28-29 meeting. The Federal Reserve has
increased interest rates at 16 consecutive meetings since June 2004, pushing the federal funds rate to 5%.
   
The dollar has been under pressure in 2006. With expectations that the Federal Reserve's rate-tightening campaign is coming to a close, attention has been drawn back to the U.S.' twin deficits.
   
The dollar started the year at 117.57 yen, and the euro was at $1.1831.
   
In European trading, the euro was supported by data that showed eurozone monetary supply accelerated to 8.8% on a year-over-year basis in April from a revised 8.5% in March. Economists had been expecting a reading of 8.5%.
   
"That is the fastest pace recorded in nearly three years," said Marc Chandler, senior currency strategist at Brown Brothers Harriman, in a note. "We expect a 25 basis points hike in June but we don't expect the ECB to wait until the fall to hike a second time; we expect a second 25 basis point hike in the summer."

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The European Markets at 12.00 BST

London -  The FTSE 100 remained sharply lower midday on the back a weaker US dollar which hit UK firms with US earnings, while the threat of rising interest rates continued to unnerved investors helping to offset upbeat results from Vodafone and news of an increased bid for BAA, dealers said.
   
By 11.55 am, the FTSE 100 index was down 68.6 points at 5,722.4, but off a morning low of 5,700.1, while the midcap index dropped 186.5 points to 9,321.5, giving up some of last week's strong bounce-back.

Frankfurt - Shares were sharply lower in midday trade, continuing to pull back from solid gains at the end of last week, as US stock futures pointed to losses on Wall Street this afternoon, oil prices rose and the euro strengthened against the US dollar, dealers said.
   
At 11.34 am, the DAX 30 index was 68.92 points or 1.20 pct lower at 5,686.10, having moved between 5,667.95 and 5,758.82 so far this session.

Paris - Shares were down across the board at midday as cautious investors consolidated their positions ahead of the reopening of Wall Street and the release of the US household confidence index this afternoon and key European data tomorrow, dealers said.
   
At 12.38 pm, the CAC-40 index was down 57.19 points or 1.14 pct at 4,958.18 on volume of 2.08 bln eur.
  
Amsterdam - Share prices were lower in early afternoon trade, in line with losses on other European markets amid ongoing interest rate concerns, dealers said.
   
At 1.00 pm, the AEX index was down 4.86 points or 1.1 pct at 440.93 after opening near its intraday highs at 446.12.

Madrid - Share prices were lower in cautious midday trade, tracking losses on other European markets and in the US futures ahead of key US May consumer confidence figures, dealers said.
   
At 12.36 pm, the IBEX-35 index was down 22.2 points at 11,392.6, after trading in a range of 11,369-11,410, on turnover of 1.1 bln eur.

Milan - Milan shares were lower at midday, with weakness in the dollar and rising oil prices weighting on investors' sentiment, dealers said.
   
At 12.29 pm, the Mibtel index fell 0.91 pct to 27,787 points and the S&P/Mib was off 0.82 pct at 36,292, while volumes stood at 2.6 bln eur.

Stockholm - Shares were firmly lower in midday trade pressured by indications of a weak start on Wall Street after yesterday's US public holiday, brokers said.
   
At 12.10 pm, the OMX Stockholm index was down 1.00 pct at 310.01 and the OMX Stockholm 30 down 1.52 pct at 958.01. Turnover was 9.627 bln skr.

Helsinki - Helsinki share prices were off in quiet midday trade, led by Nokia, with investors awaiting their cue from Wall Street this afternoon, dealers said.
   
At 11.46 am, the OMX Helsinki 25 was 0.78 pct lower at 2,473.06 and the OMX Helsinki was down 0.74 pct at 8,838.60. Turnover was 157 mln eur.

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Asian shares close mostly lower ahead of holidays, US data release

HONG KONG - Share prices in the Asia Pacific region closed mostly lower with Tokyo shares down on worries about foreigners quitting the Japanese share market.
   
Tokyo dealers said the market remained hostage to concerns about a massive shift of funds by foreign investors away from emerging markets, Asian markets, including Japan, and commodity markets because of the possible adverse effects of rising US interest rates on the global economy.
   
Dealers said local investors were unwilling to build new positions because US markets were closed yesterday for a public holiday and they wanted to see if the rebound on Wall Street will be sustained when trading resumes.
   
But the Tokyo market showed relatively firm resistance on the downside, due to bargain-hunting and the absence of new selling leads, they added.
   
The blue-chip Nikkei 225 Stock Average closed down 56.23 points or 0.3 pct at 15,859.45, off a low of 15,814.83.
   
The TOPIX index of all first-section issues fell 3.41 points or 0.2 pct to 1,612.76.
   
Retela Clea Securities strategist Yoku Ihara said foreign investors had been the main drivers of the bull run and their recent selling sparked fears the market had lost a key growth engine.
   
"We can probably no longer expect foreign investors to return as active net buyers of Japanese shares, as they have been in the past six months or so. If so, the Japanese equity market is most likely to drift sideways in a relatively narrow trading range going forward," he said.
   
Australian shares ended slightly lower as the holidays in the US and UK provided little direction for investors, who maintain a measure of caution following the large sell-offs over recent weeks, dealers said.
   
The S&P/ASX 200 eased 4.1 or 0.08 pct to close at 5,105.4.
   
The market was waiting on official confirmation of reports that China's steel industry has accepted a 19 pct price rise for iron ore, which dealers said should be positive for major producers BHP Billiton and Rio Tinto.
   
Hong Kong shares were trading lower ahead of a holiday tomorrow and the listing of the Bank of China on Thursday.
   
Some investors locked in profits ahead of the holiday, dealers said.
   
At 3.30 pm the Hang Seng Index was at 15,937.51, down 26.26, or 0.16 pct from its close of 15,963.77.
   
Dealers said the market was cautious ahead of the release of economic data in the US which will again bring interest rates into focus.
   
The US will tomorrow night release the minutes of the May 10 meeting of the US Federal Reserve's policy-setting body, while the May non-farm payrolls data will be announced on Friday.
   
In mainland China shares bucked the regional trend, ending the day higher as non-ferrous metal stocks rebounded and consumer goods remained in favor, dealers said.
   
The Shanghai A-share Index gained 9.10 points, or 0.53 pct, to 1,741.04 and the Shenzhen A-share Index was up 5.32 points at 435.38.
   
Korean shares finished lower ahead of local elections tomorrow, with retail and institutional investors seeking opportunities to unload stock after a two-day rebound, dealers said.
   
The KOSPI index closed down 11.52 points or 0.87 pct at 1,317.70, off a high of 1,330.60 and a low of 1,311.30.
   
The market will be closed tomorrow for elections to select city mayors and provincial governors, with many political experts projecting a landslide victory for the major opposition party, dealers said.
   
They also noted that the minutes of the US FOMC May meeting to be released tomorrow weighed on sentiment.
   
Markets in Taiwan will also be closed tomorrow for holidays.

Asian Bourse Round-Up

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Gold futures rise more than $5 in morning dealings

SAN FRANCISCO - June gold climbed $5.70 to $656.70 and August gold tacked on $5.30 to stand at $662.70 an ounce Tuesday morning. "The terminally ill U.S. dollar is heading in its only long-term path -- south," said Peter Grandich, editor of the Grandich Letter.

"This in turn should be most beneficial to gold's long-term path -- up." July silver was also climbed 44 cents to $13.17 an ounce, but July copper fell 4.5 cents, or 1.2%, to $3.77 a pound.

The benchmark 10-year Treasury note last was 4/32 lower at 100-15/32 with a yield of 5.064% after Chicago Federal Reserve President Michael Moskow told financial television channel CNBC that inflation is at the upper end of the range of stability, which is about 2%.
   
Crude futures were higher as traders looked ahead to a meeting of the Organization of Petroleum Exporting Countries in Caracas this week. The meeting may produce news about changes in production quotas. The front-month contract last was up $1.02 at $72.39 a barrel.

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