US & World Daily Markets Financial Briefing 02-04-2007

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Wall Street up ahead of economic data

NEW YORK - Wall Street rose cautiously in early trading Monday amid a batch of takeover deals, and as investors speculated that manufacturing data will suggest slightly slower growth in the sector.
   
Investors were encouraged after a number of big acquisitions were announced before the market opened. Among them was private equity firm Kohlberg Kravis Roberts & Co.'s deal to take credit card transaction processor First Data Corp. private for about $29 billion.
   
Further direction about the economy could come with the 10 a.m. EDT release of the Institute for Supply Management's March index of the nation's manufacturing activity. The market is expecting a reading of 51.0, down from 52.3 in February but still indicating growth in the sector. A lower figure could cause a sell-off, especially given that last week's Chicago regional manufacturing index came in strong.
   
Wall Street has traded nervously the past few weeks on concerns about rising inflation and the dollar's weakness. On Friday, the major indexes finished the first quarter lower -- with the Dow Jones industrials down 108 points in their feeblest performance since the second quarter of 2005   

In the first hour of trading, the Dow rose 31.77, or 0.26 percent, to 12,386.77.
   
Broader stock indicators were also higher. The Standard & Poor's 500 index was up 2.43, or 0.17 percent, at 1,423.29, and the Nasdaq composite index rose 3.39, or 0.14 percent, to 2,425.03.
   
Bonds were mostly unchanged, with the yield on the benchmark 10-year Treasury note down to 4.64 percent from 4.63 percent late Friday. The dollar was mixed against other major currencies, while gold prices fell.
   
Oil prices retreated after last week's run as traders followed tensions between Iran and Britain. A barrel of light sweet crude fell 11 cents to $65.76 in premarket trading on the New York Mercantile Exchange.

The Russell 2000 index of smaller companies was up 1.66, or 0.21 percent, at 802.37. Overseas, Britain's FTSE 100 was up 0.27 percent, Germany's DAX index rose 0.32 percent, and France's CAC-40 was added 0.04 percent.

Stocks in focus
   
First Data spiked $5.90, or 22 percent, to $32.80 after it agreed to be bought by KKR. This is one of the highest private equity deals of the year, coming in second only to KKR's deal to buy energy company TXU Corp. for $31.8 billion.
   
Xerox Corp. announced a deal to acquire Global Imaging Systems for $1.5 billion. Xerox rose 14 cents to $17.03.
   
Web search company Google Inc. is said to be interested in buying advertising placement firm DoubleClick in a deal worth about $2 billion, according to The Wall Street Journal. Microsoft Corp. was also reported to be interested in buying the company. Google fell $1.66 to $456.50.
   
In other corporate news, Starwood Hotels & Resorts Worldwide Inc. rose $1.71, or 2.6 percent, to $66.56. It announced that Steven J. Heyer has resigned as chief executive and a director after the company's board lost confidence in his leadership. The company also reaffirmed its first-quarter and full-year guidance.

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Australian dollar at 10-year highs as RBA rate hike expectations rise

LONDON - The Australian dollar was at 10-year highs against the dollar at midday after buoyant consumption and housing data raised expectations that the Reserve Bank of Australia may raise borrowing costs tomorrow.
   
Most RBA watchers think the central bank will decide to keep its key cash rate unchanged at 6.25 pct but stressed that today's news that retail sales rose a seasonally adjusted 0.9 pct in February from January and building approvals surged a monthly 10.6 pct have made it a much closer call.
   
"For choice the RBA will most likely prefer to wait until they have seen the first quarter CPI data released later this month, although a number of indicators suggest that the policy tightening pursued thus far has not had major impact, so a further immediate rate hike could easily be rationalised," said Ian Gunner, head of research at Mellon Foreign Exchange.    
   
Elsewhere the pound was higher at midday after a weaker-than expected manufacturing purchasing managers index was offset by strong mortgage equity withdrawal figures. The data maintained expectations the Bank of England will raise interest rates to 5.25 pct at its meeting in May or possibly as soon as this week when it meets on Thursday.
   
The Chartered Institute of Purchasing and Supply's purchasing managers index fell to 54.4 in March from 55.4 in February, analysts polled by AFX News had predicted a much more moderate fall to 55.0.
   
"On the PMI, it appears that there was some payback after very strong February figures - the headline PMI had been at its highest level since May 2004," said Alan Castle, UK economist at Lehman Brothers.
   
However, Bank of England figures showed mortgage equity withdrawal (MEW) in the UK rose to 14.6 bln stg in the fourth quarter of 2006 from 12.2 bln stg in the third quarter.
   
"At a time when policymakers are looking for signs that monetary tightening is biting on the consumer sector, today's figures could persuade some MPC members that spending growth can be maintained even after another rate hike," Castle added.
   
Meanwhile the euro was steady despite a slip in the euro zone's manufacturing purchasing managers index in March to a 13-month low of 55.4 in March from 55.6 in February.
   
Analysts said the sector is still growing solidly, remaining well above the 50 dividing line between expansion and contraction, and is unlikely to diminish expectations for the European Central Bank to rise its key refi rate a further quarter point to 4.00 pct later this year. 
   
The dollar meanwhile was steady ahead of the US March manufacturing index from the Institute of Supply management. Analysts polled by AFX News expect the headline figure to fall to 51.7 from February's rise to 52.3.

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Top Stories in Europe at 12.05 GMT

London - First Data Corp has confirmed it is to be acquired by private equity firm Kohlberg Kravis Roberts & Co. (KKR) in a transaction with a total value of approximately 29 bln usd.
 
In a statement, First Data said its shareholders will receive 34 usd in cash for each First Data common stock held. The company said this represents a premium of around 26 pct over First Data's closing share price of 26.90 usd on March 30.

Paris - Air France-KLM will announce next month plans to integrate in a single structure most operations of sister companies Air France and KLM, La Tribune reported, citing unnamed sources. The group is notably to combine Air France and KLM's separate organisations for buying, fleet management, flight programming and international ticket sales, the newspaper said.

Milan - Pirelli & C SpA said it is in exclusive talks to sell two thirds of its controlling shareholding in Telecom Italia SpA to AT&T and Mexican mobile phone operator America Movil. The Pirelli stake is held via its Olimpia unit, which controls Telecom Italia SpA via an 18 pct holding.

Frankfurt - Auto parts maker Robert Bosch GmbH has agreed to guarantee its 2,500 workers in Anspach, Germany, employment until 2015, after union IG Metall accepted a move towards more flexible working hours, Sueddeutsche Zeitung reported, citing works council head Walter Maier.
 
The company, which had previously considered relocating the plant to Eastern Europe, will profit from a decline in labour costs, said IG Metall representative Thomas Haendel.

Madrid - US capital risk firm Blackstone is looking to make several acquisitions in Spain of between 1.0-1.5 bln eur "as soon as possible," Expansion reported, citing an unnamed, high-level executive of the firm. According to the newspaper, Blackstone is most interested in the property, telecommunications, and distribution sectors.

Amsterdam - The planned merger of Dutch energy companies Nuon and Essent, announced earlier this year, is coming under from the Dutch consumer organisation Consumentenbond, Dutch teletext and the Gelderlander reported. The paper cited a letter from the Consumentenbond's exiting director Klaske de Jonge, sent to Dutch minister of economic affairs Maria van der Hoeven.

Frankfurt - Hornbach Holding AG aims to double annual sales to 5 bln eur by 2016, helped by about seven new stores a year and further expansion outside the company's German home market, chief executive officer Albrecht Hornbach told Frankfurter Allgemeine Zeitung in an interview.
 
The home improvement store operator is planning market entry in Romania this year to add to its outlets in countries including the Netherlands, Czech Republic and Sweden, the newspaper said.

Brussels - Belgian chemicals and pharmaceuticals Solvay SA said it has acquired -- through its Pipelife joint venture with Wienerberger AG -- Ireland's Quality Plastics. The value of the transaction was not disclosed.

Zurich - SWX Swiss Exchange said it will introduce a new capped index as of July 2, 2007, named Swiss Leader Index (SLI), containing the Swiss equity market's thirty largest stocks. The largest of these stocks will be given a maximum weighting of 9 pct and the rest limited to up to 4.5 pct, it said.

Roche Holding AG announced it has acquired Therapeutic Human Polyclonals Inc (THP), a privately-owned biotechnology company based in California and Germany, for 56.5 mln usd in cash.
 
The company, which is focusing on antibody research, will be integrated into Roche's pharma centre of excellence for protein research in Penzberg, Germany, the Basel-based drugs maker said.

Lisbon - The spin-off of Portugal Telecom SGPS cable and media unit's PT Multimedia SGPS is estimated by PT to take between eight and 12 weeks, Diario de Noticias reported citing documents sent to the Portuguese competition authority by the telecom group. In the documents, PT said that PTM's spin-off would take less time and be less expensive than selling PT's copper network, the paper said. However, PT didn't reveal the cost of the spin-off, the paper added.

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Asian shares close mixed, Seoul up on free trade agreement with US

HONG KONG - Shares across the Asia-Pacific region closed mixed, with Tokyo dropping on uncertainty over the economic outlook but the Seoul market rising on agreement of a free trade pact between South Korea and the US.
   
Tokyo shares closed lower, shedding their early gains after selling dominated thin trading on lingering uncertainty about the outlook for the US economy and stock markets.
   
The blue-chip Nikkei 225 Stock Average closed 259.24 points or 1.5 pct lower at 17,028.41, just off a low of 16,999.05. The TOPIX index of all first-section issues closed 31.12 points or 1.82 pct lower at 1,682.49, its low for the day.
   
The results of the Bank of Japan's latest Tankan survey of business sentiment, released before the opening bell, failed to give new leads. The Tankan survey's diffusion index of confidence among large manufacturers slipped to plus 23 in March from plus 25 in December, slightly short of the average forecast made by economists of plus 24. The index declined for the first time in four quarters.
   
Goldman Sachs economist Tetsufumi Yamakawa said the deterioration in large manufacturers' confidence was inevitable but minor, and he expected the deterioration in economic indicators to be short-lived.
      
Australian shares ended sharply lower as investor sentiment fell on concerns the Reserve Bank of Australia will raise interest rates by 25 basis points on Wednesday, heightened by stronger-than-expected economic indicators released today.
   
The Australian Bureau of Statistics data showed building approvals in February surged an adjusted 10.6 pct from January and were up 10 pct year-on-year, while retail sales for the same month rose 0.9 pct from January to 18.795 bln aud.
   
Both data sets were well above the market consensus forecasts. The S&P/ASX 200 closed down 79.2 points or 1.32 pct at the day's low of 5,915.8.
   
Hong Kong shares were weaker in afternoon trade, reversing morning rises on fresh fund inflows. At 3.35 pm the Hang Seng Index was down 22.59 points or 0.11 pct at 19,778.34.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on continued institutional interest with financial stocks and steelmakers in demand. The Shanghai A-share Index was up 72.38 points or 2.16 pct to 3,418.73 and the Shenzhen A-share Index was up 20.10 points or 2.33 pct at 881.88, a fresh record.
   
Seoul shares closed higher as investors hailed the free trade accord between South Korea and the US, which, if ratified, will boost the two nations' exports by billions of dollars and revive the slowing local economy.
   
The KOSPI index closed up 6.98 points or 0.48 pct at 1,459.53, off a high of 1,464.98, which was not far from the historic high of 1,471.04 seen last February. The day's low was 1,456.06.
   
Auto and textile-related stocks, major beneficiaries of the bilateral deal, led the advance.

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Gold drops as traders wait for evidence of worsening Iran tensions; copper lower

LONDON - Gold fell below 660 usd an ounce as market participants held off on safe haven buying, waiting for concrete evidence that the standoff between Iran and Britain has escalated.
   
"Once again gold appears to need solid proof that the situation in Iran is more than just dramatic television material and that there is a valid reason to move to higher ground in values," said Kitco analyst Jon Nadler.
   
At 10.41 am, spot gold was quoted at 658.60 usd an ounce, down from the 664.20 usd level seen in late New York trades Friday.
   
Last week, gold posted a gain of 6.20 usd on the week as the standoff between Iran and Britain over the capture of 15 British seamen sparked safe haven buying and boosted oil prices.
   
Iran said earlier all 15 British sailors it detained last month had confessed to illegally entering its waters, and broadcast new pictures of the servicemen apparently admitting to their error.
   
However, the Islamic Republic later reportedly said it had seen "positive changes" in Britain's negotiating stance, giving market participants hope that the standoff will be resolved.
   
The Iran standoff aside, Nadler said the markets are also awaiting US manufacturing data from the Institute of Supply Management, scheduled for release at 3.00 pm, for further clues on price direction.
   
"The ISM data should impact the dollar. If its a weak report the dollar should decline a bit, which could help gold, but at the moment its pointing to 655 usd and we would really need to overcome 670-672 usd ... to really get going."
   
A weaker dollar boosts gold because the metal is seen as an alternative asset to the US currency. High oil prices also boost bullion, as they increase its appeal as a hedge against inflation.
    
In other metals, silver was down at 13.00 usd an ounce against 13.41 usd, platinum was down at 1,233 usd against 1,245 usd while palladium was down at 346 usd against 354 usd.

Copper prices edged lower this morning on profit-taking and as a dearth of positive news from last week's annual CRU World Copper Conference in Chile weighed on sentiment, analysts said.
   
Nickel prices meanwhile were higher, buoyed by expectations of supply disruptions connected to a strike at CVRD Inco Ltd's mining and smelting operations in Sudbury, Canada.
   
At 1.22 pm, LME copper for three-month delivery edged down to 6,850 usd a tonne against 6,860 usd at the close Friday, as investors cashed in after last week's gains in the metal.
   
Disappointment that last week's copper conference in Santiago failed to deliver more positive impetus to the market also weighed on sentiment, analysts said.
   
The overall message from the conference was neutral, with participants expecting fewer project stoppages this year, but also expecting a robust level of demand.
    
Nickel was up at 45,725 usd a tonne against 44,800 usd at the close Friday, on news of a 330-worker strike at CVRD's Sudbury mining and smelting plant in Canada, which could potentially cut production by up to a quarter.
   
Brazil-based CVRD, which took over Canadian nickel producer Inco Ltd earlier this year in a 16.8 bln usd deal, is now one of the world's largest nickel miners.
   
In other metals, tin was down at 13,600 usd a tonne against 13,400 usd, aluminium dropped to 2,751 usd against 2,780 while zinc fell to 3,212 usd from 3,255 usd. Lead was up at 1,930 usd against 1,920 usd.

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