US & World Daily Markets Financial Briefing 24-09-2008

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US STOCKS-Market opens higher on Buffett boost

NEW YORK - U.S. stocks rose at the open on Wednesday after Warren Buffett made a $5 billion investment in Goldman Sachs Group Inc late on Tuesday, buoying sentiment in the beleaguered financial sector.
      
But even as the Goldman Sachs news spurred some optimism, investors worried congressional wrangling could delay or weaken the proposed $700 billion plan to rescue the financial sector, increasing unease about the struggling U.S. economy.
      
The Dow Jones industrial average was up 3.74 points, or 0.03 percent, at 10,857.91. The Standard & Poor's 500 Index was up 0.86 point, or 0.07 percent, at 1,189.08. The Nasdaq Composite Index was up 8.60 points, or 0.40 percent, at 2,161.93.

HEADLINE STOCKS-U.S. stocks on the move on Sept 24

GOLDMAN SACHS - Shares of Goldman Sachs were up 2.3 percent at $127.98  after the investment bank said Warren Buffett's Berkshire  Hathaway was investing $5 billion in the company.    
   
CAPITAL ONE FINANCIAL CORP - The credit card and banking company said on Tuesday it  expected to add $200 million this quarter to its reserves for  bad loans, but affirmed its 2008 financial outlook.

Shares were down 4.4 percent at $51.45 on the New York  Stock Exchange.
   
WORTHINGTON INDUSTRIES INC - The metals processor posted quarterly profit that more than  tripled expectations, helped by strong sales at its metal  framing and steel processing segments and cost-cutting
measures.
   
Shares of the company rose 2.2 percent to $16.95.
   
H.B. FULLER CO - The specialty chemical maker posted a third-quarter profit  that met analysts' revised estimates, after the company's  preliminary earnings report warned of lower profit due to rising raw material costs.
   
Shares of the company fell 3 percent to $22.31 on the  NYSE.
   
HARLEYSVILLE GROUP INC - The property and casualty insurer said it will incur a  charge in the third quarter tied to its exposure to Lehman  Brothers Holdings Inc's senior unsecured notes.

Shares of Harleysville fell 1.4 percent to $38 on Nasdaq.
   
HELIX ENERGY SOLUTIONS GROUP INC - The operator of offshore oil and gas properties said it  does not expect to meet its production outlook for 2008 due to  the impact of Hurricanes Gustav and Ike.

Shares of the company fell 3.5 percent to $26.50.
   
CBRL GROUP INC - The parent of the Cracker Barrel Old Country Store  restaurants and gift shops said all its Cracker Barrel units  were open and operating after some were shut following  Hurricane Ike.
   
Shares of the company fell 2.8 percent to $26.67 on  Nasdaq.

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FOREX-Yen falls amid Goldman deal, dlr skittish on Fed plan

LONDON - The yen fell broadly on Wednesday as investors eased back from risk aversion, taking some comfort from news that Goldman Sachs would get fresh funding and the establishment of new Fed currency swap lines.

But while the dollar found respite against the yen, nagging worry about U.S. financial sector health hampered its broader progress with uncertainty spreading over the U.S. government's proposed $700 billion package to mop up toxic mortgage debt.

After getting caught in the eye of a financial storm that worsened last week when investment bank Lehman Brothers collapsed, investors took some reassurance from news that Warren Buffett's Berkshire Hathaway Inc said it would invest $5 billion in Goldman Sachs Group Inc.

Goldman is also working out a deal to get several billion dollars from Sumitomo Mitsui Financial Group, Kyodo news agency reported. The U.S. Federal Reserve also set up currency swap lines with more central banks, aiming to boost short-term U.S. dollar liquidity and help drive down interbank lending rates. [

"Both the developments in the investment banking sector and the temporary arrangement the Fed has made with some more international central banks is reflected in the yen's pricing," SG currency strategist Phyllis Papadavid said.

"But it's still a very uncertain environment and the risk backdrop is very difficult, despite policymakers efforts. There's a lot of uncertainty around what everyone is focused on, which is the U.S. policy package," she added.

Euro's gains against the dollar were stemmed by data showing a bigger-than-expected drop in German corporate sentiment. The Munich-based Ifo economic research institute said its business climate index fell to 92.9 in September from 94.8 in August. It was the lowest reading since May 2005 and below market expectations of 94.1.

At 1120 GMT, the dollar was down 0.1 percent against a basket of major currencies, while the euro rose 0.2 percent on the day to $1.4682.

The dollar was up 0.5 percent at 106.05 yen after hitting a session high of 106.34 yen. The euro gained 0.7 percent to 155.64 yen. In a bid to help dollar-starved banks raise funds, the Fed said it would establish temporary currency swap lines with central banks of Australia, Denmark, Sweden and Norway worth a total of $30 billion yen.

But bank-to-bank lending markets are still under stress. The interbank cost of borrowing overnight and three-month sterling jumped on Wednesday, the three-month cost of borrowing dollars and euro also rose, according to the British Bankers Association's latest daily fixing.

The dollar, which had seen a stunning run higher before the latest bout of turbulence, has been on the back foot since last week's demise of Lehman Brothers and the $85 billion rescue of American International Group Inc.

On Monday, if suffered its biggest one day fall versus the euro since the single currency's inception in January 1999. Dollar sentiment looked set to stay uncertain as doubts grew about the effectiveness of the U.S. government's proposed $700 billion bailout plan to tackle the financial crisis.

"The Treasury plan will remain the focus of the market, and an early approval will likely remain critical to stabilisation in market sentiment," UBS strategists said in a research note.

Traders will keep a close eye on comments by Fed chairman Ben Bernanke who is due to continue congressional testimony on Wednesday on the U.S. government's plan to buy up toxic assets from banks' balance sheets.

Also slated for release on Wednesday are figures on the U.S. housing sector, which triggered the global credit crisis and is seen as key to any economic recovery. August U.S. sales of existing homes are forecast to have declined to a 4.93 million annualised rate in August, down from 5 million, according to a Reuters poll ECON.

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Europe stocks ease as automobiles, commodities fall

LONDON - European shares drifted lower on Wednesday, with falls in the automobile and commodities stocks outweighing stronger banks that advanced after Warren Buffett invested $5 billion into Goldman Sachs.

At 1139 GMT, the FTSEurofirst 300 index of top European shares was down 0.1 percent at 1,107.28 points after trading in a range of 1,106.35-1,116.45.

Banks were the top weighted gainers on the index, with UBS, Royal Bank of Scotland, Societe General, BNP Paribas and Credit Agricole rising between 1.2-5.5 percent.

Billionaire Warren Buffett bet on a Wall Street revival by buying a $5 billion stake in Goldman Sachs and a Japanese bank looked ready to follow, but markets were on edge as U.S. lawmakers clashed over a financial sector rescue.

Japan's third-largest bank, Sumitomo Mitsui Financial Group, also plans to invest in Goldman, Japanese media reported on Wednesday. A spokeswoman at Sumitomo said no decision had been made.

Architects of the proposed $700 billion bailout for financial firms faced a second day of grilling by U.S. lawmakers on Wednesday as the debate threatened to delay a decision until next week. Some analysts were sceptical on Buffett's move to buy a stake in Goldman Sachs.

"The market is really going sideways. Warren Buffett is not enough to turn the economy around," said Tom Hougaard, chief market strategist at City Index. "No one wants to be heavily invested," he added.

French utility EDF gained 3.7 percent. The company said it launched a 12.5 billion pound ($23.14 billion) agreed bid for nuclear operator British Energy, in a revamped offer to take control of Britain's nuclear power industry.

EDF, the world's top maker of nuclear energy, said it was offering 774 pence per British Energy share. It also proposed an alternative of 700 pence in cash plus one nuclear power note, a financial instrument linked to BE's future performance.

The FTSE 100 was down 0.6 percent, the German DAX was down 0.2 percent and France's CAC 40 fell 0.6 percent.

The automobile sector was lower, with Volkswagen down 1.5 percent after it said group vehicle sales fell 3 percent in August to 448,000 units.

Fiat fell 2.3 percent. It said late on Tuesday that its truck business Iveco expected a 5 to 10 percent drop next year in the western European market, as a liquidity shortage pushed consumers to delay purchases.

Energy stocks were also under pressure despite crude rising 2.4 percent. BG Group, Royal Dutch Shell, Tullow Oil and BP were down between 0.2-3.4 percent. "The trend is downward in commodity stocks. Energy stocks are not always correlated with the price of crude. Investors are still concerned about growth prospects," said Hougaard.

Miner Anglo American was down 5 percent after ING cut its price target to 3,525 pence from 3,750 pence and said it has less growth potential that its peers.

Vedanta Resources was 6.6 percent lower after it dropped plans to streamline its corporate structure into three units in view of recent changes in global financial markets. InBev was down 3.5 percent after Morgan Stanley cut the group to "underweight" from "equal-weight" with a price target cut to 40 euros from 60 euros.

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Asian stock market summary

JAPAN
The benchmark Nikkei gained 0.2 percent to finish at 12,115.03, as Nomura Holdings Inc and other financials gained on hopes that planned investments in U.S. banks would help the sector.
   
Nomura surged after the company said it would buy the Asian and European operations of failed U.S. investment bank Lehman Brothers, and Sumitomo Mitsui Financial Group rose after media reports said Japan's third-largest bank planned to invest in U.S. investment bank Goldman Sachs.
   
The decision by Warren Buffett's Berkshire Hathaway to invest $5 billion in Goldman Sachs was also lending support.
   
The broader Topix was down 0.1 percent to close at 1,167.97.

SOUTH KOREA
The Korea Composite Stock Price Index closed up 0.99 percent at 1,495.98, as foreign investors turned net buyers of South Korean shares ahead of anticipated government measures to tackle short-selling, while LG Elec rose on talk it would close an underperforming unit.

AUSTRALIA
The benchmark S&P/ASX 200 index finished up 1.2 percent at 4,981.9, led up by the battered financial sector which found a lift from news that billionaire investor Warren Buffett was buying into Goldman Sachs.

CHINA
The benchmark Shanghai Composite Index ended up 0.70 percent at 2,216.81, on a sudden rebound in last minutes of the session, with heavyweights Unicom and PetroChina leading the gains.
   
Brokers also rose sharply amid hopes margin trading will be launched soon. Banks remained weak despite share purchases in the three top institutions by a unit of sovereign wealth fund China Investment Corp.
   
The Shanghai A-share Index was up 0.69 percent at 2,328.15, while the Shenzhen A-share Index rose 0.88 percent to 619.07.
   
The Shanghai B-share Index rose 2.18 percent to 126.77, while the Shenzhen B-share Index was down 0.53 percent at 294.95.

TAIWAN
The weighted index closed down 0.80 percent at 6,132.60, following further losses on Wall Street as US lawmakers wrestled with the government's $700 billion bailout plan for financial institutions.
  
Financials were hit by uncertainty about when the US rescue plan will take effect and what it will contain. Profit-taking outweighed expectations of support from government-related funds .
   
Steel stocks retreated further on gloomy prospects for product demand and prices but tourism stocks outperformed on hopes for more arrivals of mainland Chinese tourists during the approaching long holidays.

INDIA
The Bombay Stock Exchange's benchmark 30-share Sensex gained 122.21 points or 0.9 percent to 13,692.52, while the National Stock Exchange's 50-share S&P CNX Nifty edged up 34.35 points or 0.83 percent to 4,161.25.

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Gold edges down as risk appetite recovers

LONDON - Gold was softer in Europe on Wednesday as risk appetite improved, but came off early lows as the dollar weakened against the euro and oil prices rose. Spot gold edged down to $888.10/890.10 an ounce at 0918 GMT, against $890.70 at the nominal New York close on Tuesday.

The precious metal came under pressure from fresh optimism over the health of the financial sector on news that Warren Buffett is investing $5 billion in Goldman Sachs. A recovery in risk appetite is likely to curb interest in gold, which has benefited from safe-haven buying amid volatility in the equity markets and worries over the outlook fpr the financial sector -- especially debt-burdened banks.

"The situation (in the financial markets) is calming down a little bit," Deutsche Bank metals trader Michael Blumenroth said. "This time last week people were very nervous." "The Goldman news shows people are trusting banks again, and are willing to invest in banks again," he added. But the softer dollar is supporting gold, which often is bought as an alternative investment to the U.S. currency.

The euro rose after the German Ifo business confidence indicator came in less weak than expected, and on uncertainty over the effectiveness of the U.S. government's proposed $700 million plan to shore up the financial system.

The other main external driver of gold, crude oil, is also trending higher, adding more than $1 a barrel as forecasts for a drop in U.S. crude stocks more than outweighed worries over the government's financial rescue plan. Traders are keenly awaiting the U.S. crude inventory report, due out at 1435 GMT, for signs as to the next move in oil prices, as well as a host of U.S. economic data.

"The main data release today that may impact on the precious metals are U.S. existing home sales for August -- with consensus expectations looking for a 1.0 percent month-on-month decline," Standard Bank metals analyst Leon Westgate in a note said.

"The U.S. DOE Crude Oil inventory data for the week ending September 19th may also be an important factor later this afternoon." Investment demand for gold meanwhile remained firm. The SPDR Gold Trust, the world's largest gold-backed exchange traded fund, said its holdings rose to a record for the second day running on September 23, and now stand at 724.94 tonnes.

The trust's holdings have risen by more than 100 tonnes since Lehman Brothers announced it was seeking liquidation protection on September 15.

Silver ETFs have also reported strong inflows. The world's largest silver-backed ETF, iShares Silver Trust, said its holdings currently stand at a record 6,728 tonnes, up 295 tonnes or nearly 5 percent since September 15.

Spot silver  was at $13.29/13.37 against $13.21 at the nominal New York close on Tuesday. Among other precious metals, platinum and palladium edged higher. The two metals, which are primarily industrial in use, have not benefited from the same investment flows as gold and silver as a result of the financial crisis.

They have both suffered from the poor outlook for the automotive sector, a major user of the metals, analysts said. Spot platinum was at $1,221.50/1,241.50 an ounce, up from $1,213 at the nominal New York close on Tuesday, while palladium was at $249.50/257.50 an ounce against $245.

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