US & World Daily Markets Financial Briefing 31-10-2006

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Stock prices rise in early trading

NEW YORK -  Stocks rose modestly Tuesday after companies including United Airlines parent UAL Corp. and Eastman Kodak Co. reported stronger-than-expected results and as oil prices extended their decline. In early trading. the Dow Jones industrial average rose 9.36, or 0.08 percent, to 12,095.86.
   
Broader stock indicators were higher. The Standard & Poor's 500 index was up 1.68, or 0.12 percent, at 1,379.61, and the Nasdaq composite index was up 6.86, or 0.29 percent, at 2,370.63. The Russell 2000 index of smaller companies was up 1.49, or 0.19 percent, at 771.85.
   
The quarterly results offered a moderate boost to investor sentiment following an aimless session Monday in which the market dealt with mixed economic data and a weak sales report from Wal-Mart Stores Inc. Investors are hoping that a bevy of strong earnings reports will further propel a three-month rally in stocks that is based on the notion that the economy can glide to a soft landing rather than lurch into recession.
   
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.66 percent from 4.67 percent late Monday. The dollar was mixed against other major currencies, while gold prices fell.
   
Investors will also consider economic news as they try to determine whether the run-up that's made for a surprisingly robust October will continue. The Labor Department said its Employment Cost Index rose 1 percent in the third quarter, the largest quarterly increase since the second quarter of 2004.

Stocks in focus
       
Kodak rose 2.15, or 9.1 percent, to $25.90 after posting a narrower-than-expected loss amid a 10 percent decline in sales. The company has tried to reap profits from digital photography as its bread and butter film business has eroded.
   
UAL advanced 52 cents to $37.29 after reporting a profit for the second straight quarter; the company hadn't achieved that success in more than six years.
   
Procter & Gamble Co., whose stable of brands includes Pringles and Head & Shoulders, posted a 33 percent increase in its fiscal first-quarter profit as revenue rose 27 percent. The shares fell $1.04 to $62.77 after investors frowned on the company's forecast.
   
Sirna Therapeutics Inc. nearly doubled, surging $6.17, or 96 percent, to $12.62 after pharmaceutical company Merck & Co. agreed to acquire the biotechnology company for $1.1 billion, or $13 per share.

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Dollar stable as US rate outlook steadies

LONDON - The dollar remained relatively well-supported as the market's view on the outlook for US borrowing costs steadied following last week's sharp fluctuations.
   
Last Friday's third-quarter US GDP data, which showed the economy growing at its slowest annualised rate in three years, reinforced expectations that the US Federal Reserve won't be raising interest rates any time soon and is more likely to start cutting them.
   
Analysts said the biggest news event for the dollar this week is likely to be Friday's US jobs report for October though tomorrow's manufacturing survey from Institute for Supply Management may well have an impact.
   
Elsewhere, analysts said the euro is being relatively well-supported against the US currency ahead of Thursday's press conference from the European Central Bank president Jean-Claude Trichet.
   
Though the ECB is expected to keep its key refi rate unchanged, the market thinks Trichet will sound a fairly hawkish tone and pave the way for another rate hike in December.
   
Meanwhile, the yen was solid after the Bank of Japan's governor Toshihiko Fukui failed to rule out an interest rate hike by the end of the year following the central bank's expected decision to keep interest rates on hold.
     
The pound meanwhile suffered a little wobble this morning after the Confederation of British Industry revealed an unexpected drop in high street sales during October.
   
In its monthly distributive trades survey, the Confederation of British Industry said 38 pct of retailers said their sales in October were up on a year ago, while 42 pct say they were lower, giving a net balance of - 4 pct.

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The European Markets at 12.30 GMT

London - Leading shares were little changed at midday, having retreated from earlier highs, as oil sector weakness offset strong gains from Friends Provident, while investors looked for a firmer start to US trading.
   
At 11.45 am, the FTSE 100 index was just 4.8 points higher at 6,131.6, while the FTSE 250 also continued to trade in positive territory, but the Small Cap index slipped into the red.

Frankfurt - German shares were higher midmorning, with traders noting a reluctance among investors to commit fresh funds to the market as earnings from several major DAX components painted a mixed picture of the corporate health of the nation.
   
At 11.45 pm, the DAX 30 was up 21.67, or 0.34 pct at 6,279.71, off its earlier low of 6,237.55, while the MDAX was up 52.89, or 0.48 pct at 8,659.24. The TECDAX was up 3.38 at 687.07, and the DAX future up 20 at 6,308.0.
   
Paris - Share prices were slightly lower in midday trading as a broad technical bounce after two days of heavy selling was offset by losses for index heavyweights Sanofi-Aventis and Veolia Environnement after their third-quarter results.
   
At 1.24 pm the CAC-40 index was off 2.69 points at 5,359.54, on volume of 2.3 bln euro. On the Matif, November CAC-40 futures were trading down 4 points at 5,368.5.

Milan - Share prices were higher at midday, led by Seat PG which was upgraded by UBS. At 11.57 am, the Mibtel was up 0.52 pct at 30,402 points and the S&P/Mib gained 0.53 pct to 39,590. Seat PG jumped 3.49 pct to 0.4335 eur after being upgraded to 'buy' from 'neutral' at UBS, which also set a 0.5 eur target.

Madrid - Madrid shares were higher in light midday trade, in line with other European markets and boosted by solid US futures, with Abengoa and its Befesa unit soaring on bid talk, and main banks in the black. At 12.50 pm, the IBEX-35 index gained 39.8 points to 13,754.1, after trading in a range of 13,669-13,773 on turnover of 2.5 bln eur.

Stockholm - Shares remained in slightly positive territory in midday trade, a touch up from morning levels, with TeliaSonera higher, and SCA lower after their respective third quarter reports. At 12.20 pm, the OMX Stockholm index was up 0.36 pct at 349.90 points, while the OMX Stockholm 30 index was up 0.49 pct at 1,088.19.

Zurich - Share prices were slightly lower in thin late morning trade weighed down by sharp losses in banking heavyweight UBS following much weaker-than-expected third quarter numbers, with negative sentiment spreading to sector peer Credit Suisse. At 11.20 am, the Swiss Market Index was 36.39 points lower at 8,615.97 and the Swiss Performance Index down 23.65 points at 6,732.18.

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Asian shares close mixed; Tokyo's Nikkei rises on bargain hunting

HONG KONG - Shares across the Asia-Pacific region closed mixed, with bargain hunters moving into the Japanese market to take advantage of recent weakness.
   
Tokyo shares closed mixed, with the benchmark Nikkei 225 gaining on bargain-hunting while the broader market retreated as investors waited for the release of the Bank of Japan's latest outlook on the economy and prices as well as on comments by BoJ governor Toshihiko Fukui.
   
After the market closed, the central bank said in its semi-annual report that the Japanese economy is enjoying a sustained recovery with growth of 2.1 pct expected in the year to March 2008, setting the scene for interest rate adjustments to be done gradually.
   
The Nikkei 225 Stock Average rose 47.54 points or 0.29 pct close at 16,399.39, off its intraday best of 16,477.06. The broader TOPIX index of all first-section issues dropped 3.23 points or 0.20 pct to 1,617.42, off a low of 1,613.25.
     
The government said Japan's unemployment rate rose to 4.2 pct last month from 4.1 pct in August. Household spending in September dropped 6 pct in real terms from a year before to an average of 273,194 yen, deeper than market's consensus forecast for a decline of 2.1 pct.
   
Australian shares ended down as investors took profits from the market's record high reached yesterday. Miners took the brunt of the sell-off but gains in banking stocks limited the size of the correction.
   
The S&P/ASX 200 lost 12.9 points or 0.24 pct to close at 5,386.5, off yesterday's record close of 5,399.4. The key index closed above the day's low of 5,377.0 and below the day's high of 5,401.0.
   
Hong Kong shares were weaker in afternoon trade as the market went into a consolidation mode after pulling back from an all-time high hit intraday last Friday. At 3.25 pm the Hang Seng Index was down 20.68 points or 0.11 pct at 18,276.87.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply higher on continued fund inflows partly due to a strong yuan, with banks and airline stocks snapped up.
   
The Shanghai A-share Index added 29.84 points or 1.57 pct to 1,931.17 and the Shenzhen A-share Index was up 4.18 points or 0.91 pct at 462.75.
   
Seoul shares closed higher on solid economic data, which reassured investors fearing a rapid economic slowdown.
   
Program buying offset selling by foreign investors, pushing Samsung Electronics and other blue chips higher and helping the main board index recoup much of its losses in the past two sessions.
   
South Korea's industrial output for September rose 16.3 pct year-on-year while service sector output expanded 6.0 pct, the biggest rise since February's 6.2 pct year-on-year gain.
   
The KOSPI index closed up 8.44 points or 0.62 pct at 1,364.55, off a low of 1,351.08 and a high of 1,364.83.

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LONDON - Oil prices were lower amid concerns that economic growth in the US will slow down, reducing demand for the commodity when stockpiles may be rising.
  
New York's main contract, light sweet crude for delivery in December, fell 49 cents to 57.87 usd per barrel in electronic deals before the official opening of the US market.
   
In London, Brent North Sea crude for December delivery shed 64 cents to 58.04 usd per barrel in electronic trading.
    
Crude futures closed down more than 2 usd yesterday, largely for the same reasons.
   
In particular, market concerns deepened after US third quarter GDP last week came in at its weakest in three years. The Commerce Department said the US economy grew at a 1.6 pct annualised rate between July and September, down on the 2.6 pct growth in the previous three months and the heady 5.6 pct recorded in the first quarter of the year.

OPEC announced on Oct 19 a cut in its actual production ceiling of 1.2 mln barrels per day to 26.3 mln bpd, with effect from Nov 1. For the time being at least, suggestions that OPEC may cut production further had little impact, suggesting just how weak sentiment is.    

For his part, Algerian Energy Minister Chakib Khelil said he does not rule out a further output cut at the next OPEC meeting on Dec 14, according to the Algerian daily, Liberte.
   
Milder temperature forecasts have weighed heavily on the weather markets at the same time that the expiring November gasoline contracts are encountering a heavy bout of long liquidation, said Jim Ritterbusch at Ritterbusch & Assoc.

Gold prices dropped back down towards the 600 usd level after reaching seven week highs overnight as oil prices turned lower.
   
At 10.13 am GMT, spot gold was down 4.40 cents at 603.00 usd/oz, having reached a seven-week high overnight of 613.20 usd/oz. Prices have stayed above the key 600 usd/oz level, however, with 601 usd the lowest level reached this morning.
      
Silver prices were also lower, dropping 16 cents to 12.09 usd/oz.

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