US & World Daily Markets Financial Briefing 25-11-2008

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U.S. Stocks Up For A Third Day As Fed Backs Consumer Lending

U.S. stocks took off at Tuesday's start, extending the market's biggest two-day jump in two decades, after the government said it is readying a program to help resurrect dormant consumer loans to help revive the economy.

The Dow Jones Industrial Average gained 95.25 points to 8,538.64.. The S&P 500 added 12.19 points to 864, and the Nasdaq Composite rose 2.99 points to 1,475.01..
 
Telecommunication services, consumer discretionary and utilities led early sector gains that stretched to include all 10 of the S&P's industry groups.
 
Unveiled early Tuesday, the Federal Reserve said it would lend up to $200 billion to back the issuance of debt including student, auto and credit-card loans, as well as those backed by the Small Business Administration. .

The government move pulled attention from early government data that had the U.S. economy contracted at a slightly faster pace in the third quarter than first estimated. A separate report showed home prices falling 1.8% in 20 major cities in September from the month before, and a record 17.4% from the prior year. .
 
Oil futures fell in early trade as concerns over a sharp slowdown in energy demand weighed on sentiment. Crude oil for January delivery fell $1.80 to $52.70 a barrel.

Meat-packer Hormel Foods Corp. (HRL) reported solid sales gains in its fiscal fourth quarter, but also said losses on an investment trust dragged profits down.

Homebuilder D.R. Horton Inc. (DHI) said its fiscal fourth-quarter loss swelled to $800 million, mostly due to unsold inventory and big losses on land disposal.  Overseas, most Asian markets gained. Stocks in Europe reversed early lows to edge higher. .
 
On Monday, U.S. stocks climbed for a second session straight after and government backed more than $300 billion of Citigroup Inc. (C) assets and President-elect Barack Obama formally unveiled his economic team. .

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FOREX-Yen climbs, volatile shares keep risk aversion high

LONDON - The yen gained broadly on Tuesday, while currencies with high yields fell as global recession fears returned to haunt financial markets, keeping stock markets volatile and risk demand low.

Boosting the low-yielding yen was an early slide in European shares after optimism about news on Monday that the U.S. government would rescue Citigroup quickly dissipated.

Analysts said the market remained jittery about ongoing problems in the banking sector, which kept demand high to unwind carry trades which use the yen to buy assets in higher-yielding currencies like the Australian and New Zealand dollars.

"The market is still braced for more news on bank rescues, which could potentially be positive," said Michael Hart, currency strategist at Citigroup in London. "But the fact that we're still looking for new policy measures after all that has been done is a negative sign," he added.

Ongoing signs of deep economic weakness also kept risk demand low, while comments from Bank of England Governor Mervyn King that he may need to cut UK interest rates more than expected reminded investors that more big rate cuts were in the pipeline.

Meanwhile, media reports quoted European Central Bank Governing Council member Ewald Nowotny as saying that the central bank wants to keep some rate ammunition in reserve, bolstering the view that the ECB would refrain from aggressive cuts seen by the BoE.

The dollar fell 0.8 percent to 96.23 yen, while the euro dropped 1.17 percent to 123.15 yen. Putting selling pressure on the single European currency was a 1 percent fall in European shares in early trade, reversing a near 9 percent rally on Monday.

Stocks recovered to edge up 0.7 percent by 1138 GMT, with analysts citing month-end demand for stocks to rebalance investment portfolios, but gains were limited as few traders were interested in taking on significant risk.

The euro fell 0.3 percent to $1.2868, extending losses after data released early in the European session confirmed that the German economy contracted by 0.5 percent in the third quarter.

"The two former mainstays of the German upswing, investment in machinery and equipment and exports, have ... developed into handicaps -- hardly an encouraging omen for 2009," Commerzbank economist Christoph Weil said in a note to clients.

Other surveys showed falls in confidence among French businesses and Italian consumers. The high-yielding Australian and New Zealand dollars lost more than 2 percent against the U.S. currency, while dropping more than 3 percent against the yen as investors continued to unwind carry trades.

The dollar has also benefited from a sharp drop in risk appetite as positions in risky investments are closed out and their proceeds are converted back to the U.S. currency.

The pound fell 0.6 percent to a session low of $1.5057, stung after the BoE's King said he may need to cut rates more than the central bank would otherwise as banks have been slow to pass on the effects of lower rates to customers.

Traders also shed sterling positions after Monday's optimism about stimulatory measures announced in the UK government's Pre-Budget report gave way to renewed fears about the weak economic outlook and rising levels of debt.

Investors awaited preliminary data on U.S. economic growth in the third quarter at 1330 GMT as evidence mounts that the U.S. economy is in a recession as the credit crisis continues to batter the financial and auto industries. U.S. consumer confidence numbers for November and the Richmond Fed index at 1500 GMT will also be closely eyed to better gauge the health of the U.S. economy.

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EUROPE MARKETS: Stocks In Europe Nudge Higher, Though Rio Tinto, AXA Slump

LONDON  - Stocks in Europe reversed early lows on Tuesday to nudge past the outsized gains made in the previous session, as gains for banks and oil and gas producers offset a slump in Rio Tinto shares.
 
The pan-European Dow Jones Stoxx 600 index  inched up 0.1% at 197.60. The index ended 8.4% higher in the previous session amid strong gains from oil and gas producers.
 
Many firms in the oil and gas sector advanced again on Tuesday, with BG Group  up 5.7% and Total (TOT) shares up 1.5%.
 
Banks were also doing well, with HSBC Holdings (HBC) up 2.2% and Lloyds TSB (LYG) up 9.4%.
 
Bank of England Gov. Mervyn King told a parliamentary committee on Tuesday that interest-rate cuts by the Bank of England as well as "very significant" fiscal-policy steps by the British government "will act to mitigate" the U.K. economic slowdown over the next year.
 
Still, Rio Tinto (RTP) shares fell 365 to 1,567 pence after suitor BHP Billiton (BHP) said that it believes a bid for Rio Tinto is no longer in the best interests of its shareholders.
 
Shares in BHP Billiton rose 14.9% in London.
 
Overall, the U.K. FTSE 100 index  advanced 0.6% to 4,176.02, the French CAC-40 index  rose 0.2% to 3,179.86, while the German DAX 30 index  fell 0.7% to 4,521.09 amid a 13.4% drop in Volkswagen  shares.
 
U.S. stock futures consolidated Tuesday after a banner two-session rally, with a cautious outlook from Starbucks a reminder of the economic turmoil that has jarred markets this year.
 
Axa (AXA) shares fell 6.9% in Paris after the insurance  giant cut its 2008 underlying earnings forecast, blaming the deepening financial crisis.
 
"It should be pointed out that management stated in August that if no further deterioration is seen in markets, the 2008 dividend may be similar to that of 2007's 1.2 euros a share. In view of the performance of the group's profit, we expect to see the dividend cut back by at least 30%," said analysts at Ahorro.
 
Axa is set to decide on its dividend payout in February. Skanska , the Stockholm construction major, fell 4.9%.
 
It said it would cut 3,400, or about 5.7%, of its 60,000 jobs as residential and other building markets are weakening. Skanska said its fourth-quarter results would reflect a charge of 600 million Swedish kroner ($74.6 million) for severance costs.
 
Telecom BT Group (BT) declined 2.2% after Merrill Lynch downgraded the firm to neutral from buy.  "Despite BT's 50% decline this year and 12% underperformance relative to the FTSE 100, we think that the bounce off recent post-warning lows is overdone," the broker said.
 
"We think that the market has become over excited about the Nov 13 headcount announcement, which we see are part of normal attrition," it added.
 
Shares in French alcoholic drinks maker Remy Cointreau  rose 5.3% as the group said that first-half net profit rose to 48.3 million euros, from 38.1 million euros.
 
The first half of the year was marked by improved profitability in champagne, satisfactory growth of top-of-the-range cognacs, as well as strong sales growth in emerging markets, the firm said.

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CORRECTED-GLOBAL MARKETS-Asia shares rally on Citi rescue; risks remain

HONG KONG- Asian shares rallied and bonds fell after the U.S. government rescued banking giant Citigroup  in a bid to prevent further damage to the ailing global financial system.
      
The yen edged up from sharp falls a day earlier and gained against major currencies, but some traders said the Japanese currency could stall in the near term if investors continued to return to battered equity markets and other riskier assets from so-called safe havens such as bonds.
      
Oil prices retreated below $54 after surging more than 9 percent in the previous session, a rally that was big enough to send regional commodity-related stocks such as BHP Billiton  sharply higher.
      
But plenty of near-term risks remained, including whether other global lenders are in need of rescue, the fate of U.S. auto makers and indicators that continue to signal a rough road ahead for the global economy.
      
China's growth could well slow to its weakest pace in almost two decades next year, the World Bank said, the latest grim prognosis for a global economy buckling despite the concerted efforts of policymakers.  "What we are seeing is just short-term optimism and hope.

Economic data from the U.S., Japan is not encouraging. So, the future is not promising," said Amitabh Chakraborty, president-equities at Religare Securities in India.
     
The MSCI index of Asia-Pacific stocks excluding Japan  rose 3.8 percent as of 0700 GMT, heading towards a third consecutive daily gain. Japan's Nikkei average jumped 5.2 percent, resuming trade after a public holiday on Monday.
      
Shares in Australia and Hong Kong rallied 4-5 percent each, while markets in Taiwan, Singapore and India rose over 2 percent.
      
The world's largest miner, BHP Billiton, ended 12.2 percent higher in Sydney, but after the market close it announced that it was pulling the plug on its long-standing $66 billion bid for rival Rio Tinto, citing worsening conditions in metals markets and demands for asset sales from European competition regulators.
      
South Korea's KOSPI index advanced 1.4 percent, but Shanghai's index fell 0.4 percent.
      
Gains in Asia were led in part by banks such as South Korea's KB Financial Group and Commonwealth Bank of Australia , which recovered from steep falls on Monday as worries about slowing economic growth and rising bad debts weighed on the battered financial sector.
       
Investors went from buying assets perceived as safe havens during the uncertainty in the lead-up to Citigroup's rescue to shunning them on Tuesday. The question is how long it will last.
      
Data continues to confirm the weakness of the global economy. South Korea on Tuesday said consumer confidence slumped to a four-month low in November, while in Germany, corporate sentiment plunged to its lowest level in nearly 16 years this month.  and
      
The World Bank also cut on Tuesday its 2009 growth forecast for China, which along with the United States, is a key export market for Asia.
      
On the corporate front, Australia's Qantas Airways, and Japan's Honda Motor were among the latest companies in the region to warn of a toughening outlook.
      
"Though U.S. shares may rise a bit more, these gains are likely to be limited by concern about more bad indicators that will show the poor state of the economy," said Yutaka Miura, senior technical analyst at Shinko Securities in Japan.
      
Still, regional bonds largely fell. December 10-year Japanese government bonds (JGB) futures  dropped by as much as 0.54 point before recovering to be down 0.26 from the prior close at 139.04. The benchmark 10-year JGB yield rose 1.5 basis points to 1.405 percent.
      
Oil prices retreated 86 cents to $53.65 a barrel after surging more than 9 percent on Monday when OPEC President Chakib Khelil said a further cut in crude output would be necessary. Oil had tumbled to a 3-½    year low on Friday.

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Gold dips 2 pct as dollar firms, oil weakens

LONDON - Gold fell 2 percent in Europe on Tuesday as a firmer dollar and softer oil prices prompted profit taking after the previous session's near six-week highs.

Spot gold was at $807.00/809.00 an ounce at 1056 GMT, down from $819.55 an ounce in New York late on Monday. Earlier it touched a session low of $801.80.

The precious metal posted its biggest two-day gain since early 2000 that session as the dollar tumbled, with risk aversion easing after the U.S. government agreed to inject $20 billion to rescue Citigroup.

The rally in commodities and stocks which followed pulled gold in its wake, but as the dollar recovers a touch on Tuesday and oil prices slip after gaining 10 percent in two days, the precious metal is easing. "We have seen some really strong gains over the last few days," BNP Paribas analyst Michael Widmer said. "Yesterday there were gains across most asset classes, as there was some relief over the news on Citigroup, and gold benefitted from that as well. So far this morning, we are seeing a bit of profit taking."

A recovery in the dollar versus the euro is prompting some of this selling, analysts said. Gold is often bought as an alternative asset to the U.S. currency and tends to move in the opposite direction to it.

The dollar firmed more than half a percent against the single currency in early trade, off a two-week low it hit on Monday.

Other asset prices also gave up gains, weighing on gold. European stocks slipped after mining giant BHP Billiton said it was dropping its bid for rival Rio Tinto, and metals such as copper and nickel dipped.

Oil prices also fell, with U.S. crude futures shedding more than $2 a barrel in early European trade after Monday's near 10 percent rally.

Gold typically moves in line with crude prices, as it is often bought as a hedge against oil-led inflation. But while gold is slipping for the moment, analysts are confident that with interest rates easing around the world and the economic outlook uncertain, the precious metal will continue to be supported.

"Gold's rally seems to be overextended and profit taking or slight reversal is necessary (for it) to continue its uptrend," Pradeep Unni at Richcomm Global Services said.

"However, as long as it stays above $776, gold would be bullish," he added. Among other precious metals, spot silver tracked gold lower to $10.33/10.41 an ounce, against $10.47 in New York late on Monday. Spot platinum slipped to $845/865 an ounce from $856, while its sister metal palladium was little changed at $191/199 an ounce against $190.50.

Both platinum group metals have suffered from fears over falling demand from the automotive sector, which accounts for around half of global platinum and palladium consumption.

However, lower prices are causing producers to scale back output of the metals, potentially supporting prices, analysts said. "More and more mining companies are adjusting their production to the current market situation and are thereby contributing to a potential medium-term scarcity of metal and... higher prices," precious metals group Heraeus said in a weekly note.

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