US & World Daily Markets Financial Briefing 19-09-2008

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Wall St. surges on stability plans, financials

NEW YORK - U.S. stocks soared on Friday, led by a surge in financial shares, as a series of sweeping steps to contain fallout from the credit crisis eased investor worries.
      
The rally, coming a day after Wall Street notched its best day in six years, propelled shares of Bank of America, the No. 2 U.S. bank, up 22 percent, making the stock the top boost to the S&P 500.
      
Shares of No. 3 U.S. bank JPMorgan Chase, up more than 16 percent, were a top boost to the Dow. The S&P financial index jumped 12.4 percent.  U.S. authorities, led by Treasury Secretary Henry Paulson, are working on a comprehensive solution to mop up hundreds of billions of dollars of bad debt from banks' balance sheets that has choked the global financial system.
     
Early Friday U.S. securities regulators joined regulators from other countries in temporarily banning short sales of financial shares. In addition, the U.S. Treasury said it will establish a program to guarantee money market fund holdings.
      
The stabilization measures helped calm nerves on the last day of a tumultuous week that saw investment bank Lehman Brothers Holdings file for bankruptcy protection and the U.S. government bailing out insurer American International Group.
      
"The authorities are trying to address the systemic risk now, rather than continue with an ad hoc approach," said Weston Boone, vice president of listed trading at Stifel Nicolaus Capital Markets in Baltimore.
      
"We've had skyrocketing funding costs, interbank lending has dried up and there's been a run on money markets that's led to stress in the commercial paper market. It's all part of the historical intervention that's going on."
      
The Dow Jones industrial average jumped 402.95 points, or 3.66 percent, to 11,422.64. The Standard & Poor's 500 Index shot up 52.40 points, or 4.34 percent, to 1,258.91. The Nasdaq Composite Index climbed 89.99 points, or 4.09 percent, to 2,289.09.
     
Shares of Washington Mutual climbed 35 percent to $4.06 after the Wall Street Journal reported that Citigroup was considering making a bid for the U.S. savings and loan. Citigroup shares were up 21 percent to $20.48 on the New York Stock Exchange.
      
Shares of Morgan Stanley, pummeled earlier this week as investors fretted about the outlook for the last two remaining U.S. investment banks, jumped 36 percent to $30.56. Shares of rival Goldman Sachs climbed 26 percent to $136.13.
      
The Securities and Exchange Commission slapped the ban on short selling of nearly 800 financial stocks. On Thursday, British authorities also issued a ban on short selling.
      
Paulson and Federal Reserve Chairman Ben Bernanke plan to work through the weekend with Congress on a plan to set up an entity that will take bad assets off the balance sheets of banks. That entity could be similar to the Resolution Trust Corp, used to clean up the savings and loan crisis of the late 1980s at a $400 billion cost to taxpayers.
      
U.S. President George W. Bush will make a statement at 10:45 a.m. (1445 GMT) on Friday. "The president will discuss the causes of the crisis and outline actions being taken to stabilize markets and restore confidence," a White House spokeswoman said.
      
The U.S. Treasury Department announced it will use $50 billion to back money market mutual funds whose asset values fall below $1.

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FOREX-Dlr rallies; mkts await U.S. rescue plan details

LONDON - The U.S. dollar held on to hefty gains against the yen and euro on Friday, bolstered by hopes a U.S. government plan will help revive a banking system hit by the worst financial storm in decades.
      
The low-yielding Japanese currency, often used as a safe-haven in times of financial stress in recent weeks, hit a one week low against the dollar, which also surged on a trade-weighted basis against six major rival currencies.
     
U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke plan to work through the weekend on a plan which may gain Congressional approval as early as next week. Details of the measures, which are expected to include a fund to take over banks' toxic assets which have clogged the financial system, were still murky so far in European trade.
      
But market players were banking on the idea that the plan, as well as steps by other financial authorities, would finally quell some of the turmoil following the collapse of Lehman Brothers and the bailout of U.S. insurer AIG earlier this week.
      
"It was a market friendly move but we are watching for further details," said Paul Mackel, director of currency strategy at HSBC Markets, adding financial concerns continued to be the overriding market theme. "Markets are still choppy and they are digesting news aggressively."
      
The dollar rose nearly two percent at one point against the yen. By 1035 GMT, it was up 1.7 percent at 107.34 yen after hitting a high of 107.74 yen. The dollar index, which tracks the U.S. currency's performance against six major currencies, was up 1.1 percent at 78.970, while the euro was down 0.8 percent at $1.4207, well off Thursday's 2-week high of $1.4541 -- according to Reuters data.
      
Shares in financial stocks soared, helping the U.S. stock market post its biggest percentage gain in six years overnight. European stocks followed suit, rallying more than six percent. Higher-yielding currencies such as the Australian dollar also rose as investors regained some confidence.
      
"The dynamic has been a clear revival in risk appetite ... Risk averse currencies such as the yen and the Swiss franc have come under a lot of pressure," Standard Chartered currency strategist Robert Minikin said.
     
The Australian dollar gained about 0.7 percent against the U.S. dollar to $0.8077. On Thursday, major central banks acted to inject liquidity to relieve jammed-up money markets, and the UK's Financial Services Authority implemented a temporary ban on short selling in a further boost to risk appetite.
       
While the news gave a major boost to risk appetite, stock prices and carry trades -- where market players use the low-yielding yen to fund purchases of assets offering higher returns elsewhere -- investors will be keeping a keen eye on the details of the deal and markets are likely to remain volatile.
     
"The market is still very volatile. It is not clear whether this is a dollar positive or a dollar negative," a trader said. Concerns about the bad debt the U.S. government will be taking on and the implications for the already hefty U.S. deficit mean the deal may not be positive for the dollar in the longer term.
      
"These steps will stabilise the financial system ... but the problems of very bad assets hasn't gone away, it has merely shifted from the banks to the government and this could be a dollar negative further out," Standard Chartered's Minikin said.

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LONDON - European shares surged on Friday, led by recently battered insurers and banks boosted by a UK ban on short-selling financial stocks and hopes for a comprehensive U.S. government solution to bad banking assets.

The FTSEurofirst 300 index of top European shares was up 6.4 percent at 1,131.32 points, recouping some of the sharp losses from earlier in the week. The benchmark is still down about 2.6 percent this week and has fallen 24.9 percent so far in 2008.

The UK Financial Services Authority imposed a temporary ban on short-selling financial stocks on Thursday and the top U.S. securities regulator was said to be weighing a similar measure in a bid to stabilize stock prices.

Shares in Royal Bank of Scotland, Barclays, Lloyds TSB and in Britain all jumped more than 30 percent after the ban on short-selling.

Banks were the biggest weighted sectoral gainer on the index, with Dexia surging 19.8 percent, Credit Agricole advancing 19.5 percent, Fortis jumping 12 percent and BNP Paribas gaining 11.5 percent.

Anglo Irish soared 30 percent and Bank of Ireland  jumped 34 percent. The DJ Stoxx Banks index was up 15 percent.

Markets across the globe spiked after a congressional aide said on Thursday that U.S. Treasury Secretary Henry Paulson had been shopping around a proposal to congressional lawmakers that would create an entity to deal with the billions of dollars of bad debt still clogging the financial system. The idea has been compared to the Resolution Trust Corp formed in 1989 to fix the savings and loan industry collapse.

"This is an important day," said Philippe Gijsels, senior equity strategist at Fortis Bank, in Brussels. "The U.S. measures to buy debt will create confidence. You're more likely to buy debt, if you think you can sell it to the government. But we need to see more of the details, and see exactly how it will be implemented."

He said: "It could be the start of a bull run, with the added liquidity." Gijsels also pointed to the UK short selling clampdown boosting the market.

Across Europe, Britain's FTSE .FTSE rose 8 percent, and is on course for its biggest daily gain since the index was created in 1984. Germany's DAX .GDAXI gained 4.3 percent, and France's CAC .FCHI rose 6.6 percent.

Shares in HSBC rose 13.1 percent. The bank dropped a $6.3 billion offer for 51 percent of Korea Exchange Bank, blaming turmoil in financial markets and ending what would have been the biggest cross-border deal in South Korea's bank sector.

Spain's top bank Santander rose 11.2 percent. The bank, which has bought Abbey and Alliance and Leicester ALL.L of the U.K. in recent times, declined to comment on media reports it was eyeing Bank of Ireland. A spokesman for Santander also declined to comment on a report on the Financial Times website that it was considering bidding for U.S. bank Washington Mutual.

Insurers also spiked, with Aviva rising 19 percent, Old Mutual up 24 percent and Prudential up 15 percent Mining stocks gained on a broad recovery in the market, and tracking a rise in metals prices.

BHP Billiton, Anglo American, Vedanta Resources, Lonmin, Kazakhmys, Xstrata, Antofagasta and Rio Tinto rose between 0.9 and 13 percent. A rise of more than 2 percent in crude oil prices on U.S. and Nigerian supply concerns supported energy stocks. BP rose 2.6 percent;, gas producer BG Group Total and Tullow Oil added between 5.4 and 6.2 percent.

Among the few losers in the FTSEurofirst, Volkswagen was 10 percent lower, having ained 26.7 percent on Thursday, as investors sought to cover short positions ahead of Porsche further boosting its stake in the company.

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Asian stock market summary

JAPAN
The Nikkei average added 431.56 points to end at 11,920.86, rebounding from a three-year closing low hit Thursday, on hopes for a more comprehensive solution to the financial crisis that has roiled markets worldwide.
   
The broader Topix climbed 4.7 percent to 1,149.12.

SOUTH KOREA
The Korea Composite Stock Price Index closed up 4.55 percent to 1,455.78, helped by a U.S. rally overnight on hopes of U.S. government action to address financial turmoil, but Korea Exchange Bank fell after HSBC dropped its offer for the lender.

AUSTRALIA
The benchmark S&P/ASX 200 index ended up 4.3 percent at 4,805.5, boosted by a recovery in banking shares as investors bet that U.S. government plans to sequester Wall Street's bad debts will help the financial sector recover.

CHINA   
The benchmark Shanghai Composite Index closed up 9.46 percent at 2,075.09, after regulators cancelled the stamp duty on share purchases and as the sovereign wealth fund announced plans to buy shares in state-owned banks.
   
Almost all stocks rose by the 10 percent daily limit, or 5 percent in the case of the so-called special treatment stocks, whose movements face more restrictions.
   
The Shanghai A-share Index rose 9.45 percent to 2,179.11, and the Shenzhen A-share Index added 8.88 percent to 625.34.
   
The Shanghai B-share Index was up 9.82 percent at 121.60, and the Shenzhen B-share Index rose 9.32 percent to 311.68.
  
TAIWAN
The weighted index closed up 5.82 percent at 5,970.38, following a rebound on Wall Street as the U.S. government plans comprehensive measures to deal with the credit crisis.

HONG KONG
The Hang Seng index closed up 1,695.27 points or 9.61 pct at the day's high of 19,327.73, and off a low of 18,588.11.

INDIA
The Bombay Stock Exchange's 30-share benchmark Sensitive Index surged 726.72 points or 5.46 percent to close at 14,042.32, its first above-14,000 close since last Friday. The benchmark gauge rose 0.3 percent this week, as firm buying today wiped out losses made in the last three sessions.
   
The National Stock Exchange's S&P CNX Nifty also rose 207.10 points or 5.13 percent to 4,245.25, aided by positive closings of 46 of its 50 constituents.

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