US & World Daily Markets Financial Briefing 03-12-2008

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US STOCKS SNAPSHOT-Indexes pare losses, defensive shares rally

NEW YORK - U.S stocks pared losses and the Nasdaq turned positive on Wednesday, driven by a rally in defensive stocks and biotech shares. 
      
The Dow cut heavy losses as investors moved into defensive stocks such as Coca-Cola and McDonald's 
The Nasdaq turned higher after getting a boost from biotech shares, led by Genzyme and Gilead Sciences  on the prospect of a new presidential
administration.
      
The Dow Jones industrial average was down 31.22 points, or 0.37 percent, at 8,387.87. The Standard & Poor's 500 Index was down 1.47 points, or 0.17 percent, at 847.34. The Nasdaq Composite Index was up 7.14 points, or 0.49 percent, at 1,456.94.

TREASURIES-Bonds fall in pullback from recent price surge

NEW YORK - U.S. Treasuries prices fell on  Wednesday as investors pulled back from a recent price surge  that pushed yields down to the lowest in more than 50 years.
   
Losses were limited by data showing a larger-than-expected  contraction in private sector payrolls in November and a record  low reading of U.S. services activity -- all of which would  normally ignite a safe-haven bid for government debt.
   
"The market is taking a bit of a breather. On the  fundamentals it is getting harder to justify (higher prices),"  said Carl Lantz, interest rate strategist at Credit Suisse in New York.
   
Benchmark 10-year Treasury notes were trading  13/32 lower in price for a yield of 2.75 percent, from 2.70 percent late on Tuesday. Benchmark yields, which move inversely  to prices, on Monday reached as low as 2.65 percent, the lowest  in at least five decades.
  
Two-year Treasury notes were trading 3/32 lower  in price for a yield of 0.94 percent, up from 0.90 percent late  on Tuesday but still below the Federal Reserve's target rate  for overnight lending between banks of 1 percent.
   
A measure of the vast U.S. service sector slumped further  than expected to a record low of 37.3 in November, according to  the Institute for Supply Management, from 44.4 in October. A  reading of 50 separates expansion from contraction.
   
Economists expected a reading of 42.0, according to the  median of 71 forecasts in a Reuters poll that ranged from 37.0  to 46.5.
   
"The severe damage to the service industry is another  indication of the extraordinary force of this recession," said  Pierre Ellis, senior economist at Decision Economics in New  York.
   
Also, ADP Employer Services said on Wednesday that U.S.  private employers cut 250,000 jobs in November, marking the  most in seven years. ADP also revised the number of jobs cut in  October to 179,000 from the originally reported loss of  157,000.

Traders said the ADP data reinforced expectations of a  large contraction in November non-farm payrolls, to be released  on Friday. "(ADP) are telling a story that it got a lot worse in  November. That is the main thing to take away from it," said  Nigel Gault, chief U.S. economist at Global Insight in  Lexington, Massachusetts.
   
The median of forecasts from economists polled by Reuters is for non-farm payrolls to have fallen by 320,000 last month  after shrinking by 240,000 in October.
   
Other data on Wednesday showed that U.S. non-farm  productivity was slightly stronger than initially forecast in  the third quarter, although the pace of growth remained the  slowest this year as output recorded its biggest decline in  seven years.
   
Five-year Treasury notes traded 9/32 lower in  price for a yield of 1.72 percent, from 1.66 percent late on Tuesday, while the 30-year bond was 21/32 lower for  a yield of 3.22 percent, from 3.19 percent.

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FOREX-Yen gains, risk aversion hits global equities

LONDON - The yen extended broad gains on Wednesday, reflecting heightened risk aversion as investors cut back on investments in higher-yielding assets while global equities fell.

Currency moves were subdued ahead of interest rate decisions by central banks in the euro zone, Britain, New Zealand and Sweden on Thursday, with expectations high of aggressive monetary policy easing to counter the threat of deflation.

The low-yielding Japanese currency, which hovered near a five-week high against the dollar, drew strength from tumbling share prices as European equities fell 1.1 percent , while U.S stock futures .DJc1 were slated to open lower.

Investors have flocked to the dollar and the yen on the view that the ECB, BoE and other central banks have more scope to cut rates than the Bank of Japan and the Federal Reserve, whose rates are already low.

Investors continued to unwind carry trades, where the yen was used to fund purchases of higher-yielding assets. Analysts said the yen would take strength from share prices -- often seen as a barometer of investors' risk appetite -- which suggest that risk aversion remains high.

"There is nothing to suggest last week's rally in stocks can be sustained," said Geoffrey Yu, currency strategist at UBS in London.  "Very few people want to take on fresh risks and that is not going to help any currency to move strongly against the yen."

By 1214 GMT, the dollar slid 0.2 percent to 93.18 yen, while the euro fell 0.7 percent to 117.81 yen. The euro fell half a percent to $1.2648, struggling after data showed further deterioration in the euro zone services sector.

China's central bank entered the domestic foreign exchange market on Wednesday to offer dollar liquidity, which pulled the yuan off the bottom of its daily trading band versus the U.S. currency.

However, many in the market believe China is adjusting its currency policy towards moderate yuan depreciation to stimulate the economy.

Sterling fell broadly, pushing its level against a basket of currencies to its lowest level since January 1996, after data showed that the UK services sector shrank faster than expected in November.

The purchasing managers' index (PMI) for the services sector fell to a series low of 40.1, boosting expectations that the Bank of England may slash rates by a full percentage point from 3.0 percent on Thursday to shore up the domestic economy.

Earlier in the day, bleak PMI services data for the euro zone pushed the euro to a session low against the dollar and the yen, as the figure provided further evidence that the single currency region is grappling with a recession. Ongoing signs of economic weakness are seen prompting the European Central Bank to cut interest rates by 50 basis points or even more on Thursday from 3.25 percent at the moment.

The market's focus will be centered on how aggressively the ECB and the BoE cut interest rates, as big rate cuts would diminish the yield advantage of their currencies over the low-yielding yen.

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Europe shares drop on oils; weak data dents mood

LONDON - European stocks fell 1.8 percent early on Wednesday, with oil and bank shares leading the decline as investors digested a sharp drop in business services activity in the euro zone economy.

At 0951 GMT, the pan-European FTSEurofirst 300 index was down 1.8 percent at 810.24 points, having risen 1.8 percent the day before.

Oil shares were the biggest losers on the index, with BP, Royal Dutch Shell and Total losing between 2.6 and 4.1 percent. Oil rose above $47 a barrel, recovering from a near 5-percent tumble the day before.

Electricite de France dropped more than 6 percent after it offered to buy a 50 percent stake in Constellation Energy Group Inc's nuclear business.

Banks were trading lower, with Anglo Irish Bank falling by 11.7 percent after it posted a 34 percent decline in full-year earnings, while Commerzbank fell 3.5 percent and Swedbank lost 2.3 percent.

Allied Irish Bank was up 1.7 percent, however, on hopes it would be recapitalised by the Irish government. Royal Bank of Scotland was up 2.8 percent.

Analysts said markets were braced for more bad news about the state of the world's major economies and expecting decisive action on interest rates from central banks.

"The fact is nobody is expecting anything good out of economic data these days, and a lot of the gloom has already been priced in," said James Hughes, an equity strategist at CMC markets.

Euro zone services activity fell further than initially thought in November, to a fresh record low, while inflationary pressures continued to subside, a key survey showed.

The news added more weight to expectations that the European Central Bank and the Bank of England will announce aggressive interest rate cuts on Thursday.

"If we get a big cut from the ECB it will be a shot in the arm for the market, but we have to be careful these moves aren't factored in already. If we get any big surprises, they could be seen as a panic measure or compensating for earlier inaction," Hughes added.

Miners were lower, with Rio Tinto falling 8.7 percent on market talk of a rights issue. The company was not immediately available for comment.

Anglo American, Eurasian, and Lonmin all fell between 2.1 and 2.3 percent as gold and copper prices fell. Later in the session, investors will look to U.S. non-manufacturing PMI figures due at 1500 GMT for clues about the health of the world's largest economy.

On the data front, euro zone retail sales data at 1000 GMT, and U.S. non-manufacturing PMI figures due at 1500 GMT will be in focus.

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Tokyo, Hong Kong In Cautious Advance, BHP Rises

Asian stocks were higher Wednesday, with the financial sector advancing after losses in the previous two sessions, while shares of BHP Billiton climbed in Sydney in an otherwise-mixed session for the commodity sector.

Australian stocks shook off earlier jitters to advance after data released Wednesday showed the economy grew at its slowest pace in eight years during the third quarter.

Brokers were expecting quieter trading throughout the remainder of December as hedge funds and other institutional investors move to the sidelines, closing out positions ahead of the calendar year end.

"The risk for them is that if they on par with their competitors and they put on a trade now that goes wrong, then their performance for the year is going to look despicable," said Andrew Sullivan, a sales trader with MainFirst Securities in Hong Kong. "One of my funds told me this morning they've effectively closed their book for the year."

The U.S. dollar gained slightly against the Japanese yen, extending a modest advance in New York Tuesday. The greenback was quoted at 93.28 at mid-morning in Tokyo, up from its level of 93.14 in New York, and up from 93.05 there late Monday.

Qantas Airways shares climbed 6.2% after the Australian carrier confirmed it was in merger talks with British Airways (BAIRY).

BHP Billiton climbed 3.3% after news the miner will commit $245 million to the redevelopment of the Cossack oil project headed by Woodside Petroleum in northwest Australia.

Honda Motor Co.'s (HMC) shares were down sharply after the Nikkei newspaper reported Wednesday the automaker plans to scale back its overseas expansion plans, including freezing a capacity-expansion project in Turkey and delaying the start up of its second factory in India by one year or longer. Shares of Honda fell 5.6%

Among regional indexes, Japan's Nikkei 225 Index climbed 1.2% in the afternoon session at 7,955.98 and China's Shanghai Composite was up1.7% at 1,921.59.

Hong Kong's Hang Seng Index climbed 1.9% at 13,653.92. The city's China Enterprises Index, a benchmark of locally-listed China shares, was up 2.9%.

Sinopec (SNP), China's largest refiner, saw its shares up 1.7%, after crude oil prices fell overnight. The refiner, subject to state-regulations on what it can charge at the pump, enjoys higher margins when crude prices decline.

In other action, South Korea's Kospi index traded little changed at 1,023.28, Taiwan's Taiex slipped 1.1%, and Singapore's Straits Times index added 1.2%

Thai shares rallied as antigovernment protesters prepared to decamp after a week-long siege of the nation's main international airport following Tuesday's court ruling that disbanded the ruling government for electoral fraud. Bangkok's SET was up 3% at 398.41.

The Australian S&P/ASX 200 climbed 1.3% to 3,573.50. Data released by the Bureau of Statistics Wednesday showed dross domestic product expanded 0.1% in the third quarter from the second, falling short of an expected 0.2% expansion. On annualized basis the economy expanded 1.9% during the quarter, showing the economy remains on track for annual expansion this year, although well short of its long-term average growth of 3%.

Elsewhere, New Zealand's NZSX-50 rose 2.3%, Indonesia's JSX Composite rose 1%, and Malaysia's KLSE was up 0.4%.

Shares of Japanese steelmakers were also weaker after the Nikkei reported late Tuesday that some industry leaders are considering temporarily shutting down blast furnaces as early as this month because of slack demand.

JFE Holdings , which is mulling shutdowns at some of its seven blast furnaces in western Japan, saw its shares ease 0.2%, while Kobe Steel , reportedly considering idling one blast furnace, fell 1.3%.

On the energy markets, January light sweet crude oil futures were up as much as 67 cents to $47.63 a barrel. The front-month contract ended at its lowest level since May 20, 2005 in Nymex trading Tuesday, falling $2.32 to $46.96 a barrel.

Among standouts in the financial sector, National Australia Bank's shares were up 1.9%. Hong Kong-listed shares of HSBC Holdings (HBC) rose 2%, recouping some of their more than 6% loss Tuesday.

Shares of Toyota Motor Corp. (TM) were down 1.8%, while Nissan Motors (NSANY) were down 1.3%. The automakers reported Tuesday that vehicle sales in the U.S. fell 31% in November from a year earlier.

Among other shares of note in Tokyo, Hitachi Ltd. (HIT) climbed 2.7% after the firm said Tuesday it will jointly develop solid-state memory drives with Intel. The new technology is reportedly considered an alternative to hard disk drives.

Fast Retailing stood out among the retail sector, its shares untraded amid an overwhelming number of buy orders after the operator of the Uniqlo apparel chain reported same-store sales in November rose more than 32% from a year earlier.

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PRECIOUS-Gold eases on firm dollar ahead of data, rate cuts

LONDON - Gold eased on Wednesday as the dollar firmed against the euro, denting the metal's appeal as a currency hedge, with traders awaiting a raft of key economic news due later this week.

A spate of interest rate decisions, including that of the European Central Bank on Thursday, are set to influence the currency markets, and key U.S. non-farm payrolls numbers will be released on Friday.

Spot gold slipped to $773.05/775.05 an ounce at 1000 GMT from $781.50 an ounce in New York late on Tuesday. "This is a big week for news, and a lot of people will be on the sidelines ahead of that," Afshin Nabavi, head of trading at MKS Finance, said. "This is going to be a very illiquid market."

Gold is often bought as an alternative investment to the dollar and typically moves in the opposite direction to the U.S. currency. The dollar strengthened against the euro on Wednesday as traders bet on a euro zone rate cut.

The currency markets remain jittery ahead of rate announcements from the ECB, the Bank of England and the Reserve Bank of New Zealand on Thursday. Gold shrugged off a move higher in oil prices, with inflation fears tempered by crude's sharp dip at the beginning of this week.

U.S. crude futures are currently up on the day, but are trading some 13 percent below the level they hit early on Monday. Traders are awaiting U.S. stockpiles data due later in the session. Physical offtake of gold is also slowing, traders said. In India, the world's largest bullion market, domestic gold buying declined as well-stocked traders awaited further price falls. "We have many buy orders at $750 (an ounce) levels," a dealer at a Mumbai bank said.

Among other precious metals, spot silver tracked gold lower to $9.38/9.46 an ounce from $9.54. Platinum prices rose, recovering some of this week's up to 10 percent losses. The metal slipped sharply on fears over falling sales by automakers, the main consumers of platinum used to make autocatalysts.

Data released on Tuesday showed U.S. car sales tumbled nearly 37 percent in November, the 13th consecutive month of falls, to their lowest level since 1982. Sales at GM and Chrysler fell 41 percent and 47 percent respectively in November. Carmakers said there was no sign demand would rebound in the next six months.

However, with platinum having already fallen two-thirds from the highs it hit in March and much of the bad news already priced in, the market showed little reaction to the news. "The platinum group metals market has come to expect the worse, and much of this bearish news has been priced in already," Standard Bank analyst Walter de Wet said.

A top lawmaker predicted Washington will approve a bailout plan for U.S. automakers after they submitted survival plans to Congress, and both GM and Chrysler said they needed an immediate cash injection to avoid failure.

Spot platinum rose to $803.50/823.50 an ounce from $796 late on Friday, while its sister metal palladium  was little changed at $171/176 an ounce against $169. A Reuters survey showed platinum, palladium and silver are expected to record sharp price falls in 2009 as demand sags in line with economic growth.

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