US & World Daily Markets Financial Briefing 17-07-2008

Stocks trade higher on upbeat earnings results

NEW YORK  -  Wall Street extended its rally into a second session Thursday after stronger-than-expected quarterly reports from JPMorgan Chase & Co. and United Technologies Corp. gave investors some reassurance about the health of the economy.

The gains come a day after falling oil prices and surprising bank results swept Wall Street to a huge rally. Oil prices turned higher Thursday but didn't appear to dislodge investors' enthusiasm over quarterly nubmers from several big comapnies.

Investors appeared undeterred by a reading from the Philadelphai Federal Reserve showing another decrease in regional manufacturing.

A flurry of quarterly results are offering investors some welcome insights into the well-being of the economy. Three components of the Dow industrials -- Coca-Cola Co., JPMorgan Chase & Co. and United Technologies Corp. -- issued comments that generally indicated that their businesses are holding up despite sometimes difficult economic conditions.

Wall Street also appeared placated by economic figures. A Commerce Department report showed construction of homes and apartments rose in June by 9.1 percent. The gain owes in part to a change in New York laws that has given a boost to apartment building. Construction of single-family homes fell by 5.3 percent to the slowest pace in 17 years. Applications for building permits, one indicator of future activity, rose by 11.6 percent.

And while the Labor Department reported that the number of newly laid-off people seeking unemployment benefits rose by 18,000 last week to 366,000, the increase was below the number economists expected.

The reports arriving Thursday bolstered a notion that investors had perhaps been overly dour in their assessment of the economy. To be sure, many companies have yet to report quarterly results and there are still trouble spots in the economy, such as the banking sector.

But stocks advanced in the first hour of trading, the Dow rose 57.73, or 0.51 percent, to 11,297.01 after earlier rising more than 100. The Dow on Wednesday surged 276 points, or 2.5 percent, logging its best daily gain in three months.

Broader stock indicators also rose. The Standard & Poor's 500 index advanced 8.45, or 0.68 percent, to 1,253.81, and the Nasdaq composite index rose 14.07, or 0.62 percent, to 2,298.92.

Stocks soared Wednesday after better-than-expected quarterly results from Wells Fargo & Co. helped ease some of investors' worries about the health of the banking sector. Wall Street has grown concerned that souring mortgage debt would force some banks to go under.

Bond prices declined Thursday as investors turned away from the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.97 percent from 3.94 percent late Wednesday.

Oil prices rebouned after trading lower early Thursday. Light, sweet crude rose $1.07 to $135.67 in premarket electronic trading on the New York Mercantile Exchange. Oil fell more than $4 Wednesday and more than $6 Tuesday, offering investors some hope that perhaps commodity prices will begin to decline.

A drop in oil -- or even oil remaining off its highs -- would be welcome news for nearly all parts of the economy. Consumers, in particular, have been hard-pressed by higher fuel and food costs. Wall Street is worried they will pare their spending on discretionary items to make room in their budgets for the higher-priced necessities. A pullback could be troublesome as consumer spending accounts for more than two-thirds of U.S. economic activity.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 259.7 million shares.

The Russell 2000 index of smaller companies rose 4.10, or 0.60 percent, to 690.85. In afternoon trading, Britain's FTSE 100 jumped 2.93 percent, Germany's DAX index rose 2.30 percent, and France's CAC-40 surged 3.12 percent.

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Dollar on back foot again after mixed U.S. data

LONDON  - The dollar was back where it started the day after a mixed bag of U.S. data showing rising jobless claims alongside improvements in home starts and a key snapshot of the manufacturing sector in the Philadelphia area.

As a whole the data could not detract from worries over the outlook for the U.S. economy, which in turn kept the dollar on the back foot.

In data out today, the number of U.S. first-time claims filed in the week ending July 12 was revealed to have risen by 18,000 to 366,000. In the previous week, claims fell sharply by 56,000.

Separately, US housing starts and building permits rose unexpectedly in June, although this surprise was down a recent change to New York City's building code.

Also out today, manufacturing in the mid-Atlantic region rose slightly in July but otherwise continued its recessionary slide, the Federal Reserve Bank of Philadelphia reported today. The Philly Fed index rose to -16.3 in July from -17.1 the previous month.

The euro meanwhile stayed well bid after comments from European Central Bank governing council member Nout Wellink. Wellink told Elsevier magazine that a slower economy will not reduce inflation, and said that experiences in the 1970s showed if you did not act early to contain inflation it could persist for the long term.

"It's a mistake to think that inflation will fall if the economy weakens....We have seen that too in the 70s," he said.

In addition, a report in the Financial Times that some of the world's largest sovereign wealth funds are diversifying out of their dollar-denominated assets also gave support to the single currency. The FT said one major fund in the Gulf has cut its dollar-denominated holdings from more than 80 percent to less than 60 percent over the past year.

"If today's article in the FT is to be believed, then there is little question of downward pressure upon the dollar abating any time soon," said Neil Mellor at Bank of New York Mellon, though he added that political worries about a weak dollar may counter this.

With no major UK data due on Thursday focus is likely to be on the deadline for banking giant Barclays' $4.5 billion rights issue.

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Euroshares gain midday as Dow set to go higher; JP Morgan, Nokia reassure

LONDON - Euroshares were trading near day's highs midday as Wall St is set to go higher in opening deals thanks to better-than-feared numbers from JP Morgan and a more upbeat than anticipated outlook from Nokia.

At 12.23 p.m., the DJ STOXX 50 was up 73.35 points, or 2.7 percent, at 2,786.6 and the DJ STOXX 600 was up 7.59 points, or 2.82 percent, at 276.07.

Back in Europe, shares in Nokia soared 8.06 percent in late morning deals to head the DJ Stoxx 50 risers board after the Finnish handset giant reported a reassuring set of second-quarter earnings and issued an upbeat outlook statement.

A trader at a leading Scandinavian brokerage said the group's more optimistic view of likely handset sales growth in 2008 had come as a relief.

"Some brokers have been worried that the company would reduce guidance," he said, pointing out the group is now looking for growth of 10 percent or more in 2008, compared to its earlier forecast for growth of approximately 10 percent.

The upbeat outlook statement for the group's network division led peer Ericsson 7.91 percent higher and German chip stock Infineon stormed 11.29 percent higher.

"Although the Nokia numbers were not outstanding, they follow good quarterly figures released by Intel and help to curb worries about a slump in the tech sector," said a Frankfurt-based trader.

And financials remain a key focus as the S&P's financial sector posted its biggest ever one-day points gain overnight, although some may remain on the sidelines ahead of numbers from Merrill Lynch later.

Natixis climbed 9.6 percent after it confirmed reports on Wednesday that it plans to make a cash call. It said it will propose a 3.7 billion euro capital increase with preferential subscription rights to its shareholders, following subprime-related writedowns.

Citigroup analysts upped their stance to 'hold' from 'sell' and analysts at CIC raised their rating on Natixis to 'buy' from 'sell'. Shares fell more than 5 percent yesterday.

Fortis climbed 7.35 percent as fears that it needed to raise more capital came to nothing and shares rallied from the sell-off earlier this week.

Shares in Commerzbank AG climbed 9.47 percent and in Allianz SE rose 5.97 percent on renewed talk of a merger between Allianz's Dresdner Bank and Commerzbank.

And Schneider Electric soared 7.07 percent as dealers re-heated talk that it may soon be acquired.

Car stocks also gained amid hope that the recent fall in the price of oil can be sustained. Shares were also boosted by sharp gains in the U.S. sector overnight after General Motors announced aggressive cost-cutting measures. Renault added 4.12 percent and Daimler added 6.21 percent.

In broker news, Sanford Bernstein upgraded Danone, up 4.99 percent, to 'outperform' from 'underperform'.  Cable & Wireless added 3.21 percent after Lehman Brothers was upped to 'overweight' from 'equal-weight'.

Arcelor Mittal fell back 0.68 percent. SG Secs cut its rating on the steel group to 'sell' from 'hold' and cut its price target to 49 euros from 59 euros.

Traditionally defensive utility plays were lower, with EON down 1.39 percent and RWE 0.63 percent lower.

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Asian stock market summary

Japan
   
The Nikkei 225 Stock Average closed up 1 percent at 12,887.95 after Wall Street rose overnight, while a weaker yen boosted interest in major exporters. The broader Topix rose 1.2 percent to 1,263.65.

South Korea
   
The KOSPI closed 1.2 percent higher at 1,525.56, after a three-day losing streak, as investors cheered Wall Street's advance and a sharp drop in oil prices overnight.

Australia
   
The benchmark S&P/ASX 200 index closed 0.6 percent higher as Westpac Banking Corp. and the other big banks rallied after surprisingly strong results at a big U.S. bank helped soothe credit-market worries.

China
   
The benchmark Shanghai Composite Index closed down 0.78 percent at 2,684.78 after the government released key economic data showing a slowing of consumer inflation but higher producer prices.
   
The Shanghai A-share Index was down 0.78 percent at 2,816.02, while the Shenzhen A-share Index fell 0.96 percent to 839.06. The Shanghai B-share Index fell 1.10 percent to 206.63, while the Shenzhen B-share Index rose 0.14 percent to 449.77.

Taiwan
   
The weighted index closed up 3.93 percent at 6,974.51, tracking a rally on Wall Street after further falls in oil prices and a better-than-expected quarterly earnings report from banking major Wells Fargo.
   
Philippines
   
Manila's 30-company composite index closed up 0.8 percent at 2,393.62 as bargain-hunters took their cue from Wall Street's strong rebound overnight following a sharp drop in oil prices, but caution ahead of the local central bank's decision on interest rates later in the day capped gains and kept volumes thin.

India

India's main stock index, the Sensitive Index of the Bombay Stock Exchange, rose 536.05 points or 4.26 percent to 13,111.85 and the 50-share S&P CNX Nifty of the National Stock Exchange gained 130.50 points or 3.42 percent to 3,947.20.
   
Among the 30 benchmark equities, 28 advanced led by top mortgage lender Housing Development Finance Corp. Ltd. (HDFC), which soared 168.20 rupees or 9.78 percent to 1,888.70.

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