US & World Daily Markets Financial Briefing 26-09-2008

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US STOCKS-Wall St slides on stalled bailout, WaMu collapse

NEW YORK - U.S. stocks dropped at the open on Friday after congressional talks on a $700 billion financial sector bailout stalled and authorities seized the largest U.S. thrift, heightening worries about the fallout from the credit crisis.

The Dow Jones industrial average .DJI was down 126.80 points, or 1.15 percent, at 10,895.26. The Standard & Poor's 500 Index .SPX was down 18.36 points, or 1.52 percent, at 1,190.82. The Nasdaq Composite Index .IXIC was down 47.03 points, or 2.15 percent, at 2,139.54.

US Q2 GDP downwardly revised GDP to a 2.8% growth rate from 3.3%

WASHINGTON - The US economy grew at a revised 2.8% annual rate in the second quarter, a half percentage point lower than previously estimated as the Commerce Department made downward revisions to consumer spending, exports and some business investment.
   
Economists polled by Thomson Reuters IFR Markets were expecting second quarter GDP, which measures the country's output of goods and services during the three months ending in June, to remain unchanged at 3.3%.
   
Commerce downwardly revised consumer spending to a 1.2% gain, from the 1.7% gain last reported. This revision subtracted 0.37 percentage points off the last estimate of total GDP, or about two thirds of the downward revision.
  
Total exports grew 12.3%, slower than the 13.2% gain previously reported.  Commerce said the downward revision to exports was "mostly to exports of services and reflected the incorporation of quarterly international transactions accounts data."
   
Exports have supported GDP growth in an otherwise downward economic period, but the Federal Reserve expects a slowing in exports to weigh on growth over the next few quarters.
   
Imports fell 7.3%, slightly less than the first reported 7.6% decline.  The revisions to imports and exports subtracted 0.17 percentage points off the prior estimate of total GDP in the second quarter.
   
Overall, real nonresidential fixed investment rose 2.5% while real residential fixed investment fell 13.3%, less than the 15.7% decline Commerce first announced.
 
Overall inflation, as measured by the personal consumption expenditures price index, rose 4.3% in the second quarter, up slightly from the 4.2% previously reported. Core PCE inflation, which excludes food and energy prices, rose 1.8% in the second quarter, down from the 2.1% first reported.  Economists were expecting core PCE to remain unchanged in the second quarter. 

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FOREX-Yen gains broadly as risk appetite sours

NEW YORK - The yen climbed broadly on Friday as stalled negotiations on a proposed $700 billion bailout of the U.S. financial sector and the collapse of Washington Mutual prompted jittery investors to shun risky
trades.
      
Investors sold high-yielding currencies such as the Australian dollar and dumped stocks around the world, and sought the safety of government bonds. Money markets also came under pressure, with three-month dollar interbank rates -- which spans the seasonally illiquid Christmas period -- remained at high levels
at the London fixing.
     
Talks on the bailout broke down late on Thursday. As this developed, U.S. authorities closed Washington Mutual and sold its assets in the country's largest ever bank failure, causing massive ructions in the market.
      
"The collapse of negotiations on Capitol Hill yesterday combined with the failure of Washington Mutual have greatly  increased investors' aversion to risk and it's no surprise that we're seeing the Japanese yen benefit as a result," said Omer Esiner, senior market analyst, at Ruesch International in Washington.
      
The yen has gained 1.6 percent against the dollar so far this week and about 3 percent this month amid heightened pressure in financial markets.  In early New York trading, the dollar was down 1.1 percent against the yen at 105.22 yen, while the euro lost 1.0 percent to 154.04 yen. Against the dollar, the euro was little changed at $1.4619.        

Data showing that the U.S. economy grew less than previously estimated in the second quarter weighed modestly on the dollar, but volume was thin as investors remained focused on the bailout.
      
The dollar index on the ICE Futures Exchange, a measure of the greenback's value against six major currencies, fell 0.2 percent to 76.866. "All we care about is that something gets done in Washington," said Greg Salvaggio, senior vice president of capital markets at Tempus Consulting in Washington.
      
"What we are seeing is foreign exchange traders have taken a back seat and we are looking for direction from credit and equity markets and certainly Congress to see if anything gets done. Failure to have a deal, or at least look like a deal is being done, prior to the close for markets today could lead to significant downward pressure across the board on the dollar."
     
The high-yielding Australian dollar fell 0.6 percent against the U.S. dollar to US$0.8302 and more than 1.6 percent against the yen to 87.35 yen, as investors unwound bets on higher-risk currencies. Central banks coordinated to provide further liquidity on Friday as fund demand ahead of the quarter-end exacerbated already dysfunctional money markets.
      
Market participants still expect the $700 billion U.S. bank bailout package to be agreed in some form and they are unwilling to adopt big positions as a result, analysts said. Talks over the plan will resume on Friday.
      
News of the Washington Mutual failure further damaged sentiment, although the third-largest U.S. bank JP Morgan Chase & Co said it bought the deposits of the bank, which had seen its stock price virtually wiped out because of massive amounts of bad mortgages

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European shares fall, hit by U.S. bailout snag

FRANKURT - European stocks fell by midday on Friday, with financials weighing heavily after U.S. failure to agree a $700 billion financial sector bailout plan and the collapse of U.S. bank Washington Mutual.

At 1125 GMT the FTSEurofirst 300 index of top European shares was down 2.1 percent at 1,101.70 points, almost reversing gains of 2.2 percent made in the previous session. The index has fallen around 26 percent this year.

"Yesterday, everybody thought (the U.S.) was maybe close to coming to a deal, and so everybody was astonished over the extra differences and points they have to clear," said Heinz-Gerd Sonnenschein, equity strategist at Postbank in Bonn, Germany.

"You see the nervousness about the overall market and it is a question what will come next and how quick can we get the programme from the U.S."

Washington Mutual was closed by the U.S. government on Thursday, making it the largest failure of a U.S. bank, and its banking assets were sold to JPMorgan for $1.9 billion.

Banks were the top-weighted losers on the FTSEurofirst 300, with Lloyds TSB sliding 6.7 percent, and Deutsche Bank down 3.3 percent and Royal Bank of Scotland 3.2 percent lower.

Dutch-Belgian bank Fortis fell 12.1 percent, having dropped to a 14-year low at one point on Thursday, amid concerns over the group's liquidity, traders said. Fortis Chief Executive Herman Verwilst told a hastily called news conference the bank had no liquidity issue but was looking to sell more non-core activities than anticipated.

Another top loser was British mortgage lender Bradford & Bingley which slid 10.6 percent as a cost-cutting programme unveiled on Thursday failed to dispel concerns over its funding position.

B&B shares are down more than 60 percent since the beginning of the month, with the bank's high dependence on expensive wholesale funding raising doubts over its prospects as an independent lender, analysts say.

Insurers were also weak, with French AXA falling 4.1 percent, Swiss Re down 2.4 percent, Dutch ING losing 4.8 percent and Germany's Allianz 1.5 percent lower.

U.S. congressional leaders were due to try again on Friday to save the $700 billion Wall Street rescue plan after talks degenerated into chaos on Thursday when a rival Republican plan emerged.

"The ongoing discord is massively unsettling and the fact that we now have Washington Mutual added to the list of casualties is escalating the cynicism," said Martin Slaney, head of derivatives at GFT Global Markets in a note.

"If anything, reports of an alternative plan have added to the uncertainty. Timing is the key issue here; if a deal hasn't been signed and sealed over the weekend, expect massive market turmoil. Monday will be a bloodbath."

The FTSEurofirst 300 hit a three-year low of 1,059.16 in intraday trading on Sept. 18. Away from financials, shares in mobile phone maker Nokia fell 3.8 percent to 13.4 euros. JPMorgan lowered its 2009 earnings-per-share estimate for Nokia by 11.6 percent and cut its price target for the stock to 10 euros from 11 euros, citing a "worsening market".

Energy shares fell as the crude oil price CLc1 dropped 2.5 percent to $105.32 a barrel. BP was down 2.1 percent, Royal Dutch Shell dipped 1.8 percent and Total traded 1.8 percent lower.

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Asian stock market summary

JAPAN
The Nikkei 225 Stock Average finished down 0.9 percent at 11,893.16, as investors retreated to the sidelines due to concerns over the Bush Administration's $700 billion rescue package for U.S. banks.
   
Local investors shrugged off a Wall Street rally of nearly 200 points overnight on hopes for the bailout package. The broader Topix lost 0.5 percent to end at 1,147.89.

SOUTH KOREA
The Korea Composite Stock Price Index ended lower 1.68 percent at 1,476.33, after a U.S. financial sector rescue plan stalled late Thursday, sending exporters and banking shares lower.
   
The Seoul markets had a muted response to reports that U.S. lender Washington Mutual had agreed late Thursday to be acquired by JPMorgan Chase as part of a government-brokered rescue plan.
 
AUSTRALIA
The S&P/ASX 200 index ended down 0.5 percent at 4,904.8, in a rocky session as the progress of the U.S. bailout plan stalled and America suffered its biggest bank failure yet, with Washington Mutual swallowed by JPMorgan.
   
Financial stocks such as investment bank Macquarie Group and miner BHP Billiton Ltd turned lower as nervous investors waited for U.S. Congress to decide if and when it will proceed with the rescue package.

CHINA
The benchmark Shanghai Composite Index finished down 0.16 percent at 2,293.48, in cautious trade ahead of a week-long holiday and on uncertainty surrounding the US financial sector bailout.
  
The Shenzhen market edged higher due to a rebound in property stocks amid hopes for higher sales during the holidays.
   
Ping An Insurance dragged down the main index on worries about possible losses from its investment in Fortis, while brokers provided some support amid continued hopes for the imminent launch of margin trading.
   
The China markets will be shut next week for the National Day holiday. The Shanghai A-share Index fell 0.17 percent to 2,408.88, while the Shenzhen A-share Index added 1.02 percent to 644.95.
   
The Shanghai B-share Index rose 1.31 percent to 132.76 and the Shenzhen B-share Index was up 1.49 percent at 311.30.

TAIWAN
The weighted index closed down 2.16 percent at 5,929.63, on uncertainty surrounding the US government's financial sector bailout plan.
   
Fears that the bailout will be delayed wiped out modest early gains in local share prices following a cut in local interest rates.

INDIA
The 30-share benchmark Sensitive Index of the Bombay Stock Exchange closed down 445 points or 3.28 percent at 13,102.18, off 6.7 percent for the week. The broader 50-share S&P CNX Nifty of the National Stock Exchange dipped 125.30 points or 3.05 percent to 3,985.25.

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Gold rises 0.4 pct after three-day losing streak

Gold edged higher on Friday after three days of losses, finding support among physical buyers that offset pressure from a rebound in U.S. stocks as Congress drew nearer approving a $700 billion bailout.

Spot gold was quoted up $3.55 or 0.4 percent at $879.30/882.30 per ounce as of 2341 GMT compared with the previous nominal close of $875.70. Prices eased this week since ending on Monday at just above $900, their highest since Aug. 1.

The near-term technical trend weakened slightly after the cash price dipped below the five-day moving average of around $884.

Gold has gained about 20 percent since Sept. 11 as safe-haven demand heightened, when a collapse in the share price of Lehman Brothers raised questions about the stability of the U.S. and global financial sector.

But hope that the U.S. government's bail-out would soon help restore confidence in the system, slowing the flight from risk, lifted U.S. stocks on Thursday, with the Dow Jones industrial average .DJI was up 196.89 points, or 1.82 percent, at 11,022.06 and the Nasdaq gaining 1.43 percent.

A strong dollar also weighed on gold, but the metal's losses were limited by Thursday's gains in oil. U.S. crude oil futures settled up $2.29 at $108.02 per barrel.

Bullion holdings of SPDR Gold Trust GLD.P, the world's largest gold-backed exchange-traded fund, remained unchanged at a record 724.94 tonnes as of Wednesday.

Gold futures contracts on the Tokyo Commodity Exchange were expected to open lower following falls in the spot price the previous day.

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