US & World Daily Markets Financial Briefing 03-06-2008

Welcome to the Investors Hub World Daily Markets Bulletin; your daily e-mail guide to important Domestic, European and Global market events. Market Briefing is here to keep you informed and up-to-date on key financial developments.

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Wall Street moves higher after Bernanke speech

NEW YORK - Wall Street rose modestly Tuesday after Federal Reserve Chairman Ben Bernanke reiterated expectations the economy will improve later this year.

After the central bank's recent interest rate cuts, loans to banks and tax rebates, the second half of the year should bring "somewhat better economic conditions," Bernanke said in a speech in Spain. However, he said the economy faces headwinds with rising prices for food and energy -- and that could keep interest rates on hold.

Inflation-wary investors did get some relief with another drop in oil prices, which last month peaked at a record $135.09 a barrel. This has translated into higher energy costs for consumers, whose spending accounts for more than two-thirds of economic growth. A barrel of light, sweet crude fell $1.10 to $126.66 on the New York Mercantile Exchange.'

Financial services companies, which led the market lower Monday, were again in focus amid reports that Lehman Brothers Holdings Inc. is facing a fiscal second-quarter loss and might need a capital infusion. The news came a day after Standard & Poor's downgraded financial services companies amid further worries about the credit crisis, and Wachovia Corp. and Washington Mutual Inc. shook up their top management.

In midmorning trading, the Dow Jones industrials rose 11.48, or 0.09 percent, to 12,515.30. Broader market indexes also moved higher. The Standard & Poor's 500 index added 3.71, or 0.27 percent, to 1,389.38; the Nasdaq composite rose 12.00, or 0.48 percent, to 2,503.53.

Government bonds fell. The 10-year Treasury note's yield, which moves opposite its price, was at 4.01 percent, up from 3.97 percent late Monday. The dollar traded lower against most other major currencies, while gold prices rose.

In corporate news, Lehman Brothers dropped 97 cents, or 2.9 percent, to $32.86 amid reports it may raise up to $4 billion in fresh capital to help cover losses stemming from the credit crisis.

Meanwhile, Residential Capital LLC said it needs more funding in order to stay whole. The mortgage lender said it is borrowing another $450 million from its parent GMAC, raising its loan to $1.2 billion, and estimated it needs about  $2 billion in cash by the end of the month to meet liquidity demands.

Toll Brothers Inc. reported that write-downs of land joint ventures led the luxury homebuilder to a quarterly loss of $93.7 million. The results were better than Wall Street expected, and shares rose 48 cents, or 2.3 percent, to $21.45.

Staples Inc. rose 19 cents to $23.28 after raising its hostile bid for Dutch office supplies distributor Corporate Express NV to $2.6 billion. Last month, Corporate Express rebuffed two offers from Staples and struck a surprise deal to buy a French competitor, Lyreco SAS.

Rick Wagoner, chairman and CEO of General Motors Corp., said Tuesday the company plans to halt production at four North American plants, and is considering a sale of its Hummer brand. Wagoner said high oil prices have altered consumer behavior, and that he believes it is a permanent shift.

GM shares rose 55 cents, or 3.1 percent, to $17.98. The Russell 2000 index of smaller companies rose 3.20, or 0.43 percent, to 744.22. Advancing issues outpaced decliners by 4 to 3 on the New York Stock Exchange, where volume came to 147.3 million shares.

Overseas, Japan's Nikkei stock average closed down 1.60 percent. In afternoon trading, Britain's FTSE 100 fell 0.05 percent, Germany's DAX index fell 0.41 percent, and France's CAC-40 rose 0.14 percent.

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Forex - Dollar stable vs euro ahead of central bankers' speeches, U.S. data

LONDON - The dollar was stable against the euro ahead of a raft of speeches due from U.S. and European central bankers on Tuesday afternoon.

Both Federal Reserve chairman Ben Bernanke and European Central Bank president Jean-Claude Trichet, who are due to speak at the International Monetary Conference in Barcelona, are expected to highlight inflationary concerns. "Trichet has no reason to divert from his hawkish interpretation of monetary policy given that euro zone inflation rates reached another record in May," said an analyst at BNP Paribas.

"Bernanke will be of key interest as the Fed seems to be undergoing a change, now seeing the risk of inflation expectations breaking out of long-term ranges," the analyst said. Should this be the case, then this will add to the market view that interest rates in both the United States and euro zone will remain on pause for now as the central banks attempt to contain inflation.

More evidence of rising price pressures in the euro zone emerged on Tuesday after data revealed that producer prices rose by a further 0.8 percent in April from March, taking the annual growth rate to 6.1 percent.

"It is unlikely to significantly dilute the ECB's concerns that inflationary pressures are potent down the supply chain, and second-round effects from elevated energy and food prices could increasingly occur," said Howard Archer, chief European economist at Global Insight.

However, unlike the United States, the single currency zone is performing relatively well. First quarter GDP growth in the euro zone was unexpectedly revised up to 0.8 percent from the initial estimate of 0.7 percent. Jonathon Loynes, chief European economist at Capital Economics said the data "provides further evidence that the region is still performing well compared to the United States".

This could be brought into sharp relief when U.S. factory orders data are released later. Factory orders are expected to show a dip of 0.1 pct in April following a 1.4 pct increase in March. Excluding transportation, factory orders are expected to increase by just 0.9 pct following a 2.2 pct increase in March.

Bank of Spain governor Miguel Angel Fernandez Ordonez and Bank of Japan governor Masaaki Shirakawa are also due to speak at the International Monetary Conference later.

Elsewhere, the pound recovered from the daily low hit against the euro following Tuesday's very weak survey on UK construction activity. The Chartered Institute of Purchasing and Supply said the purchasing managers' index for the construction sector fell to 43.9 in May, the lowest level since the series began in April 1997, from 46.1 in April.

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Euroshares tick lower at open after Dow losses; ahead of rate decisions

At 8:58 a.m., the DJ STOXX 50 was down 22.26 points, or 0.7 percent, at 3160.56 and the DJ STOXX 600 was down 2.75 points, or 0.85 percent, at 319.42.

Back in Europe, the healthcare sector was one of the few sectors to post gains as JP Morgan re-initiated coverage on the sector after the completion of its merger with Bear Stearns. Selected stocks were also boosted by newsflow from the The American Society of Clinical Oncology (ASCO) conference over the weekend.

The new JP Morgan launched coverage of the healthcare sector with 'overweight' recommendations on Roche, up 2.57 percent, Novartis, up 1.74 percent, also adding Roche to the JP Morgan analyst Focus List.

GlaxoSmithKline and Sanofi-Aventis, down 0.58 percent, were launched with 'underweight' recommendations. GlaxoSmithKline shares added 0.36 percent, though, after the UK group announced positive results from three phase II trials of Tykerb as a treatment for women with advanced breast cancer.

Novartis said new study data shows that RAD001 may offer a novel treatment strategy for breast cancer by enhancing the efficacy of, and overcoming resistance to, several commonly used breast cancer treatments.

Shares in Merck KGaA, though, fell 2.1 percent as analysts said news over the weekend on key cancer drug Erbitux had been mixed. JP Morgan cut its 2008 and 2009 estimates for Erbitux by 8 percent, although the broker said the prospects for the drugs further out had improved.

And shares in Grupo Ferrovial SA rose 2.27 percent after an Expansion report said the construction group is set to sign a 9.5 billion euro long term loan with eight banks and finalise debt restructuring in July or August.

UK mortgage lender Bradford & Bingley, though, plunged 25.21 percent after it confirmed Texas Pacific Group is to buy a 23 percent stake in the bank as part of a re-capitalisation programme which will also see the group cutting the price of a previously-announced rights issue.

B&B, the U.K.'s biggest buy-to-let lender, said it will receive 179 million from the TPG deal, and will raise a further 258 million pounds by selling new shares to existing investors. Both TPG and the existing shareholders will pay 55 pence per share.

B&B had originally hoped to raise 300 million pounds by selling new shares to existing investors at 82 pence each. Axa fell 2.18 percent as influential broker Cheuvreux cut its recommendation on the French insurance group to 'underperform' from 'outperform' Vedanta Resources slipped 1.12 percent lower after one of its subsidiaries agreed to buy the operating assets of U.S.-based copper producer Asarco Llc. for $2.6 billion in cash.

"We believe that the Asarco transaction will leave some investors and sell side analysts who have been supporters and promoters of the story asking why buy a second tier copper assets in the U.S., a geography in which the group has no demonstrated ability to operate let alone turn around assets," said Merrill Lynch.

Alstom fell 1.56 percent after reports it is mulling a possible alliance with Rolls Royce Group as an alternative to a merger with Areva. The engineering group denied the report, saying "We formally deny all the information" in the article.

And shares in Deutsche Postbank AG fell back 0.85 percent after a report in WirtschaftsWoche said Dutch banking group ING Groep N.V. is not interested in bidding for Germany's largest retail bank, should its parent company Deutsche Post decide to sell it.

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Asian stocks widen losses on credit concerns, Lehman woes

The Nikkei index closed down 1.6 percent at 14,209.17, after gaining more than 700 points in the previous three sessions. The broader Topix was off 1.2 percent at 1,407.44. Hong Kong's Hang Seng index was down 1.83 percent at 24,324.72 and South Korea's KOSPI index finished down 1.5 percent at 1,819.39.

As expected, the Reserve Bank of Australia left its cash target rate at 7.25 percent during its monthly policy meeting on Tuesday. The S&P/ASX 200 closed down 1.6 percent at 5,574.2 while the All Ordinaries index fell 1.4 percent to 5,703.0.

The nation's top investment bank, Macquarie Group, dropped 6.0 percent to $50.06, its lowest level since late March, while smaller rival Babcock & Brown plunged 7.9 percent to A$1.11 and highly-leveraged Allco Finance Group plummeted 11 percent to A$3.41.

Other banks also sustained heavy losses with takeover target St. George leading the way, shedding 5.7 percent to A$30.14 while its suitor Westpac dropped 3.9 percent to A$30.14. National Australia Bank fell 3.5 percent to A$29.37, Commonwealth Bank was off 1.1 percent at A$41.49 and ANZ lost 2.5 percent to A$20.38.

In Tokyo, exporters led the market lower as the yen strengthened against the dollar. Honda Motor lost 3.3 percent to 3,490 yen and Toyota Motor fell 1.3 percent to 5,400 yen. Sony lost 2.9 percent to 5,360 yen and Canon shed 2.3 percent to 5,660 yen Among banks, Mitsubishi UFJ Financial declined 1 percent to 1,118 yen and Sumitomo Mitsui Financial Group was down 1.4 percent at 934,000 yen. Sumitomo Trust and Banking lost 1.3 percent to 914 yen.

Profit-taking in recent winners like China Unicom and other telecom stocks, which had surged over excitement on the Chinese government's plan to revamp the sector, weighed on the Hong Kong market. China Unicom, the smaller of two wireless carriers on the mainland, slumped 14.07 percent to HK$15.88, eroding gains made on May 23 when the share price leapt 11.8 percent.

China Telecom Corp., the mainland's biggest fixed-line phone company, tumbled 12 percent to HK$4.95, while rival China Netcom gave up 12.75 percent to HK$23.6.

Chinese telecom companies have revealed details of the restructuring of the sector with Unicom announcing it will acquire Netcom in a share swap valued at HK$182.77 billion ($23 billion). Unicom will be selling the smaller of its wireless networks to China Telecom for 110 billion yuan.

The Shanghai Composite was down 0.7 percent at 3,436.40, while Taiwan's Taiex slipped 1.7 percent to 8,579.43. Elsewhere, Malaysia's KLCI was down 0.4 percent at 1,257.57 while Singapore's Straits Times index lost 1.1 percent at 3,153.94

The Philippine Composite closed 1.5 percent lower at 2,782.80 and the Jakarta Composite was down 1 percent at 2,403.81.

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Copper up on bargain hunting, dollar weakness but demand risks remain

LONDON - Copper rose on bargain hunting and dollar weakness but there were still fears of lower demand ahead, which capped the red metal's gains. Copper for three-month delivery was at $7,935 per tonne by 11:13 a.m. from $7,930, its close on Monday.

"Overall the weakness seen recently has made the base metals complex look oversold in the short-term and Monday's mixed outcome suggests a market starting to consolidate. The question now is whether the prices have fallen far enough to entice consumers off the sidelines or are they prepared to continue on a hand to mouth basis in the hope prices will fall further," said Basemetals.Com analyst William Adams.

Copper had hit a record high of $8,880 per tonne in mid-March, when a strike at the world's top copper producer Codelco, hit production. Since then the metal, used extensively in construction, has lost more than 10 percent as the market struggled to go higher in the absence of physical buying, particularly from China.

"Base metals have performed poorly over the past two months, battered by concerns of slowing short-term growth from developed markets and fears of a slowdown to come from emerging markets who seem to be doing to do too little to slow their economies in the face of surging inflation, prompting hard landing worries for later in the year," said UBS analyst John Reade. "It is not just macro-economic worries: traders are reacting to signs of softness in the markets. LME inventories have risen unseasonably fast for all metals except nickel and tin," he added.

Looking ahead, investors will be keenly awaiting Tuesday's speech by Fed Chairman Ben Bernanke later and keeping an eye on crude oil prices and a slew of U.S. economic data, including Friday's non-farm payroll data, for implications on monetary policy in the United States.

Elsewhere, tin rose to $21,200 from $20,950 per tonne. Supply problems in Indonesia, the world's second biggest tin producer, saw the metal strike a record $25,500 per tonne in mid-May.

Lead rose to $2,040 from $2,014 while zinc was up at $1,985 from $1,970. Aluminium was mostly flat at $2,934 from $2,929 while nickel rose to $22,575 from $22,200.

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