US & World Daily Markets Financial Briefing 20-03-2007

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Stocks mixed before Fed meeting

NEW YORK - Wall Street was narrowly mixed in early trading Tuesday, nervous about how the Federal Reserve might alter its stance on interest rates but relieved that the housing construction bounced back in February.
   
The Commerce Department report found construction of new homes and apartments rose by 9 percent last month to a seasonally adjusted annual rate of 1.525 mln units, higher than the expected 1.450 mln units. However, enthusiasm over the data was muted, as applications for building permits dropped.
   
The mixed housing data arrived as the Federal Reserve began its two-day meeting on interest rates. Investors are trading cautiously ahead of the central bank's statement Wednesday, trying to determine if recent market tumbles and economic data will prompt the Fed to shift its posture on rates after several months of leaving them steady.
   
Stocks won some support from talk of possible acquisitions. An investment group said it is offering $5.93 bln in cash to take Affiliated Computer Services Inc. private, while speculation arose over media reports on several other deals; that cell phone manufacturer Nokia Corp. is trying to buy Palm Inc.; that an investment firm is close to signing a deal to acquire Claire's Stores and that American International Group Inc. could be attempting to acquire Prudential PLC.
       
In the first hour of trading, the Dow Jones industrial average fell 3.36, or 0.03 percent, to 12,222.81.
   
Broader stock indicators were also modestly higher. The Standard & Poor's 500 index was up 0.27, or 0.02 percent, at 1,402.33, and the Nasdaq composite index rose 1.24, or 0.05 percent, to 2,395.65.
   
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.54 percent from 4.57 percent late Monday, shrugging off the housing data and an announcement from China that the country doesn't intend to build up its reserves.
   
Though worries over the big losses of subprime lenders, who make loans to people with poor credit ratings, continue to dog the markets, they were somewhat alleviated by news that subprime mortgage lender Accredited Home Lenders Holding Co. received a commitment for a $200 mln term loan from Farallon Capital Management LLC, a San Francisco-based money manager.
   
Accredited Home rose $1.83, or 20 percent, to $10.78.
   
Declining issues narrowly edged out advancers on the New York Stock Exchange, where volume came to 191.43 mln shares.
   
In afternoon trading, Britain's FTSE 100 was down 0.28 percent, Germany's DAX index was down 0.36 percent, and France's CAC-40 was down 0.46 percent.

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Dollar falls after reports China to sell some reserves

LONDON - The dollar fell, particularly against the yen, after reports emerged that China plans to sell a small amount of foreign currency reserves.
   
Analysts cited a report that emerged this afternoon quoting People's Bank of China governor Zhou Xiaochuan as saying that China will sell a small amount of reserves and not accumulate any more.
   
"Comments from Chinese Central Bank official Zhou about reserves sent the greenback into offered mode," said Colin Clarkson at Thomson IFR Markets.
   
A huge amount of China's reserves are in US Treasuries, despite moves towards diversification away from the dollar.
   
Reaction has been muted, however, with analysts sceptical that the report may be old or that Zhou may have been misquoted.
   
The yen had been weakening throughout the day as gains on equity markets sparked renewed interest in the carry trade, when money is borrowed in low-yielding currencies such as the yen in order to invest in higher-yielding assets elsewhere.
   
The Australian dollar has been a major beneficiary of this, as well as being supported by expectations that the Reserve Bank of Australia will raise interest rates further. Though the currency has edged back against the yen after the Zhou report, it continues to trade around the 0.80 level against the dollar after earlier hitting a ten-year high of 0.8035 usd.
   
Elsewhere, the pound extended gains against the dollar after this morning's stronger-than-expected UK inflation data raised expectations that the Bank of England (BoE) will raise interest rates soon, possibly as early as April.
   
Figures this morning showed the key UK annual CPI inflation rate unexpectedly rose to 2.8 pct in February from 2.7 pct in January, well above the central bank's target rate of 2.0 pct.
   
In addition, a sharp rise in the RPI rate, which is often used in pay deals, to a fifteen and a half year high of 4.6 pct from 4.2 pct in January will raise concerns among UK rate-setters about high levels of wage inflation.
   
Mark Miller at HBOS said a quarter-point hike to 5.50 pct may come as soon as April although May is a better bet since the BoE will release its next set of projections for growth and inflation then.
   
"Markets will be alert to the possibility of an April hike although it will be a very close call," he said.

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Top Stories in Europe at 11.05 GMT

Frankfurt - Deutsche Post AG said it expects full-year EBIT of "at least" 3.6 bln eur, down from the 3.9 bln eur reported in 2006, as it does not expect to repeat one-time gains of around 400 mln eur from among others the sale of shares in Deutsche Postbank AG.
 
The German mail carrier said the target represents an increase of 3 pct from last year's result excluding one-off gains, adding that it sees a "positive business development" ahead.

DaimlerChrysler AG chief executive Dieter Zetsche wants to raise the company's EBIT margin to 6 pct by 2009 from its current 3.6 pct level, Handelsblatt reported, citing an internal company document it obtained. The plans also indicate Zetsche wants the Mercedes brand to achieve a 7 pct EBIT margin this year.

Muenchener Rueckversicherungs AG's US unit Munich Reinsurance America posted a 2006 full year net loss of 1.035 bln usd due to high asbestos claims and a negative tax effect, the reinsurer said in its annual report. Munich Re also added about 600 mln usd to the unit's reserves for asbestos.

MAN AG commercial vehicles unit MAN Nutzfahrzeuge AG said it expects full year 2007 unit sales and revenues to increase 10 pct compared with 2006. This year's target is to achieve revenues of 9.5 bln eur compared with 8.7 bln last year and to sell 96,000 units of trucks and buses from 87,160 units, it said.

London - Shareholders in Barclays PLC and ABN Amro have deep concerns about the banks' proposed 80 bln stg merger and may obstruct a deal, the Daily Telegraph newspaper reported. ABN investors are worried a merger would not give them a suitable enough premium, while Barclays shareholders fear it would disproportionately dilute their investment, it said.

India's Torrent Pharmaceuticals Ltd has tied up with private equity investors to bid of over 5 bln usd for Merck KGaA's global generics business, reported the Times of India, citing unnamed sources.
 
Torrent joins Indian companies Ranbaxy Laboratories Ltd and Cipla Ltd and global giants Teva Pharmaceutical Industries, Mylan Laboratories and Actavis Group in the race for Merck's generics unit, the paper said.

Madrid - US capital risk group KKR plans to launch a bid for Altadis SA, countering Imperial Tobacco PLC's current 45 eur per share offer, El Economista reported, citing unnamed financial sources close to the deal. According to the newspaper, KKR had been mullling a hostile bid for Altadis for some time but was pipped to the post by Imperial.

Milan - The Bank of Italy is considering the closure of 59 of its current 97 branches in Italy as part of a reorganisation programme aimed at improving efficiency. In a first phase, a total of 30 branches will be closed, with the remaining 29 being closed at a later date based on the experience garnered in the first phase, the Bank of Italy said.

Stockholm - Tele2 AB said the EU Commission will open a phase II investigation into Tele2's decision to sell its French fixed and broadband businesses to Vivendi unit SFR, for 450 mln usd. "In the coming days, Tele2 and SFR will analyse the situation arising from the decision made by the European Commission, with a view to take a common position on the contemplated transaction shortly," Tele2 said.

Zurich - Chocoladefrabiken Lindt & Sprungli reported a rise in full-year net profit of 21 pct from last year to 209.0 mln sfr, driven by strong sales. EBIT for the period rose by 19.4 pct to 296.9 mln sfr, which the group said represents the sharpest rise in its history.

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Asian shares close higher on Wall St, cautious ahead of FOMC meeting

HONG KONG - Shares across the Asia-Pacific region closed higher after Wall Street rose overnight but with markets cautious ahead of the US FOMC meetng.
   
Tokyo shares finished up after the rebound in US stocks and the yen's slide overnight encouraged buying, although trading was somewhat cautious prior to the US Federal Reserve's two-day policy board meeting later today.
   
The Bank of Japan's decision to keep interest rates unchanged, announced early afternoon, came as no surprise as the market had been widely expecting the bank to leave its rate policy unchanged before upper house elections this summer.
   
The blue-chip Nikkei 225 Stock Average closed up 153.65 points or 0.90 pct at 17,163.20, off a high of 17,267.74. The TOPIX index of all issues listed on the Tokyo Stock Exchange's first section was up 14.21 points or 0.84 pct at 1,708.29, off a high of 1,718.99.
   
After the market's close, the central bank also said it has left its assessment of economic and financial developments unchanged for March, saying the economy continues to expand moderately.
   
Dealers said while the market was waiting to hear BoJ Governor Toshihiko Fukui's remarks about the economy at a press conference later today, their attention was mainly focused on the FOMC's reaction to the troubled sub-prime lending business.
   
"Eyes are on whether the FOMC will remove the phrase suggesting a possible rate hike ahead," said Kazuhiro Takahashi, equities manager at Daiwa Securities SMBC.
      
Australian shares ended higher with sentiment buoyed by the overnight rise on Wall Street and ongoing local merger and acquisition activity. Bank stocks rose on speculation of further consolidation in the sector following a merger proposal involving two regional banks and resource stocks were also supported despite mixed metal prices in overnight London trading.
   
The S&P/ASX 200 closed up 23.2 points or 0.40 pct at 5,882.9 after trading between a high of 5,922.2 and a low of 5,871.5.
   
Hong Kong shares were stronger in afternoon trade on expectations of strong results from blue chips. The rebound on Wall Street bolstered sentiment although gains were capped by caution ahead of the US Federal Reserve policy meeting and worries that China might adopt more tightening measures following the interest rate hike announced over the weekend.
   
At 3.25 pm the Hang Seng Index was up 117.73 points or 0.61 pct at 19,384.47.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on follow-through interest with metal and property stocks gaining ground. The Shanghai A-share Index was up 18.32 points or 0.58 pct to 3,186.04 and the Shenzhen A-share Index was up 10.72 points or 1.31 pct at a record 829.53.
   
Seoul shares finished slightly higher, with investors awaiting the outcome of the US FOMC meeting. Initial sentiment was bolstered by Wall Street's overnight rally but the market moved back and forth with some profit taking by institutions after three consecutive sessions of solid gains.
   
Banks enjoyed sustained interest from foreign investors amid a strong quarterly earnings outlook. The KOSPI index closed up 0.78 points or 0.05 pct at 1,444.17, off a low of 1,440.42 and a high of 1,449.67.

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Copper rallies after strong rebound in US housing starts; Gold rises

LONDON  - Copper rallied after US data showed a stronger than expected rebound in new home construction in February eased worries over the health of the US economy and the outlook for copper demand.
   
The Commerce Department said new home construction rose 9 pct in February in a sharp rebound after plunging 14.3 pct in January. The market a much smaller increase. "Metals have reacted, we've seen evidence in copper which has rallied up a 1 pct or so," said UBS Investment Bank analyst Robin Bhar.
   
He noted while the data also showed builders' applications for new permits fell 2.5 pct in February, the market had not sold off. New building permits are considered a reliable gauge of future activity in the housing market.
   
"Certainly the data is mixed ... (but) people are just looking at the bullish news," said Bhar. He added that participants might be expecting stronger building permit data in the months ahead.
   
LME copper for 3-month delivery was up at 6,680 usd a tonne against 6,630 usd at the close yesterday.
   
The metal was underpinned earlier after the LME said in a daily report copper stocks held in its warehouses fell again, this time by 1,925 tonnes to total 190,250 tonnes. LME stocks are down over 9 pct from a year ago.
   
Nickel was down at 46,000 usd a tonne against 46,600 at the close yesterday, off a day low of 45,500 hit ahead of the US housing data release.
   
Analysts are warning the metal, which last week hit a series of successive record highs, is starting to look vulnerable. "The two-day decline in nickel thus far as been within the scope of previous corrections ... but one of these corrections is going to be the real thing," said Man Financial analyst Ed Meir.
   
Nickel hit a new record 48,500 last Friday amid critically low inventories and strong demand from the stainless steel market, which accounts for some 70 pct of total nickel consumption.
   
Chinese nickel producer Zinchuan warned yesterday long-term damage is being done to the nickel market by the high price, both in terms of encouraging additional production and substitution in the steel market.
   
Tin was down at 13,820 usd a tonne against 13,950 usd at the close yesterday. The metal did not benefit from the US housing data although it did set a new contract high of 14,150 usd a tonne earlier in the session.
   
Analysts said tin, which has set a series of contract highs this year, remains underpinned by worries over supply disruptions in Indonesia, the world's second largest tin producer.
   
The Indonesian government, which is still engaged in a crackdown on illegal tin mining, has said PT Koba Tin will be allowed to export the metal, although the company has still not been issued with export permits.
      
In other metals, zinc was up at 3,235 usd a tonne against 3,205 usd at the close yesterday, aluminium was up at 2,823 usd against 2,813 usd, while lead was down at 1,940 usd against 1,942 usd.

At 1.38 pm, gold was at 659 usd per ounce, up from 653.60 usd seen in late New York trade yesterday. Earlier the precious metal touched 660.70 usd per ounce -- which most analysts agree is a key resistence level.
   
Also underpinning gold, traders were wary ahead of the US interest rate verdict tomorrow. The FOMC's two-day meeting on interest rates starts today, with analysts looking for any hint from the central bank over where rates are headed in the coming months.
   
Elsewhere, gold was up in line with strong energy prices, as investors hedged against oil led inflationary pressures. Oil was up ahead of US data, due to be released tomorrow, which is expected to show gasoline stocks fell last week.
   
Among other precious metals, platinum was at 1,229 usd, slightly off yesterday's high of 1,230 usd, palladium was at 348 usd, and silver stood at 13.29, up from a high of 13.20 usd in late New York trade yesterday.

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