US & World Daily Markets Financial Briefing 03-11-2008

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US STOCKS-Biotechs lift Nasdaq; Dow and S&P 500 flat

NEW YORK - The Nasdaq rose on Monday as investors snapped up biotechnology shares following broker upgrades on Biogen's (BIIB.O: Quote, Profile, Research) stock, but the Dow and the S&P 500 were little changed on concerns that the economic downturn might be deepening.

A report showing U.S. manufacturing shrank further in October heightened fears of a deeper recession, a day before the U.S. presidential election. The Institute for Supply Management said its index of national factory activity fell to 38.9 in October, a 26-year low, from 43.5 in September.

The level of 50 separates contraction from expansion. "Pretty grim. It means we're in a recession, it's as simple as that ... a pretty solid manufacturing recession," said Robert Macintosh, chief economist at Eaton Vance Corp in Boston.

"I don't think the data adds anything that already wasn't in the thought process of investors. We are in a recession, the question is how long or deep is it going to be?"

The Dow Jones industrial average shed 9.48 points, or 0.10 percent, to 9,315.53. The Standard & Poor's 500 Index slipped 2.91 points, or 0.30 percent, to 965.84. The Nasdaq Composite Index edged up 5.68 points, or 0.33 percent, to 1,726.63.

Shares of energy companies weighed on both the Dow and the S&P 500, with Chevron Corp declining 2.1 percent to $73. The drop in energy shares coincided with a decline in oil prices as investors worried an economic downturn would translate into less energy demand.

Shares of Exxon Mobil Corp shed 1.5 percent to $73.03 as U.S. crude for November delivery CLc1 lost $1.94, or nearly 3 percent, to $65.87 a barrel.

Shares of plane maker Boeing dropped 1.7 percent to $51.42 on the New York Stock Exchange after Goldman Sachs added the stock to a "conviction sell" list, according to theflyonthewall.com.

The broker action overshadowed news of a deal ending a strike that crippled Boeing's Seattle area plants for 57 days. But shares of Biogen, among stocks seen positioned to fare better in a slumping economy, jumped 8 percent, putting the stock among the Nasdaq's standouts.

Deutsche Bank recommended a "buy" on Biogen, while Robert W. Baird, a research firm, raised its view on the company to "outperform" from "neutral."

Shares of Gilead Sciences, another biotech company, climbed 2.6 percent to $47.05, as those of Amgen climbed 2.4 percent to $61.31.

Elsewhere, shares of Wal-Mart Stores rose 2 percent to $56.97 after a brokerage raised its rating on the retailer.

Citigroup raised its rating on chipmakers, including Nvidia Corp, whose stock jumped 2.4 percent to $8.96, and Integrated Device Technology, up 3.8 percent to $6.60 on Nasdaq. Investors are bracing for Friday's report on October U.S. nonfarm payrolls.

Democratic contender Barack Obama heads into Tuesday's voting in a comfortable position, with Republican opponent John McCain struggling to overtake his lead in every national opinion poll and to hold off his challenge in about a dozen states won by President George W. Bush in 2004.

Obama leads McCain in six of eight key battleground states, including the big prizes of Florida and Ohio, according to a series of Reuters/Zogby polls released on Monday.

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FOREX-Easing risk aversion cools dollar, yen rally

LONDON - The euro and high-yielding currencies rose against the dollar on Monday, while the yen retreated broadly as abating risk aversion lifted stocks.

The scale of investors' deleveraging was highlighted in October, when the dollar index  posted its biggest monthly percentage gain in 17 years and the euro suffered its largest monthly fall against the dollar and yen since its 1999 launch.

Concern about the prospect of a global recession was expected to limit gains in riskier assets and offer support to the low-yielding dollar and yen.

"The problem for the market is that all the trades that worked well for the past 5 years went badly very quickly," said Michael Rosborough, senior global FX strategist at Citigroup in London. "On bounces like this you would expect to see people still liquidating and using them as an opportunity to lighten up on positions," he added.

By 1200 GMT, the euro was up 0.9 percent on the day at $1.2845 and rose 1.6 percent to 127.34 yen. Sterling rose around 0.7 percent against the dollar to $1.6190, while the dollar gained 0.7 percent to 99.14 yen. The high-yielding Australian and New Zealand dollars also rose around 1.4 percent versus the U.S. currency.

World stocks, as measured by MSCI's all-country index, rose 0.9 percent on the day. Major events this week include the U.S. presidential election on Tuesday, with a win by Democrat Barack Obama generally seen as more favourable for financial markets.

Also, the European Central Bank, the Bank of England and the Reserve Bank of Australia are all expected to lower interest rates to protect their struggling economies from the threat of a looming global recession.

Each of them is expected to cut rates by at least half a percentage point. The U.S. Federal Reserve last week cut its key rate by half a point to 1.0 percent and the Bank of Japan (BoJ) cut its rate to 0.30 percent from 0.50 percent.

Analysts said Britain's central bank could cut rates by more than the half percentage point that is expected. "The risks are tilted toward an even larger move, as the upside risks to inflation have diminished significantly, according to resident BoE hawk (Tim) Besley," RBC strategists said in a note to clients.

Emerging giants China and India also cut rates last week. Economic weakness was underscored by a report on euro zone manufacturing activity, which sank in October below record low levels initially estimated.

The Markit Eurozone Purchasing Managers Index for the manufacturing sector fell to 41.1 -- the lowest in the survey's 11-year history -- from September's 45.0. That was below the flash estimate and economists' forecasts of 41.3.

The release marks the fifth consecutive month the PMI index has been below the 50 mark that divides growth from contraction. The U.S. Institute of Supply Management's factory activity index, due out at 1500 GMT, is also expected to show further weakness. Economists expect a reading of 41.5 versus 43.5 in September.

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FTSE rises at midday as miners offset bank losses

LONDON - Britain's leading share index had edged up by midday on Monday, sustained by gains in commodity stocks, while concern about Barclays' fundraising dented banking stocks.

Miners were among the top performers on the FTSE 100 as improved risk appetite boosted metal prices, while energy shares rallied as the price of crude oil rose modestly.

By 12:05 p.m. British time, the benchmark index rose 25.79 points to 4,402.66, on track for a fifth day of gains, its longest since December 2007.

The index gained 12.7 percent last week, its strongest week on record, fed by anticipation of a widely-expected interest rate cut from the Bank of England later this week, although it was down 10.7 percent in October.

Mike Lenhoff, chief strategist at Brewin Dolphin said the market has reacted positively to a spate of interest rate cuts in the United States, China, India and Japan, turning the spotlight to the BoE on Thursday. "The underlying tone of the market has improved. There is an encouraging feel to what is going on," he said.

However, he said the outlook for the banking sector remained unfavourable as potential recession in Britain has prompted fears of further write-downs and bad debts.

Banks tempered gains on the broader market, as Barclays dropped 4.9 percent on concern that its $12 billion (7.4 billion pounds) capital fundraising is too expensive. Analysts at Merril Lynch estimated the fundraising may cost investors 3.2 billion pounds.

Lloyds TSB, the British bank in the process of buying rival HBOS, lost 0.7 percent after it said its profits for the first nine months of the year fell sharply as a result of financial market turmoil and rising bad debts.

HBOS climbed 4.3 percent after the Sunday Times newspaper said Lloyds TSB could face competition for its bid from HBOS's Internet banking unit.

HBSC and Royal Bank of Scotland fell 2.9 and 1.4 percent respectively, while Standard Chartered advanced 3.2 percent.

Among other decliners were index-heavyweights Vodafone and supermarket group Tesco fell 3.7 percent, while Vodafone shed 4.3 percent.

Helping keep the FTSE 100 in positive territory were the commodity stocks as a weaker dollar supported base and precious metal prices, while crude oil futures turned positive.

Kazakhmys surged 13.3 percent, lifted by rising copper prices. Xstrata, Vedanta Resources, Lonmin and Eurasian added between 6.5 and 7.9 percent. Rio Tinto added 1.9 percent, after the company said its new ilmenite project is on track to produce and the company sees most of its projects in a strong position to weather any economic scenario.

Energy firms also recorded gains, with BP and Royal Dutch Shell up between 0.8 and 1.6 percent, while Cairn Energy gained 7 percent.

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Asian Market Summary

The benchmark Nikkei lost 452.78 points to close at the day's low of 8,576.98. So far this year, it is down 44 percent, though it has gained 12 percent on the week.

The broader Topix shed 3.6 percent to 867.12.

Seoul shares ended 1.44 percent higher on Monday after volatile trade that saw them swing in and out of positive territory, with banks bouncing back from extended losses but some exporters trimming earlier gains to end lower.
      
Banks including Shinhan Financial Group staged a rebound, helped by South Korea's economic stimulus plan, which is aimed helping the troubled real estate and construction sectors.
      
The main index had risen as much as 4 percent to 1,158.87 points earlier in the session, but briefly fell into negative territory at the low of 1,109.32 points.
      
The Korea Composite Stock Price Index ended up 1.44  percent at 1,129.08 points on the first trading day in November after a 23 percent loss in October.

Taiwan stocks closed 2.55 percent  higher on Monday, their third consecutive rise, as investors  bought into PC companies on their strong outlook, and the  financial and tourism industries on prospects of warmer  cross-strait ties.
   
The main TAIEX share index closed 124.40 points  higher at 4,995.06, pushed up by the broader computer sub-index  and the banking and insurance sub-index, both of  which rose more than 4 percent.  

The benchmark Shanghai Composite Index closed down 9.01 points or 0.52 pct at 1,719.77,  the lowest level in 25 months, after moving between a high of 1,750.32 and a low of 1,702.98.
   
Turnover fell further to 23.13 bln yuan from 25.16 bln on Friday.

The Hang Seng index closed up 375.70 points or 2.69 pct at 14,344.37, off a low of 14,272.17 and high of 14,889.13.
   
Turnover was 52.11 bln hkd.k

The 30-share benchmark index rose 549.62 points to 10,337.68, its highest close since Oct 21, with 28 stocks rising. The index is up more than 34 percent from a three-year low of 7,697.39 hit last Monday.     

In the broader market gainers led losers 1,977 to 639 on volume of 299 million shares.

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Gold rises 1 pct as dollar weakens, equities firm

LONDON - Gold rose more than 1 percent in Europe on Monday as the dollar softened against the euro, boosting interest in bullion as a currency hedge, with firmer equity markets also cheering investors.

Spot gold climbed to $733.45/735.45 an ounce at 1005 GMT from $723.05 late in New York on Friday. The yellow metal posted its biggest monthly decline in 25 years in October as the firmer dollar pressured prices.

"The reason gold is rising is because the dollar is weaker and equity markets are stronger," said Deutsche Bank trader Michael Blumenroth. "The daily ranges are becoming smaller and the market is becoming a little more relaxed now."

Gold usually moves in the opposite direction to the U.S. currency, as it is often bought as an alternative investment to the dollar.

Traders will be keeping a close eye on a raft of interest rate decisions due later in the week for clues to the direction of the gold market.

The platinum metals were firmer as the market awaited U.S. auto sales figures later in the session. Both platinum and palladium have shed more than half their value in the last three months as investors fretted about the outlook for demand from carmakers, the main consumers of the precious metals.

Soft auto sales numbers in recent months have sparked heavy selling of the PGMs, more than half of which are consumed by the car industry each year.

"We expect another decline in sales which could put downward pressure on PGM prices," said Standard Bank's de Wet.

Spot platinum edged up to $821.50/851.50 an ounce from $813 an ounce late in New York on Friday, while spot palladium firmed to $197/202 from $193.50. Among other precious metals, spot silver was at $10.05/10.15 against $9.81 an ounce.

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