US & World Daily Markets Financial Briefing 09-02-2009

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Wall St down as bank rescue is delayed

NEW YORK - U.S. stocks opened lower on Monday as a delay in the announcement of the Obama administration's bank rescue plan disappointed investors and another wave of poor earnings showed more economic upheaval.

An $827 billion U.S. economic stimulus package could face another day of political wrangling before a Senate vote on the measure on Tuesday. 

The Dow Jones industrial average fell 30.43 points, or 0.37 percent, to 8,250.16. The Standard & Poor's 500 Index shed 1.84 points, or 0.21 percent, to 866.76. The Nasdaq Composite Index lost 5.57 points, or 0.35 percent, to 1,586.14.

Treasurys Down Ahead Of Massive Auctions

Treasurys fell Monday, pushing yields to the highest in more than two months, before the government floods the market with its biggest quarterly refunding package on record.

Ten-year note yields  rose 4 basis points, or 0.04%, to 3.02%, the first time above 3% since November.  Two-year note yields  increased 2 basis points to 1.01%, the first time above 1% since early December.

Shorter-term securities fared better, with yields a little lower in early trading, amid disappointment in further delays from Washington in the details of a plan to support banks and continuing debate in Congress over the stimulus package.

"This week is all about the challenge of massive supply," said strategists at RBS Greenwich Capital. "The economic environment remains very bond friendly but issuance is problematic."

The Treasury Department will sell $61 billion in three- and six-month bills Monday, with bids due at 1 p.m. Eastern time.

On Tuesday, $23 billion in one-year notes and a record $32 billion in three-year notes  will be on sale. Wednesday will bring $21 billion in 10-year notes, followed by $14 billion in 30-year bonds  the following day. Both long-term debt sales are for the most ever.

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FOREX-Yen gains as US delays bank plan announcement

LONDON - The yen gained broadly on Monday as a delay in the announcement of the U.S. bank bailout package knocked market sentiment and benefited assets which are perceived to be low-risk.

The dollar, however, erased earlier gains against the pound and the euro as investors welcomed news Barclays Bank had booked a bigger-than-expected annual profit of over 6 billion pounds and said credit market losses were waning.

On a quiet day for news, investors nevertheless remained cautious, keeping European stocks in the red and propping up the Japanese yen. Investors were jittery after the Obama administration on Sunday pushed back the announcement of the bank rescue plan until Tuesday as it pressed lawmakers to settle their differences over the economic stimulus plan.

The announcement had originally been scheduled for Monday, but the Senate will be spending Monday focusing on the stimulus package ahead of a vote on Tuesday.

"There remains a risk that Obama might not pull through the package or that he might have to make significant changes," Bank of Scotland Treasury Services currency analyst Naeem Wahid said.

At 1101 GMT, the dollar was down 0.5 percent against the yen to 91.50, while the euro was off 0.5 percent to 118.45 yen. Both were above earlier session lows of around 90.90 and 117.07 yen respectively.

Against the dollar, the euro was up 0.1 percent to $1.2943, while the pound rose 0.4 percent to $1.4859 after both began the day in negative territory.

Bank of Scotland's Wahid said there is a general sense in the market that recently the pound has been oversold and the yen overbought. "The world hasn't really changed since last week, but there is a feeling that cable (sterling/dollar) and dollar/yen are the most oversold pairs," he said.

With little on the economic calendar for the time being, market focus is centred on the prospect of the U.S. agreeing a huge economic stimulus package and a keenly awaited bank bailout plan.

Grim U.S. data on Friday which showed the U.S. economy lost nearly 600,000 jobs last month unusually bolstered riskier assets, including currencies such as the euro and the pound, as investors hoped this would speed the passing of the package.

This took the dollar to a one-month high against the yen, but investors were dealt a blow by news of the delay to the plan. The U.S. financial stability plan is due to be outlined by Treasury Secretary Timothy Geithner at 1600 GMT on Tuesday after a Senate vote on the economic stimulus package.

Analysts noted there could be scope for riskier assets to resume their gains once the U.S. fiscal stimulus and bank rescue deals are announced. "The plans are likely to be quite bold and there is scope for a bear market rally in risky assets," BTM-UFJ currency economist Lee Hardman said.

Meanwhile, investors continued to be reminded of the grave situation facing the world's economies. Figures released Monday showed German exports fell sharply in December after a record decline the previous month. Figures out of Japan showed the country's current account surplus fell 92.1 percent in December from a year earlier, while corporate bankruptcies soared in January.

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European shares little changed; Barclays jumps

LONDON - Firmer banks, supported by better-than-expected results at Barclays, offset the impact of weaker commodities, leaving European equities little changed in midday trade on Monday.

At 1220 GMT, the FTSEurofirst 300 index of top European shares was almost flat at 826.28 points against a rise of 2 percent in the previous session.

The index is up 0.7 percent this year after plunging 45 percent last year due to a financial sector crisis and the prospect of a global recession.

Barclays shares jumped 8.4 percent after it posted a 6.1 billion pound ($9 billion) profit and said credit market losses were waning, while investors focused on the fate of a U.S. stimulus bill worth more than $800 billion. "The markets appear stuck in a range, and until we get some clear indications that economic conditions are improving, we may find it hard to break out," said Chris Hossain, senior sales manager at ODL Securities.

"Whilst talk of a U.S. stimulus package is helping push markets ahead, until we get clarity, it is simply something for the bulls to prop up against."

U.S. President Barack Obama's administration continued to press lawmakers to quickly pass a huge economic stimulus plan, but delayed announcement of a plan for dealing with the toxic assets clogging financial institutions' balance sheets.

Other banks also gained, with Deutsche Bank rising 7.3 percent, Unicredit up 4.5 percent and Royal Bank of Scotland advancing 4.2 percent.

Natixis rose 8 percent after business newspaper Les Echos reported, without citing its sources, that the French bank needed a new injection of capital. A spokeswoman for Natixis declined to comment.

Analysts said that the battered banking sector would get support from the passage of the U.S. stimulus package, but the uncertainty was forcing investors to remain cautious.

"This is the world's biggest casino throw we've ever seen," said Justin Urquhart Stewart, director at Seven Investment Management, referring to the U.S. stimulus package. "There is no certainty in this market. We're tap dancing on thin ice."

Energy shares were among the top losers on the index, with BP, Royal Dutch Shell, gas producer BG Group, Total and Tullow Oil shedding between 0.3 percent and 1.4 percent.

Miners also lost ground, tracking a decline in metals prices. Anglo American, Xstrata, Antofagasta and Rio Tinto fell 1.1-4.3 percent.

Commodity shares have been under pressure as demand for metals and crude declines because of a global recession.

Latest data showed that German exports fell sharply in December after a record decline the previous month, setting the seal on a quarter which probably saw a record contraction in Europe's biggest economy.

But automobile shares were higher. An official in the president's office said that France will unveil details of a plan to support its ailing auto sector later on Monday, as both Renault and PSA Peugeot Citroen were set to announce weak 2008 results

French newspapers said the government will lend the two carmakers around 6 billion euros ($7.7 billion) to help cushion the impact of the financial crisis.

BMW, Daimler AG, Porsche, Peugeot, Renault and Fiat were up 0.9-7.4 percent. Across Europe, Britain's FTSE 100, Germany's DAX and France's CAC-40 were down between 0.3 percent and 0.4 percent.

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HK shares climb 0.8 pct in fourth day of gains

Hong Kong shares rose 0.8 percent on Monday in its longest winning streak in more than two-months, helped by a sustained rally on the mainland bourse, but gains were limited by concern over a delay in a U.S. bank rescue plan.

Investors stayed on the edge after learning that the details of the much-anticipated plan to help debt-stricken American banks will be announced on Tuesday instead of Monday.

The postponement of the rescue plan also took a toll on other major regional markets, including Tokyo and Seoul, which ended lower, while the local index dipped into the red briefly earlier on Monday.

"People were taking money off the table ahead of the rescue and stimulus plan announcement, because there are a number different expectations from it and there is a real chance it may disappoint," said Howard Gorges, vice chairman with South China Brokerage.

"Some people are looking for more spending while others look for tax cuts....it all depends on your economics and politics," he said.

In Hong Kong, shares in Aluminum Corp of China surged 6.9 after Goldman Sachs upgraded the stock to buy from neutral, adding the stock to its conviction buy list, as it expects aluminum prices to be supported by huge infrastructure spending in China and stabilisation of the housing construction market.

The stock rose to HK$4.36 on Monday, compared with Goldman's target of HK$5.60. The benchmark Hang Seng Index ended 114.02 points higher at 13,769.06.

"The one day delay in the announcement of the bank rescue plan has given the market a good excuse to consolidate gains. The market has risen too fast," said Y.K. Chan, strategist with Phillip Capital Management.

The main index has climbed nearly 1000 points in the four-day rally. Mainboard turnover rose to HK$billion ($3.5 billion) from HK$23.2 billion by midday Friday.

Shares in billionaire Li Ka-shing's Hutchison Whampoa jumped 3.1 percent to HK$39.45 after the company said it will merge its Australian businesses with that of Vodafone to create a company able to take on the dominant operators.

The move creates a company with 6 million customers and combined annual revenue of A$4 billion ($2.7 billion), close in scale to Australia's two dominant mobile companies, Telstra Corp and Optus, owned by Singapore Telecommunications.

The China Enterprises Index of top mainland firms rose 0.7 percent to 7,754.57as the Shanghai Composite Index marched towards an eight-month high.

China's largest shipping conglomerate China Cosco added 3.3 percent to last week's 15 percent surge after the global dry bulk freight index tacked on another 10 percent in its uninterrupted 13-day rally.

The Baltic Dry Index rose to a 4-month high after China resumed imports of iron ore, said analysts. Signs of recovery in demand for raw materials also spurred gains in industrial counters with coal-miner China Shenhua Energy rising 2.3 percent and Jiangxi Copper adding 6.9 percent.

China Merchants Holdings jumped 4.7 percent to HK$15.70 after acquiring 25 million B shares in Shenzhen Chiwan Wharf Holdings, to raise its stake in the West Shenzhen port operator to 8.0 percent.

"While the deal would not enhance China Merchants' near-term earnings significantly ... we expect its presence and influence on West Shenzhen port operations to increase," said Credit Suisse's Ingrid Wei, noting that Chiwan Wharf operates one of the core container terminals in West Shenzhen. The brokerage firm raised its target on the stock slightly to HK$21.90 from HK$21.40.

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Oil climbs towards $41 after OPEC supply pledge

LONDON - Oil rose towards $41 a barrel on Monday after OPEC said it was willing to cut oil output further if needed to stabilise oil prices. The market was also supported by a giant U.S. economic stimulus package that the administration of U.S. President Barack Obama is expected to get through Congress this week.

U.S. crude for March delivery rose 65 cents to $40.82 a barrel by 1323 GMT. London Brent climbed 83 cents to $47.04.

"If we think we still need more action, I'm sure the conference will take more action to stabilise the market," the secretary-general of the Organization of Petroleum Exporting Countries, Abdullah al-Badri, told reporters in London.

Badri also said the 12-member group appeared to be implementing promises of production cuts more thoroughly than expected by some in the oil market with 80 percent compliance. OPEC has said it will cut oil supply by 4.2 million barrels per day (bpd) from its level of production in September in an attempt to bolster oil prices that have fallen from a record high of almost $150 a barrel in July.

Harry Tchilinguirian, oil analyst at BNP Paribas in London, said the market was also looking ahead to the passage this week of a massive economic stimulus package to try to revive the U.S. economy. "The stimulus package is a supportive structural factor," he said. "It should begin to have an impact on the economy in the second half of this year and is an underlying element conditioning sentiment."

Top aides to President Obama on Sunday urged Democratic and Republican lawmakers to set aside political differences and quickly approve the stimulus package this week, as the world's largest economy suffers from the worst financial crisis in 70 years.

Later on Monday, the Democratic-led Senate, with the help of a handful of Republicans, was due to vote to end debate on the $827 billion plan to clear the way for its passage on Tuesday.

Oil prices fell on Friday after news of steep job cuts in the United States, where nearly 600,000 jobs were slashed last month, the most severe cut since December 1974 prompting worries of still weaker demand in the world's biggest oil consumer.

The financial malaise, which first sprang from home loan defaults in the United States, has swiftly spread to Europe and Asia, pushing a string of industrialised nations into recession.

Renewed violence in Nigeria also helped buoy oil prices. Nigerian militants attacked a gas plant operated by Royal Dutch Shell in the Niger Delta on Saturday and warned of more attacks to come, but the army said it had repelled the raid and killed three gunmen.

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