US & World Daily Markets Financial Briefing 31-10-2007

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Stocks rise after GDP reading

NEW YORK - Stocks rose Wednesday as investors awaited the results of the Federal Reserve's two-day meeting on interest rates and cheered a better than expected reading on third-quarter growth.
   
The Commerce Department on Wednesday said the country's gross domestic product grew 3.9 percent in the third quarter, a faster pace than the 3 percent growth economists had forecast, on average. The report may have calmed some investor concerns about the economy's health ahead of the Fed's rate decision.
   
In another economic reading, construction spending had its best showing in four months.
   
Wall Street widely expects the Fed to cut its benchmark federal funds rate by a quarter point. Although oil is hovering near an all-time high, and inflation remains a concern, the central bank has indicated that tighter credit conditions and a housing slump pose a threat to economic growth. The Fed could lower rates to stimulate business activity amid the turmoil.
   
Last month, the Fed surprised the market with a larger-than-expected half-point cut in the funds rate. The funds rate currently stands at 4.75 percent.
   
In midmorning trading, the Dow Jones industrial average rose 44.79, or 0.32 percent, to 13,837.26. Broader stock indicators also rose. The Standard & Poor's 500 index rose 7.40, or 0.48 percent, to 1,538.42, and the Nasdaq composite index rose 11.75, or 0.42 percent, to 2,828.46.
   
Treasury bond prices fell after the economic readings and ahead of the Fed decision. The yield on the 10-year Treasury note, which moves inversely to its price, rose to 4.41 percent from 4.38 percent late Tuesday.
   
Investors are also watching economic data as they try to make last-minute predictions on the Fed's next move. A Commerce Department report showed construction spending increased 0.3 percent in September. Spending on commercial construction and for government projects made up for weakness in home building.
   
The Chicago purchasing managers index of manufacturing activity in the Midwest showed a decline, falling to 49.7 for October from 54.2 a month earlier. A reading below 50 signals a contraction in activity. The index is seen as a harbinger of the national Institute for Supply Management report, to be released Thursday.
   
Beyond economic indications, third-quarter earnings are still flowing in.
   
Packaged foods company Kraft Foods Inc. rose 65 cents to $33.25 after reporting its profit fell 20 percent in the third quarter due to a gain in the prior quarter and higher dairy costs.
   
Auto parts maker Visteon Corp. narrowed its loss in the third quarter as cost-cutting tied to its restructuring effort helped offset lower revenue. Visteon rose 39 cents, or 4.1 percent, to $6.25.
   
Beyond earnings news, shares of Google Inc. crossed $700 for the first time Wednesday as investors grew optimistic that the Internet search leader will continue to boost profits as it pushes into new markets. Google shares, which recently rose $8.85 to $703.62, took less than a month to jump from $600 to $700.
   
In commodities, oil prices edged up 98 cents to $91.36 a barrel on the New York Mercantile Exchange, while gold prices rose. The dollar was mixed against other major currencies.
   
Advancing issues outnumbered decliners by about 9 to 5 on the New York Stock Exchange, where volume came to 166.3 million shares.
   
The Russell 2000 index of smaller companies rose 1.58, or 0.19 percent, to 817.73. Britain's FTSE 100 rose 0.19 percent, Germany's DAX index added 0.13, and France's CAC-40 gained 0.46 percent.

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Dollar firms on strong Q3 GDP figures

LONDON - The dollar firmed slightly following the release of robust third quarter GDP figures. The US economy grew 3.9 pct year-on-year during the third quarter, above expectations for growth of 3.0 pct.
  
Gavin Friend, currency strategist at Commerzbank, said the dollar is unlikely to rally much further as markets are all waiting for tonight's Federal Reserve interest rate decision.
   
The Fed is widely expected to to cut interest rates a quarter point to 4.50 pct. However Friend said that while the firm GDP numbers are unlikely to dent the chances of this happening, they could change the tone of the FOMC's accompanying statement.
   
"The risk is the Fed could use these figures as a basis in their statement to force the market to reassess their expectations that there will be several more rate cuts," he said.
   
Meanwhile the euro received an earlier boost from stronger than expected inflation figures, which underlined the European Central Bank's monetary policy dilemma.
   
The euro zone harmonised index of consumer prices rose a provisional 2.6 pct in October from a year earlier, well above the yearly rise of 2.1 pct seen in September, and forecasts for a smaller rise of 2.4 pct.
      
Elsewhere sterling was off earlier highs following a much stronger-than-expected house price survey.
   
Nationwide, the UK's largest building society, reported house prices rose 1.1 pct in October from September for a year-on-year rise of 9.7 pct. These figures show a pick-up in price growth from September - when prices rose 0.7 pct and 9.0 pct respectively - and go against the grain of other recent housing indicators which point to a slowdown in the housing market.
   
Sterling moved sharply higher on the figures release as they indicated the Bank of England is unlikely to cut interest rates when it meets next week.
   
Finally the yen continued to slide, following the Bank of Japan's decision to leave interest rates unchanged and revise down its growth forecasts. In its semi-annual report the BoJ lowered its projection of real gross domestic product growth for the fiscal year to March 2008 to 1.8 pct from 2.1 pct.
   
Analysts said this gloomier outlook, alongside investors' appetite for the carry trade - where low yielding currencies such as the yen are sold to invest in high yielding ones elsewhere - means the yen is likely to stay on the backfoot. 
   

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Euroshares higher midday; earnings and M&A news bolster indices

LONDON - Europe's leading exchanges gained ground midday, boosted largely by individual stocks, as investors trade cautiously ahead of today's US Federal Reserve rate decision.
   
At 12.13 pm, the Dow Jones STOXX 50 added 13.11 points or 0.34 pct to 3,865.42 as the STOXX 600 gained 1.50 points or 0.39 pct to 386.40.
         
In corporate news, individual stocks trumped Europe's indices, with blue chips such as Deutsche Bank, up 4.44 pct, pulling their peers higher. The financial institution released consensus-beating results, which were less heavily impaired by the turbulence on global credit markets than had been feared. Deutsche Bank chief executive Josef Ackermann also confirmed the group  is not interested in acquiring IKB Deutsche Industriebank AG.
   
Also in earnings news, Sanofi-Aventis rose 2.19 pct after the pharmaceuticals group beat market expectations with strong third-quarter earnings this morning and an increase in full-year earnings per share guidance.
   
Shares in Man AG climbed 3.85 pct after the group raised its forecasts for the full year and published strong third-quarter figures.
   
In M&A chatter, a battle over satellite navigation company Tele Atlas looms after Garmin made an indicative 24.5 eur per share cash offer for Tele Atlas NV, which soared 16.97 pct to 28.08 eur. TomTom, which has made 21.25 eur per share for Tele Atlas, tumbled 17.20 pct.
   
Elsewhere, shares in Premier Oil rose 5.57 pct amid market rumours it was the subject of takeover. Eni, Australia's Santos and Royal Dutch Shell are all mentioned as potential suitors.
   
In Milan, shares in Tiscali SpA rose 2.61 pct, on revived speculation it could be an interesting target for international operators who wish to expand on the Italian broadband market. Earlier this month Tiscali lost out to Vodafone in the purchase of Tele2 Italia.
   
In other corporate news, Norwegian paper producer Norske Skogsindustri rose 5.44, on renewed market speculation that it would soon benefit from industry-wide attempts to trim production overcapacity which would help paper prices. "There's been speculation in the Norwegian language press today that competitor UPM-Kymmene is considering further capacity cuts," said one analyst.
   
Brisa Auto-Estradas de Portugal SA added 1.76 pct after reports that a consortium it is leading, has won the public tender for the Douro Litoral highway concession.
   
Mota Engil SGPS, which was also bidding for the project, underperformed on reports it lost the concession.
  
Diario Economico reported that Brisa has won the public tender to design, build, explore and maintain the Douro Litoral concession in northern Portugal. Total investment for the project will be 872 mln eur, of which 208 mln eur will go to state coffers, according to the paper.

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Asian markets flat as investors await Fed move; China, Korea outperform

SINGAPORE - Stock markets across Asia ended mixed Wednesday, with benchmarks in Australia, Singapore, Thailand, Philippines and Hong Kong little changed as investors marked time ahead of a US Federal Reserve decision on interest rates.
   
China and South Korea outperformed as investors continued to bet on their strong economies. "Most markets expect the Fed to cut its benchmark interest rates, but until it becomes official markets will continue to trade cautiously," said Francisco Liboro, president of PCCI Securities in Manila.
   
In Sydney, the S&P/ASX 200 closed up just 0.1 pct at 6,754.1, while the All Ordinaries was up 0.1 pct at 6,779.1. Bank stocks were key gainers following better-than-expected earnings from Australia's fifth-largest bank, St George.
       
The Singapore Straits Times closed up 0.2 pct at 3,805.706, while the Philippines Composite lost 0.7 pct at 3,758.97, and Taiwan's weighted index closed down 0.5 pct at 9,711.37. The Jakarta index fell 0.7 pct to 2,643.49.
   
Hong Kong's Hang Seng fell 0.9 pct at 31,352.58, pulling back from a record close Tuesday, its ninth record finish in October.
   
The Shanghai Composite fared better, adding 1 pct at 5,954.77. Traders said the market was enjoying a liquidity boost as hundreds of mlns of yuan that were locked up by the initial public offering of Petrochina were returned to investors who failed to win a share allocation.
   
The Korean Kospi closed 0.6 pct at a record 2,064.85 after a choppy session as hopes for a US rate cut eclipsed worries about high oil prices and a strengthening of the local currency, the won. The won rose past 900 to a 10-year high against the dollar, raising worries about export earnings.
   
In Mumbai, the Sensex was last up 0.29 pct, or 57.28 points, at 19,840.79 amid an extremely choppy trading session.
   
In Tokyo, the Nikkei 225 closed up 0.5 pct at 16,737.63 and the Topix rose 0.8 pct to 1,620.07, reversing early losses in the afternoon session. As expected, the Bank of Japan decided to keep its key rate unchanged at 0.5 pct following a meeting by its nine-member policy board.
   
Investors snapped up shares of Denso Corp after the auto parts maker reported upbeat earnings and the  "gains spread to other exporters such as automakers," said Kazuhiro Takahashi, equity general manager at Daiwa Securities SMBC.
   
Denso closed up 7.9 pct at 4,650 yen after it said its first-half net profit rose 25.7 pct, thanks to increased sales and a weaker yen which lifted overseas earnings.
   
The Kuala Lumpur Composite Index rose 0.1 pct to 1,413.65, after downbeat comments from Citigroup.

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Gold gains on weaker dollar ahead of FOMC decision

LONDON - Gold gained in midday trade as the dollar continued to languish after plumbing fresh depths against the euro earlier, enhancing the precious metal's attractiveness as an alternative investment.
   
But gains were tempered by uncertainty ahead of the Federal Open Market Committee's decision on interest rates due later today, which will set the future direction of the currency markets.
   
"The focus today is clearly on the FOMC meeting, and a 25 basis point rate cut would probably be negative for the US dollar and thus positive for gold," said Dresdner Kleinwort consultant Peter Fertig.
   
"However, the market reaction will also depend on the statement accompanying the rate decision," he added.
   
At 12.53 pm, spot gold was trading at 784.50 usd an ounce against 781.55 usd in late New York trade yesterday.
   
A quarter-point cut in interest rates has already been largely factored into prices, with traders expecting the dollar to weaken further from its present historic lows against both the euro and sterling.
   
Such a move could send the precious metal past the historic high of 793.98 usd it hit on Monday, and could push prices to the psychologically key 800 usd an ounce level.
   
Silver meanwhile was trading at 14.28 usd against 14.21 usd in New York yesterday.
   
Among other precious metals, platinum was down a touch at 1,436 usd against 1,440 usd. JP Morgan analyst Michael Jansen said during a conference call yesterday that he expects platinum to trade to new record highs in the next six months, buoyed by a weaker dollar and stronger demand.
   
Meanwhile palladium fell to 366 usd from 369 usd.

Copper reversed earlier losses amid nervous trading conditions ahead of a key US interest rate decision this evening, which is widely expected to reveal a cut.  Trade was thin and volatile and while some metals followed copper's example and rose, analysts said the move was not necessarily sustainable.
       
At 1.46 pm, LME copper for three-month delivery was up at 7,785 from 7,760 at the close yesterday. Rising stocks, with LME monitored inventory at a six month high, capped the red metal's gains.
   
Copper stocks rose 6,225 tonnes to 166,975 tonnes or 3.8 pct, said the LME in a daily report. US GDP data released earlier this afternoon gave copper a little boost, as the numbers came in better-than-expected and eased some fears of a US recession.
       
Elsewhere, zinc fell to 2,830 usd per tonne from 2,840 usd at the close yesterday. Rising stocks were the main driver after the LME said inventories rose 5,200 tonnes to 71,725 tonnes in its daily report.
   
Sentiment towards zinc remains weak with healthy supplies. Triland analyst Michael Khosrowpour said a break above 3,000 usd per tonne is "needed to rescue price from further losses."
   
In other base metals, nickel was lower at 31,425 from 31,500 usd per tonne yesterday, aluminium was up at 2,535 usd from 2,521 usd, tin was steady at 16,750 from 16,650 while lead rose to 3,665 from 3,583 usd per tonne at yesterday's close.

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