US & World Daily Markets Financial Briefing 09-08-2006

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Wall Street embraces earnings from Cisco

NEW YORK -     Strong earnings from Cisco Systems Inc. and the Walt Disney Co. sent stocks higher in early trading Wednesday and helped investors digest the latest monetary policy statement from the Federal Reserve.

Cisco's year-over-year gains and bullish profit forecast helped Wall Street overcome a recent bias against the tech sector, while investors gained confidence in Disney's new management after the entertainment company's latest results beat analysts' forecasts.

Stocks sold off late Tuesday after the Federal Reserve kept the nation's benchmark rate steady, as Wall Street had hoped, but also said inflation remains a concern. With the Fed reserving the right to raise rates again as it sees fit, the sense of finality investors had hoped for never materialized.

Nonetheless, the pause itself, combined with earnings, was enough to encourage investors to return to the market after fitful, range-bound trading over the last few sessions.

In the first hour of trading, the technology-focused Nasdaq composite index surged 30.07, or 1.46 percent, to 2,090.92.

Other stock indicators also made gains. The Standard & Poor's 500 index rose 9.80, or 0.77 percent, to 1,281.28, and the Dow Jones industrial average added 55.79, or 0.5 percent, to 11,229.38.

Bonds fell in response to the Fed decision, with the yield on the benchmark 10-year Treasury note rising to 4.96 percent from 4.92 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices fell.

Concerns about oil supply shortages stemming from the shutdown of an Alaskan oilfield again plagued the energy market. A barrel of light crude was quoted at $76.52, up 21 cents, in electronic preopening trading on the New York Mercantile Exchange.

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The 22 percent jump in Cisco's second-quarter profits led the maker of computer networking systems to raise its full-year estimates, though at least one analyst warned that tech spending could falter if the economy slows further. But overall, investors were pleased, and Cisco jumped $2.20, or 13 percent, to $19.49.

Disney rose 93 cents to $29.91 after it reported quarterly profits that beat Wall Street forecasts by 9 cents a share. The company saw strength in all of its businesses, particularly its movie studio due to the success of the animated film "Cars" and DVD sales of "The Chronicles of Narnia." Theme park attendance is also rising.

Revenue and profits at Federated Department Stores Inc. doubled from a year ago, and the owner of the Macy's and Bloomingdale's chains raised its full-year earnings forecasts. Federated gained $1.75, or 5.2 percent, to $35.54.

The Russell 2000 index of smaller companies was up 7.65, or 1.11 percent, at 695.12.

Overseas, Japan's Nikkei stock average rose 1.24 percent. In afternoon trading, Britain's FTSE 100 was up 0.49 percent, Germany's DAX index gained 0.73

percent, and France's CAC-40 climbed 1.03 percent.

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London shares weak midday; mining sector lower on easing prices; Wall St seen up

LONDON - UK leading shares remained under pressure at midday, albeit recouping some of this morning's losses, as mining stocks slipped on easing commodity prices, while Wall Street is poised for a positive start after yesterday's pause in interest rate hikes, dealers said.

At 12.02 pm, the FTSE 100 index was 11.0 points lower at 5,807.1, off earlier lows of 5,778.2, while the FTSE 250 index was down 8.0 points at 9,291.6.

The FTSE small cap index was the only gainer.

Volume was dismal with 745 mln shares changing hands in 115,339 deals, as many market players left the City for the summer break.

Looking ahead to Wall Street, investors expect US stocks to open higher, boosted again by yesterday's surprise freeze in the interest rate hikes at 5.25 pct.

Spread-bettors IG Index expect the DJIA to open 37 points firmer at 11,211.

Yesterday, US stocks closed higher after the US Fed took a breather following a stretch of sustained quarter point interest rate increases since June 2004.

In the UK, investors were jittery as they digested hints from the Bank of England that interest rates are likely to rise again.

In its quarterly Inflation Report, the BoE's rate-setting Monetary Policy Committee said CPI inflation is likely to rise a little higher from the current 2.5 pct in the near term before easing back towards, but not to, the 2 pct target as the impact of energy and import prices diminish.

Meanwhile, mining stocks eased as commodities fell back, with gold losing 4.9 usd per ounce at 652.4 and copper prices flat at 3.605 usd per pound.

Xstrata was the main casualty, sinking by 86 pence at 2,131, despite news the Falconbridge board has finally recommended that shareholders accept the Anglo-Swiss miner's offer.

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Asian shares close mixed, Tokyo at two-month high

Shares across the Asia-Pacific region closed mixed in response to the fall on Wall Street overnight and the decision by the US Federal Reserve to pause interest rate rises.

Tokyo shares finished higher, with the Nikkei 225 index at a two month high, after stronger-than-expected machinery orders reinforced the view that the Japanese economic recovery is gathering pace, dealers said.

The June machinery data, which sharply exceeded market expectations, comes hard on the heels of bank lending data which showed loans in July rising at their fastest pace in a decade.

The Nikkei 225 Stock Average closed up 191.93 points or 1.2 pct at 15,656.59, after moving between 15,240.30 and 15,659.41. This was its strongest closing level since June 5, when it ended at 15,668.31.

The broader TOPIX index of all first-section issues rose 15.70 points or 1.0 pct to 1,578.43 after trading between 1,542.30 and 1,578.43.

Prices opened down following a weak performance on Wall Street overnight but they recovered after the government reported that core private-sector machinery orders rose a seasonally adjusted 8.5 pct in June from May, far above the market consensus for a decline of 1.6 pct.

"It's the machinery orders data which sent equities prices higher," said Kenichi Hirano, senior strategist at Tachibana Securities.

"Some investors, who had earlier unloaded holdings, scrambled to buy back (after the data)," Ichiyoshi Investment Management chief fund manager Mitsushige Akino said.

However he noted that some investors remained cautious ahead of June quarter GDP data due out on Friday, which limited the market's upside. Australian shares closed sharply lower as investor sentiment followed the sell-off on Wall Street overnight, dealers said. They said growth concerns in the US weighed on investors and major resource stocks were sold off after a mixed result for base metal prices overnight.

The S&P/ASX 200 dropped 62.8 points or 1.25 pct to close at 4,962.0. The benchmark indicator closed off the day's low of 4,939.4 and below a high of 5,011.6.

Hong Kong shares were higher in afternoon trade on buying of selected blue chips and other stocks which have seen some weakness recently, dealers said.

They said investors, who had been staying on the sidelines before the Fed's decision on interest rates, bought into blue chips such as Swire Pacific, China Mobile and HSBC.

At 3.29 pm the Hang Seng Index was up 279.67 points or 1.64 pct at 17,327.96.

In mainland China, A-shares in Shanghai and Shenzhen closed lower on a lack of follow-through buying after a recent rebound, with oil refiners and metal stocks under pressure, dealers said.

The Shanghai A-share Index slid 2.12 points or 0.13 pct to 1,659.15 and the Shenzhen A-share Index was down 0.56 points or 0.14 pct at 405.70.

Seoul shares ended slightly higher on late program buying, despite initial caution ahead of a Bank of Korea meeting tomorrow, with large cap IT firms, Shinhan Financial and KT&G posting solid gains.

The KOSPI index ended up 3.83 points or 0.29 pct at 1,314.93, after moving between 1,321.55 and 1,297.28.

The market remained weak for much of the session, falling below 1,300 points at one stage, as investors decided that a pause in US rate hikes has largely been priced in. Instead, investors were looking ahead cautiously to the Bank of Korea's policy meeting and the expiry of options tomorrow.

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Metals - Gold edges up as dollar dips after Fed pauses from hiking rates

LONDON - Gold came off day lows to trade higher on the day as the dollar came under renewed pressure after the run of 17 consecutive rate hikes in the US came to a halt last night.

At 1.37 pm, spot gold, which earlier hit a low of 635.20 usd an ounce, was quoted at 649.25 usd, up from 645.80 usd at the time of the Comex market close in New York yesterday.

Other precious metals edged up. Spot silver was at 12.51 usd against 12.24 usd at yesterday's close, platinum was at 1,243.50 usd against 1,239.00 usd while palladium was at 320.50 usd against 318.00 usd.

The US Federal Reserve left its fed funds target rate at 5.25 pct yesterday, but left the door open to future rate hikes, saying there remains a risk of rising inflationary pressures.

The news sent the dollar lower while triggering a brief rally in gold, although profit taking and concerns over future rate hikes took gold lower in Asian trade.

The precious metal has since recovered, however, as the dollar edges lower following a brief rebound earlier in Asia and as the longer term outlook for the US currency remains weak overall, further Fed rate hikes notwithstanding.

"The prospect of further rate hikes by the European Central Bank and Bank of Japan will continue to drive investors away from the dollar," said the BullionDesk.com analyst James Moore.

Gold often trades counter to the dollar as it is seen as an alternative investment or hedge against inflation. Further, geopolitical tensions support the metal by sparking safe haven buying.

"Unrest in the Middle East, Iran and North Korea's nuclear programmes and the rising cost of fuel will suit gold's anti-inflationary qualities, supporting our view that gold will finish the year above 700 usd," said Moore.

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