US & World Daily Markets Financial Briefing 05-01-2009

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US STOCKS-Wall St reverses recent sharp gains

NEW YORK - U.S. stocks fell on Monday as  investors took profits on strong gains racked up in thin  trading last week and shares of the largest telecommunications  companies sank on worries about slowing cellphone sales.
   
Stocks had closed out a holiday-shortened week with a more  than 6 percent gain as investors bet a recovery is on the  horizon after their worst year since the Great Depression.
   
U.S. President-elect Barack Obama, seeking to drum up  support from both political parties, plans to propose up to  $310 billion in tax cuts as part of a massive stimulus package,  senior Democratic aides said on Sunday. For details see .
   
"Right now we're just watching and waiting to see if there  is any news from the new administration and what type of news  it will be," said Frank Lesh, a futures analyst and broker at  FuturePath Trading LLC in Chicago. "We got a little bit of  profit taking here," he added.
   
Telecom shares were among the worst performers after  Bernstein Research cut its ratings and price targets for AT&T  Inc and Verizon Communications, citing  concerns about cellphone sales. Verizon shares fell 5.3 percent  and AT&T sank 3.5 percent.
   
Transportation stocks also fared poorly after truck and  engine maker Navistar International forecast it would  earn less that Wall Street expected in its 2009 fiscal year.  The Dow Jones Transportation index fell 1.2 percent and  Navistar fell 2.2 percent.
   
The Dow Jones industrial average fell 86.02 points,  or 0.95 percent, at 8,948.67 and the Standard & Poor's 500  Index lost 8.57 points, or 0.92 percent, at 923.23. The  Nasdaq Composite Index stumbled 23.79 points, or 1.46  percent, at 1,608.42.
   
"Part of what we are seeing ... is searching around for  rationalization and not finding one necessarily," said Arthur  Hogan, chief market analyst with Jefferies & Co in Boston. Hogan said that given that last week's gains came amid low  volume, they may be difficult to sustain.
   
In company news, Apple Inc chief executive Steve  Jobs wrote a letter aimed at dispelling investor concerns about  his recent weight loss, pushing shares of the iPod maker up 3.1 percent to $93.56 in early trading.
   
On Friday, the S&P closed 45 points above its 50-day moving  average, the greatest margin it has been over that widely  watched measure since May 20, 2008 and the third day in a row  it closed above the 50-day moving average in its longest streak  since early September, before Lehman Brothers' collapse.
   
On the U.S. data front, U.S. construction spending fell a  slim 0.6 percent in November, showing that building at the end  of 2008 was stronger than Wall Street had expected.
   
Investors also braced for monthly vehicle sales, seeking  insight on the outlook for the embattled economy, but the  week's big piece of macroeconomic data -- December U.S. nonfarm  payrolls -- will come on Friday.

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FOREX-Euro loses traction; inflation outlook weighs

The euro hit three-week lows against the dollar on Monday, with weaker than expected Italian and Spanish inflation data and tax cuts in Germany seen heaping pressure on the European Central Bank to cut interest rates further soon.

Sharp losses for the euro, which has shed more than 3 cents in the European session so far, also spread to the euro/sterling pair -- taking it well away from record lows for the pound reached last week and easing momentum towards parity.

A slightly less hesitant attitude to risk helped lift stock market sentiment and the dollar to its highest in more than three weeks against the yen.

Figures on Monday showed Italian EU-harmonised consumer prices fell 0.2 percent month-on-month in December, slowing to growth of 2.3 percent year-on-year from 2.7 percent in November. Spain's EU-harmonised inflation tumbled to a 10-year low of 1.5 percent in December, adding evidence that price pressure in the euro zone may be easing.

"We've seen inflation falling in Italy and Spain and that just confirms what we would expect to see in the euro zone flash numbers tomorrow which will be sub-2 percent," said Jeremy Stretch, markets strategist at Rabobank in London.

"The inflation picture is changing and that will have important implications for potential estimations of what the ECB might do," he added.

By 1224 GMT, the euro had fallen 2.1 percent on the day to $1.3603, having earlier hit $1.3594 -- its lowest since mid-December, according to Reuters data.

The euro also fell heavily to 93.63 pence against the pound -- pulling the battered UK currency back from recent record lows near the brink of parity.

Economists polled by Reuters expect euro zone inflation figures, due on Tuesday, to show that prices rose 1.8 percent in December year on year compared with a rise of 2.1 percent previously ECON.

Meanwhile German Chancellor Angela Merkel bowed to pressure to include tax relief in a new stimulus package designed to shield the economy from its worst recession since World War Two.

BIG ECB RATE DECISION

The European Central Bank meets next week to decide on interest rates in the single currency bloc, amid a fast changing inflation backdrop, with markets largely pricing in a chance of rates being cut 50 basis points to 2 percent.

Markets also see the probability of borrowing costs falling more sharply to 1.75 percent ECBWATCH. "It will be important to closely monitor what (ECB President Jean-Claude) Trichet has to say in the next few days. The fundamental case for easing policy by at least another 50 basis points in January is strong," Brown Brothers Harriman & Co said in a note to clients.

Adding fuel to euro area rate expectations, ECB Vice President Lucas Papademos said on Sunday that more interest rate cuts may be needed to shield the euro zone economy from recession .

The dollar gained traction against the yen as a 1.5 percent rise in European shares hit the Japanese currency, which has benefited from falling stock prices in past months, and helped to push the dollar to its strongest against a basket of currencies and the euro since mid-December.

The dollar climbed 1.2 percent to 93.39 yen according to Reuters data, its highest since early December. The dollar index, measuring it against a basket of six major currencies, rose to 83.011, its strongest since Dec. 15.

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Energy stocks lead European shares higher

LONDON - European shares were higher at  midday on Monday, continuing their New Year rally and briefly  touching their highest level since mid-November, with energy  stocks leading the risers.
   
By 1130 GMT, the pan-European FTSEurofirst 300  index of top European shares was up 1.4 percent at 868.86 points  after earlier hitting a session high of 871.64 points.
   
Darren Winder, strategist at Cazenove, said: "It is a very  different start from January last year, we are clearly coming  off one of the worst years in history so we would expect to see  a positive start. Investors are trying to be more positive  because of the severity of 2008."
   
"Even though GDP in major countries are expected to go down  and unemployment is on the rise, we are now looking at much  lower levels of inflation. There has been fiscal stimulus and  there is now every reason to be looking at a recovery path in  equities," added Winder. 
   
U.S. President-elect Barack Obama is seeking as much as $310  billion in tax cuts as part of a massive stimulus plan to  counter what senior policymakers warned could be a prolonged  period of economic stagnation and deflation.
   
Officials from the Federal Reserve and the European Central  Bank on Sunday vowed to fight the damaging effects of deflation  as the global economy suffers a deep and lengthy recession.  Jim Wood-Smith, head of research at Williams de Broe, said:

"Plans from Obama and other policy makers are just confirmation  of what the markets already know. Markets are higher as the  equity valuations we are seeing are very low levels and they have now priced in ghastly economic data."
   
Energy stocks were one of the top performing sectors on the  index. Oil prices rose nearly 3 percent after an Iranian  military commander reportedly called for an oil boycott over  Israel's offensive in the Gaza Strip, and on worries over the  deepening Russian gas supply row.
   
BG Group, BP, Royal Dutch Shell and  Total were up between 0.6 percent and 4 percent. Miners were mixed. Although most of the stocks were in the  red, Rio Tinto and Xstrata were stand out  risers, up 2.7 percent and 2.9 percent respectively.     
   
Electricity stocks were also gainers on the index. British  Energy, EDF and EDP were between 0.3  percent and 2.2 percent higher. Gas, water and multi-utilities stocks also performed well.  RWE rose 2.1 percent after HSBC upgraded the group to  "neutral" from "underweight". 
   
Across Europe, the FTSE 100 index was up 0.1  percent, Germany's DAX was 0.2 percent higher and  France's CAC 40 was down 0.03 percent.
    
Biggest loser on the index was the automobiles sector, after  broker downgrades hit certain stocks. Renault fell back 5.1 percent after Citigroup  downgraded the group to "sell" from "hold"; BMW lost  1.3 percent as Exane BNP Paribas cut the group to "underperform"  from "outperform"; while Porsche was down 4.1  percent as Societe Generale downgraded the group to "hold" from  "buy".
   
Back to individual gainers, German chipmaker Infineon  Technologies gained nearly 12 percent after the group  asked shareholders for permission to raise up to 450 million  euros ($626.6 million) of fresh capital to bolster its  liquidity.
   
Vodafone rose 3.8 percent, extending its recent  strong run, after Credit Suisse upgraded the mobile phone group  to a "trading buy" on New Year's Eve.

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HK shares rise to 4-wk high, Foxconn soars

Hong Kong shares rose 3.5 percent to a four-week high on Monday on hopes that massive government stimulus spending will reinvigorate China's cooling economy, while 2008's worst performing blue chip Foxconn International boosted its value by a quarter.

Foxconn, the world's largest contract manufacturer of cellphones, vaulted 25.4 percent to a three-month high of HK$3.80 on hopes the Taiwanese handset manufacturer will benefit from the imminent rollout of 3G services in China.

The Hang Seng Index ended 520.50 points higher at 15,563.31. "Fund managers are buying up all of last year's worst performers on hopes that China will announce another slew of stimulus measures, this time to boost private consumption," said Philip Chan, head of research with CAF Securities.

But some markets watchers expect a pullback as the main index inches towards 15,800 points, with weak economic data in the coming weeks seen limiting gains. "The U.S. markets are leading Asian markets to a short-term recovery but it's not time to get bullish yet. This rebound is only a short-term phenomenon," said Castor Pang, strategist with Sun Hung Kai Financial.

The China Enterprises Index of top locally listed mainland Chinese firms rose 4.4 percent, tracking a 3.3 percent rally on the Shanghai bourse on its first trading day of the year.

Aluminum Corp of China jumped 9.5 percent on hopes that it would benefit from the Chinese government's infrastructure building plans.

Energy stocks rose sharply for a second day in a row as oil prices continued to edge up after an Iranian military commander called for an oil boycott on Israel amid heightened violence in the Middle East, while a Russian supply row added to geopolitical tensions.

Oil stayed close to $47 a barrel in Asian trade on Monday. Offshore oil producer CNOOC rose 7.9 percent while Asia's largest oil and gas producer, PetroChina, rallied 6.9 percent.

Bourse operator Hong Kong Exchanges & Clearing jumped 8 percent on hopes of recovering volumes and turnover on the mainboard as investors returned to the market after a long Christmas and New Year holiday.

Turnover slumped to two-year lows in the last few days of December as long stretches of holidays kept investors on the sidelines but recovered to HK$49.4 billion ($6.3 billion) on Monday as compared with HK$30.5 billion on Friday.

Fixed-line operator PCCW fell 4.6 percent after Citigroup cut its rating on the stock to hold from sell following a sharp run-up in the stock since October on buyout hopes. A rejection of a revised privatisation offer, which was recently raised to HK$4.50 per share from HK$4.20, is expected to signal a 15 percent correction in the stock price, said Citi in a report on Monday.

The stock soared 7.2 percent to HK$3.70 on Dec. 31 after controlling shareholders Richard Li and China Netcom announced the improved takeover offer price. It slipped to HK$3.54 on Monday.

China Mobile, the world's largest wireless carrier, rose 4.7 percent, adding to Friday's 4.4 percent rally after Beijing finally approved the issuance of licences for new mobile networks.

Smaller rival China Unicom gained 7.3 percent. China's Lenovo Group climbed 5 percent after the Chinese magazine Caijing said the world's No.4 personal computer maker was set to announce a major restructuring plan on Jan. 8 including changes of its top management.

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PRECIOUS-Gold slips as dollar hits 3-week high vs euro

LONDON - Gold slipped 1 percent in Europe on Monday as a stronger dollar weighed on sentiment with traders eyeing oil market moves on mounting Middle East tensions.

Spot gold was quoted at $865.10/867.10 an ounce at 0925 GMT, down from $873.20 an ounce late in New York on Friday, having touched a session low of $860.20. U.S. gold futures for February delivery GCG9 fell $14.20 to $865.30 an ounce.

"The crucial factor remains the developments in the oil market," said Dresdner Kleinwort consultant Peter Fertig. "Geopolitical tensions are again in the spotlight." "The dollar has strengthened compared to the levels we saw in mid-December," he added.

The firmer dollar is weighing on prices, with the U.S. currency extending gains against the euro on hopes U.S. president-elect Barack Obama will unveil fresh measures to boost the economy. Obama is due to meet House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid later in the session to discuss their legislative agendas.

The euro touched a three-week low against the U.S. currency, which is also benefiting from firmer stock market sentiment and a less hesitant attitude towards risk. Gold is often bought as an alternative investment to the dollar and tends to move in the opposite direction to it.

Currency traders will be looking ahead to U.S. construction and vehicle sales data due out later in the session, November durable goods and factory orders data on Tuesday and key U.S. non-farm payrolls numbers on Friday.

The precious metal had found good support in early trade as oil prices rose nearly 3 percent after an Iranian military commander called for an oil boycott over Israel's offensive in the Gaza Strip.

However, it has slipped as oil gave up those gains. Gold usually moves in line with oil prices, both because firmer crude boosts interest in the precious metal as a hedge against oil-led inflation and increases the appeal of commodities as an asset class.

Demand for gold jewllery has been hit by the higher prices. Sales in Abu Dhabi fell 40 percent in December from a month before, the emirate's industry group said.

Gold buying in India, the world's largest market for the precious metal, has been crimped by higher prices, traders said.

"People would want to buy if prices fall below 12,500 rupees," said Mayank Khemka, managing director of Delhi-based Khemka International. Prices are currently around 13,500 rupees.

Fears over the outlook for the global economy lent powerful support to gold prices towards the end of last year. Gold was one of the only commodities to end the year with a slight gain, as investors flocked to buy the metal as a haven from risk.

Among other precious metals, silver slipped in line with gold to $11.14/11.22 an ounce from $11.52 late on Friday.

Platinum and palladium were steady, awaiting fresh direction from U.S. auto sales figures due out later on Monday. Both have been knocked sharply lower in recent months by fears over falling demand from carmakers, who account for more than half of global consumption of the metals.

Spot platinum eased to $932/937 an ounce from $944, while palladium dipped to $186/191 an ounce from $190.

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