US & World Daily Markets Financial Briefing 06-02-2007

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Stocks edge higher as oil rallies

Wall Street edged higher Tuesday as oil prices rallied amid a blast of arctic weather in the Northeast, prompting investors to buy up shares in oil and gasoline producers.

Exxon Mobil Corp. was among the top performers in the Dow Jones industrials.

Chevron Corp. and Anadarko Petroleum Corp. also advanced; Anadarko reported before the market opened that fourth-quarter profit more than doubled.

Oil prices rose on expectations heating fuel demand will surge if the cold snap lingered in the Northeast and Midwest. A barrel of light sweet crude rose 84 cents to $59.58 in premarket trading on the New York Mercantile Exchange.

However, investors were somewhat hesitant to make major commitments before comments later in the day from Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson. Regional Fed presidents Michael Moskow and Janet Yellen were also scheduled to speak Tuesday.

With fourth-quarter earnings reports winding down, Wall Street is looking for signs about how fast the economy is growing. Central bankers left rates unchanged last week, and the market is now trying to gauge what the Fed's next move might be.

In the first hour of trading, the Dow rose 11.30, or 0.09 percent, to 12,673.04.

Broader stock indicators were also moved higher. The Standard & Poor's 500 index rose 2.85, or 0.20 percent, at 1,449.84, and the Nasdaq composite index added 5.96, or 0.24 percent, to 2,476.56.

Bonds fell, with the yield on the benchmark 10-year Treasury note rose to 4.82 percent from 4.81 percent late Monday. The dollar was mixed against other major currencies, while gold prices advanced.

The increase in crude prices to more than $60 per barrel helped oil companies lead a wide advance. Exxon Mobil rose 28 cents to $75.96, while Chevron added 42 cents to $74.20.

Anadarko rose 65 cents to $43.60 after it reported fourth-quarter profit surpassed Wall Street projections, boosted by the sale of its Canadian subsidiary.

However, BP PLC fell 78 cents to $63.01 after Britain's largest oil refiner reported profit slipped 22 percent. The company said results were driven down by the decking price of oil during the quarter.

The Russell 2000 index of smaller companies was up 1.91, or 0.24 percent, 808.60. The index surpassed 800 for the first time last week, and reached an all-time high of 810.49 in the previous session.

Overseas, Japan's Nikkei stock average rose 0.36 percent. In afternoon trading, Britain's FTSE 100 was up 0.60 percent, Germany's DAX index added 0.29 percent, and France's CAC-40 advanced 0.23 percent.

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Source - AFX News/Associated Press

Yen in focus as G7 talk dominates market thinking

The yen remains the focus of the market's attention as investors reckon that Japan will come under pressure to lift interest rates at this weekend's G7 meeting of finance ministers and central bankers in Germany.

Though most analysts doubt that the G7 communique will explicitly highlight the yen's weakness, they think that carry trades will be discussed as finance ministers grow concerned about their sudden liquidation.

The yen's retreat gathered pace after the Bank of Japan's failure to raise interest rates last month and its slide has fuelled talk that weakness in the Japanese currency will be a key focus at the upcoming G7 meeting.

Carry trades, where investors borrow from lower-yielding currencies like the yen to invest in places with higher interest rates, has been an important feature of the currency markets of late.

As they depend on interest rate differentials, even small changes in interest rate expectations will greatly reduce the profits to be had from carry trades.

Vocal complaints coming out of European officials about the yen's recent spate of weakness have made players nervous, leading to a drop in the Kiwi and Australian dollars. If these carry trades are unwound, higher-yielding currencies could be hit hard.

There is growing talk that the tone against China, and its currency policy, will be harsher, even though the yuan's midpoint is at a new post-revaluation high of 7.7595 to the dollar.

Ahead of the G7 though, the markets will have interest rate decisions from the European Central Bank and the Bank of England to digest. Both are expected to keep their benchmark rates unchanged.

There will interest today in what Fed chairman Ben Bernanke and rate-setter Michael Moskow say about the direction of the US economy. In addition, Treasury Secretary Henry Paulson appears before both houses of Congress to talk about the budget.

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Euroshares higher midday as Dow set to gain; financials gain, oils lower

Leading European were higher midday as further gains are expected on Wall St with the financial sector taking centre stage after a bullish update from Aviva and a slew of M&A rumours, dealers said.

At 12.28, the STOXX 50 was up 21.06 points at 3845.36 and the STOXX 600 was 2.07 points at 381.03.

Spread bettors IG Index said the Dow looks set to open 28 points higher, adding to yesterday's gains.

Shares in Aviva gained 1.68 pct after the UK's biggest life insurer posted better-than-expected full-year sales and said it sees further growth in 2007, with WestLB reiterating its 'add' rating.

Belgian-Dutch banking and insurance group Fortis -- up 1.16 pct -- declined to comment on analyst speculation that a merger between itself and ABN Amro -- up 0.57 pct -- is a "plausible scenario".

A Fortis spokeswoman refused to comment on the report.

Shares in Capitalia were 1.53 pct higher early morning on reports that SCH -- up 0.77 pct -- could increase its stake in the bank, which is seen as one of the most likely takeover targets in Italy.

Daily Il Sole 24 Ore said that the Spanish bank holds derivative positions that could enable it to increase its stake in Capitalia to 5 pct. Currently SCH has less than 2 pct of the bank.

And BBVA added 2.26 pct after a bullish comment in the Lex column in the Financial Times suggested the banking group's growth prospects have been underrated.

Roche added 0.95 pct ahead of its earnings update tomorrow and as British officials are proposing to increase the UK's stockpile of the group's antiviral drug Tamiflu, after the country's first significant H5N1-strain outbreak in poultry, the Financial Times reported today.

According to the report, officials want to increase the stockpile by up to six times with additional purchases worth 700 mln eur (1 bln sfr).

Fresenius MC rose 6.43 pct amid hopes the 2008 US budget will include an extension of the Medicare Secondary Payor status -- to increase the time that the private health insurances have to pay dialysis patients to up to 60 months -- which would lift earnings at the German group.

Shares in IT services provider TietoEnator were up 1.06 pct as investors warmed to the IT service group's fourth-quarter report.

Shares in KPN turned 0.28 pct higher by midday, up from earlier lows after the Dutch telecoms group reported a mixed set of fourth-quarter results.

But Cable & Wireless added 1.72 pct after an unsourced report in German business daily Handelsblatt said Deutsche Telekom could be interested in acquiring a number of UK IT services and telecoms companies.

Business Objects was down 0.66 pct ahead of its numbers -- due after the close.

In Europe, shares in BP fell 1.94 pct after the oil & gas major's in-line fourth-quarter numbers as dealers expressed concerns about the underlying performance and outlook.

Profit-taking after Goldman Sachs upgraded the shares to 'buy' yesterday also weighed.

The update weighed on the sector, offsetting bullishness as crude edged even closer to 60 usd per barrel in London trade. Total fell 0.47 pct and ENI slipped back 0.48 pct.

M-Real dropped 5.09 pct after it reported an even larger-than-expected loss for the fourth quarter, as raw material and energy costs weighed.

The company said it generated a quarterly pretax loss of 31 mln eur, compared with a loss of 11 mln eur a year earlier.

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Asian shares close higher on bargain hunting, positive sentiment

Shares across the Asia-Pacific region closed higher on bargain hunting and positive sentiment relating to earnings reports, dealers said

Tokyo shares closed higher, rebounding from yesterday's sharp losses after investors sought bargains, with buying encouraged by the tone of corporate earnings reports, dealers said.

But the gains were capped because investors were waiting for more earnings reports and for the meeting this weekend of G7 finance ministers and central bank governors, dealers said.

The blue-chip Nikkei 225 Stock Average closed 62.06 points or 0.36 pct higher at 17,406.86, off a high of 17,433.27.

The broader TOPIX index of all first-section issues closed 16.14 points or 0.94 pct higher at 1,732.42, off a high of 1,734.10.

Ryuta Otsuka, a strategist at Toyo Securities, said the market's rebound had not been as strong as it could have been because investors were waiting for events such as the G7 meeting and the special quotation for settling futures and options contracts. Some investors remained cautious because the yen's weakness may be discussed at the G7 meeting, he said.

Australian shares closed at new record highs as investors bought blue chip stocks including miners and banks, dealers said.

They said investor sentiment remains strong as the reporting season picks up steam tomorrow.

Dealers said the banking sector was supported by expectations the Reserve Bank of Australia will announce tomorrow that interest rates will remain unchanged at 6.25 pct following today's monthly policy meeting.

The S&P/ASX 200 ended up 48.4 points or 0.83 pct at a record 5,870.5, surpassing Friday's record of 5,831.5. The key index also hit a fresh intra-day record of 5,871.5. The low for the day was 5,828.6.

Hong Kong shares were higher in afternoon trade on a technical rebound led by blue chips and laggard stocks, dealers said.

At 3.25 pm the Hang Seng Index was up 227.51 points or 1.11 pct at 20,683.13.

In mainland China, A-shares in Shanghai and Shenzhen closed higher on bargain-hunting with banks and metal companies in demand, dealers said.

The Shanghai A-share Index was up 65.20 points or 2.38 pct to 2,809.24 and the Shenzhen A-share Index was up 10.77 points or 1.61 pct at 678.61.

Seoul shares closed higher as foreign investors continued to build positions, dealers said.

The market was listless in early trade due to the mixed close on Wall Street overnight and some caution ahead of the expiry of options contracts.

However it rebounded from the early losses to close near its intraday high, and at its strongest level in over a month, on the back of foreign interest with steel makers, builders and lenders posting solid gains.

The KOSPI index closed up 10.63 points or 0.75 pct at 1,428.58, after moving between 1,414.58 and 1,428.91.

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Gold extends gains amid strengthening oil prices

Gold extended yesterday's gains as traders overlooked continued strength in the dollar and took comfort instead from strengthening oil prices.

At 11.01 am, spot gold was quoted at 652.80 usd an ounce, up from the 650.50 usd level seen in late New York trades yesterday.

This is in spite of a relatively firm US dollar, which is reducing the allure of gold as an alternative investment.

Separately, gold is benefiting from heightened geopolitical tensions in the Middle East. Iran is reportedly moving towards industrial-level enrichment of uranium in defiance of UN demands.

Oil edged up as geo-political tensions between the US and Iran stoked supply jitters and as the cold snap in the US continued.

At 9.32 am, front-month Brent North Sea crude contracts for March delivery were up 62 cents at 58.72 usd a barrel, after losing 31 cents to settle at 58.10 usd yesterday.

Meanwhile, front-month New York light sweet crude contracts for March delivery were up 63 cents to 59.38 usd a barrel, after dropping 28 cents to close at 58.74 yesterday.

On Sunday, an Iranian nuclear official confirmed the country would not suspend its uranium enrichment programme -- reigniting fears the country might with-hold oil sales if the US pushes for further sanctions.

Bellew said Iranian tensions are "more serious" than worries that Nigerian oil worker unions may resume a strike.

Further propping up prices is the cold weather in the US Northeast, the world's largest consumer of heating oil.

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