US & World Daily Markets Financial Briefing 03-10-2008

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US STOCKS-Market stays higher after services data

NEW YORK - U.S. stocks stayed near session highs on Friday after a report showed that growth in the vast services sector held up in September, tempering worries about the economy and the profit outlook.

The Institute for Supply Management said its non-manufacturing index came in at 50.2, slightly below August's 50.6. A reading above 50 signals expansion.

The Dow Jones industrial average was up 101.07 points, or 0.96 percent, at 10,583.92. The Standard & Poor's 500 Index was up 18.01 points, or 1.62 percent, at 1,132.29. The Nasdaq Composite Index was up 37.46 points, or 1.90 percent, at 2,014.18.

US Sept payrolls fall 159,000, largest drop in 5 yrs; unemployment holds at 6.1%

WASHINGTON - US employers shed more jobs last month thanin any month in more than five years, led by a sharp drop in service sector jobs and continuing losses in the construction, manufacturing and retail sectors, the Labor Department said today.
   
The economy lost 159,000 jobs in September, far more than the 100,000 lost jobs economists polled by Thomson Reuters IFR Markets were expecting. September's decline is the largest seen since March 2003, when the economy lost 212,000 jobs.
   
The economy has now lost 760,000 jobs since January. Economists have said the economy needs to create about 100,000 jobs each month to keep up with new workers, but with September's numbers, the economy has now averaged a monthly loss of about 43,000 jobs over the last 12 months.
   
Labor upwardly revised July and August payrolls by 4,000, for a cumulative two-month total loss of 140,000 jobs. The unemployment rate, taken from a separate survey of households, remained unchanged in September at 6.1%, as expected. That's the highest unemployment level seen since September 2003.
  
The official unemployment rate only includes workers who are actively seeking a job. The labor force participation rate, which includes the number of working-aged people with jobs, fell slightly to 66.0%.
   
Services jobs are usually a major factor in job gains, but 82,000 jobs were lost in this sector in September, the biggest monthly loss seen since March 2003. Service-sector jobs have declined for the last four months.
   
Construction jobs fell once again, by 35,000, and manufacturing jobs lost 51,000. Manufacturing jobs have not increased in 27 months. Retail jobs dropped by 40,000, and September was the tenth straight month of job losses in this sector.
   
Government and education/health services were the only sectors to gain jobs in September. Government added 9,000 jobs, and education/health services gained 25,000.
   
Average hourly wages rose 0.2% in September, less than the 0.3% gain expected. That translated to a gain of 3 cents, putting the average hourly wage at $18.17. The average workweek fell to 33.6 hours.

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FOREX-Dollar pauses after rally, eyes on bailout vote

LONDON - The dollar took a breather on  Friday but was still poised for its biggest weekly gain in 16  years after a tumultuous week that saw the European Central Bank  moderating its tone on inflation risks.
  
The market was also cautious ahead of U.S. non-farm payrolls  data due at 1230 GMT and the hoped-for passage of a $700 billion  financial industry bailout package through the House of  Representatives later in the day.
   
Demand for the dollar from banks and financial institutions  shut out of frozen money markets have helped propel the  greenback up nearly 4 percent versus a basket of major  currencies this week, despite the fact that the United  States is the epicentre of the global financial crisis.
   
"The one place where there is relatively functioning and has  relatively normal liquidity is in the biggest market in the  world: the spot fx market ... its certainly a factor affecting  the dollar spot rate," said Derek Halpenny, senior currency  economist at BTM-UFJ.
   
Fears that U.S. banking sector woes are taking root in  Europe following the rescue of a few major European lenders  including Fortisthis week have also hurt the  euro.
   
These events have prompted the ECB, which left rates  unchanged at 4.25 percent on Thursday, to open the door for its  first rate cut in more than five years with President  Jean-Claude Trichet saying inflation risks have eased as  financial market turbulence hit the euro zone.
   
"In this kind of market where the momentum is very much  against the euro, it obviously reinforces the momentum when  you've got the ECB signalling a rate cut," Halpenny said. "But in an environment where we're seeing a rapid decline in  inflationary concerns and where we're going to have pronounced  disinflationary forces in the global economy next year, the  currency markets are unlikely to be punishing central banks for  cutting rates."
   
At 0757 GMT, the dollar index, which gauges its  performance against a basket of six major currencies, was down  0.2 percent at 80.327, but still within easy reach of the  one-year peak of 80.794 hit in the previous session.
   
The euro rose 0.3 percent on the day to $1.3854,  having plumbed a 13-month trough of around $1.3743 on Thursday. Against the yen, the single currency was flat at 145.60 yen , but held above a two-year trough of 144.56 yen  touched earlier.
   
The dollar eased 0.2 percent to 105.10 yen.
    
The squeeze in interbank lending -- which has driven  three-month dollar Libor rates up a full percentage
point in two weeks to more than double the Federal Reserve's 2  percent rate target -- is a major factor behind the dollar's  gains, analysts say.
   
A slew of economic data this week showing the U.S. economy  has likely fallen into a full-blown recession has done little to  take the wind out of the dollar's rise, even as the Fed is seen  likely to cut rates as well this month.
   
But the key U.S. jobs report, which is expected to show the  world's biggest economy shed 100,000 jobs in September with the  jobless rate steady at 6.1 percent, may help bring market focus  back to fundamentals, giving dollar bulls pause for thought.
  
"We see risks of a weaker outcome. If delivered, US dollar  outperformance may well be checked," said ING strategist Tom  Levinson, who is expecting a drop of 150,000 jobs and an  unemployment rate of 6.5 percent.

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European shares fall; eyes on U.S. bailout, jobs

FRANKFURT - European stocks fell on Friday as an advance for banks, notably Swiss firm UBS, was offset by energy stocks which were hit by a fall in crude oil prices.
      
At 0912 GMT, the FTSEurofirst 300 index of top European shares was down 0.6 percent at 1,051.13 points. It fell 1.4 percent on Thursday. Investors awaited a debate and vote in the U.S. House of Representatives on the $700 billion financial industry bailout package.
      
"In the short-term the U.S. rescue package is the dominant factor for stock markets worldwide and financials will remain in focus," said LBBW analyst Michael Koehler.
      
Economic growth was slowing down, partly as a result of the financial market turbulence, he said, echoing a theme addressed by several analysts in the run-up to the release at 1230 GMT of September U.S. jobs data, which are among the most closely watched monthly indicators on the health of the world's largest
economy.
      
Morgan Stanley slashed its euro zone gross domestic product growth forecast for 2009 to 0.2 percent from 1 percent.  "The demand component hardest hit will be investment spending," Morgan Stanley said in a note.
      
"Investment in machinery and equipment, as well as construction investment, will likely suffer from a combination of tighter financing conditions, greater uncertainty about the cyclical outlook, and cooling housing markets," the U.S. bank said.
      
Shares in Swiss engineering group ABB fell 3.6 percent.  Germany's Commerzbank said the financial crisis and the faltering economy in Europe would have "a more visible impact in the forthcoming reporting season and all sectors are likely to be affected."
      
The third-quarter corporate earnings reporting season kicks off in earnest with U.S. aluminium maker Alcoa on Oct. 7. Crude oil prices fell for the third straight day, towards $93.50 a barrel, on worries the U.S. bailout package may not be enough to prevent a further drop in oil demand.
      
Oil and gas was the biggest drag on the FTSEurofirst 300 index, with Italy's ENI down 2.4 percent, France's Total falling 1.8 percent and Royal Dutch Shell 1.5 percent lower. The price of copper fell to a 20-month low. Shares in Anglo American fell 1.7 percent.
      
Credit Suisse cut mining to "market weight" from "overweight", saying commodity prices tend to fall when global industrial production growth drops below 2 percent. "We now believe global industrial production will decelerate to zero from 3.6 percent year-on-year currently," Credit Suisse said in a global equity strategy note.
      
Among banks, the day's top weighted gainers, French BNP Paribas traded 3.5 percent higher after Goldman Sachs raised its target for the stock. Britain's Barclays was up 3.3 percent, France-based Societe Generale gained 2.9 percent and UBS added 1.7 percent. UBS said it would cut 2,000 jobs and close most of its commodities business.
      
The U.S. financial industry bailout plan is due to go before the House of Representatives later on Friday.  "Swift approval could boost sentiment in the short-term and trigger a technical (stock market) recovery," LandesBank Berlin (LBB) said in a note. "But we do not expect that to build a sustained floor or turn the trend," LBB said.

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Asian stock market summary

JAPAN
The benchmark Nikkei shed 1.9 percent to finish at 10,938.14, its lowest level since May 2005, as growing fears about the global economy hit high-tech firms, autos and exporters.
   
Toyota Motor Co fell to a three-year low and Nissan Motor Co dropped to its lowest level in nearly seven years after major car companies reported a 26 percent drop in overall U.S. sales for September as the crisis on Wall Street rocked consumer confidence.
   
The broader Topix was down 2.7 percent at 1,047.97, its lowest close since February 2004.

AUSTRALIA
The benchmark S&P/ASX 200 index was down 1.4 percent at 4,695.4, as investors worried about the health of the U.S. economy and ahead of a vote in Congress on an amended $700 billion financial rescue package.
 
TAIWAN
The weighted index closed up 0.68 percent at 5,742.23, as government support, particularly of technology bellwethers, reversed early declines triggered by Wall Street's overnight tumble amid uncertainty over the House of Representatives' vote on a massive bailout plan for the US financial sector.

CHINA MARKETS WERE SHUT FOR THE NATIONAL DAY HOLIDAY.

HONG KONG
The Hang Seng index closed down 528.71 points or 2.9 pct at the day's low of 17,682.40, after moving to a high of 17,926.14.

INDIA
The 30-share benchmark Sensitive Index of the Bombay Stock Exchange fell 529.35 points or 4.05 percent to 12,526.32, off 4.4 percent in the week. The 50-share S&P CNX Nifty declined 132.45 points or 3.35 percent to 3,818.30.
   
Sensex breadth was very weak, as 27 constituents declined. Tata Steel Ltd. fell the most, plunging 10.22 percent to 393.80 rupees.
   
India's biggest private lender ICICI Bank Ltd. dipped 8.5 percent to 504.50 rupees and Sensex heavyweight Reliance Industries Ltd. tumbled 7.67 percent to 1,760.95 rupees, recovering slightly from a 52-week low of 1,745.10 rupees touched in the day. Total turnover in Reliance shares was about 6.5 billion rupees, highest in the day, on a volume of nearly 3.6 million shares.

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Copper set for record weekly drop, growth fears drag

LONDON - Copper extended losses on Friday, dropping 2.8 percent to its weakest level since February 2007 and other metals hit multi-month lows on fears about demand and a worldwide slowdown of economic
growth.
      
Copper prices are down around 15 percent so far this week, eclipsing the previous record weekly loss of 13.2 percent in August 1980, after a series of dismal U.S. data pointed to economic slowdown in the United States.
      
"The economic prospects have deteriorated sharply in recent weeks," said commodity strategist Stephen Briggs at RBS. "Copper in particular could go lower," he said.
      
By 0953 GMT three-month copper on the London Metal Exchange steadied to $5,845 a tonne, down $5 against the close on Thursday when the metal shed 5 percent.
      
In early trade copper hit a low of $5,680 -- the lowest since February 2007 and down 2.8 percent. Some analysts expect prices to fall further as copper is still about $2,000 above the highest costs of production.
      
"We estimate that aluminium and zinc are trading between 10 percent and 30 percent below their marginal cost of production," said Deutsche Bank in a report.
      
Aluminium, mainly used in packaging, construction and in the automotive sector, was at $2,310 a tonne from $2,301 on Thursday, after touching a 32-month low of $2,261.
      
On Thursday it slid 4.6 percent as major automakers reported sharper-than-expected falls in U.S. sales for September and new U.S. factory orders tumbled by an unexpectedly steep 4 percent in August, the sharpest fall since October 2006. 
      
The dollar, on track for its biggest weekly gain in 16 years, held near a one-year high against a basket of major currencies, dampening sentiment as it makes dollar-priced commodities more expensive for other currency holders.
       
Most investors will closely watch the U.S. jobs report due at 1230 GMT, which should shed more light on the health of the U.S. economy. Commodity markets also kept a close eye on equities as fears about a
global economic slowdown and even recession increased.
     
"We expect the metals sector will also have to contend with ongoing declines in global equity markets," said Deutsche Bank.  World stocks fell to a fresh three-year low as concerns grew that Washington's $700 billion bailout package might not be enough to prevent the U.S. economy and the rest of the world from slowing down further.
      
U.S. House democratic leaders are optimistic the revised rescue bill to tackle the financial crisis passed by the Senate will clear the House of Representatives later on Friday. "If it is passed it will ease some of the financial worries but it isn't a solution to slowing economic growth," said RBS's Briggs.
      
"We will still be left with the prospect of slowing economic growth that is very likely spreading right across the world." Metals markets in China, due to re-open on Monday after week-long holidays, are expected to fall by their daily limits, perhaps for several days running - following other markets down.
      
Zinc touched $1,569 a tonne, the lowest level since Nov. 2005, before trading at $1,575, down $5 from Thursday. Nickel hit a low of $14,900, the lowest level since March 2006, before trading at $15,225, $75 lower since Thursday.
      
Lead dropped to a two-month low of $1,662.25 a tonne before recovering to $1,705, up $5 from Thursday's close. Tin traded at $16,800, up $65 from Thursday's close. Earlier it hit $16,250, the lowest point since February this year.

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