US & World Daily Markets Financial Briefing 30-10-2008

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US STOCKS-Market rises on rate-cut boost, credit thaw

NEW YORK - U.S. stocks rose on Thursday as investors bet that a spate of interest rate cuts by central banks around the world, including the Federal Reserve, will help lessen the impact of global recession.

While the cuts should drive down the costs of borrowing, investors were also encouraged by signs that efforts to unlock jammed credit markets continued to free up cash needed to avert a sharp downturn. Buyers waded back into the market in search of beaten-down shares, particularly in energy, financials and technology sectors.

Companies posting stronger-than-expected earnings included Colgate-Palmolive Co, up more than 7 percent, and Exxon Mobil, whose third quarter profit jumped to a record $14.83 billion.

Among interest-rate sensitive stocks, including banks, Citigroup shares jumped more than 3 percent. Home builders were another bright spot, with the Dow Jones home construction index .DJUSHB up 5.5 percent.

"If my theory is correct, the markets have discounted a much worse recession," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto. "Yesterday's rate cut was much for psychology."

The Dow Jones industrial average climbed 209.08 points, or 2.33 percent, to 9,200.04. The Standard & Poor's 500 Index gained 27.04 points, or 2.91 percent, to 957.13. The Nasdaq Composite Index  rose 43.64 points, or 2.63 percent, to 1,700.85.

Thursday's government data helped underscore why the Fed deemed it necessary to cut rates on Wednesday.

Data showed that gross domestic product, which measures the output of all goods and services within U.S. borders, experienced its sharpest contraction in seven years in the third quarter, but the slippage was slightly less than expected.

The Fed cut its benchmark fed funds rate by half a percentage point to 1 percent on Wednesday, action that was soon followed by cuts in Taiwan and Hong Kong.

Japan is expected to cut rates on Friday, while the European Central Bank, Australia and the Bank of England are expected cut rates next week. China also cut on Wednesday.

Shares of Colgate-Palmolive Co rose to $64.46 on the New York Stock Exchange, where Citigroup shares rose to $13.15. Among home builders, luxury home builder Toll Brothers TOL.N climbed nearly 5 percent to $21.13.

On Nasdaq, shares of Apple Inc, maker of the iPhone and iPod, rose 4.4 percent to $109.22. Technology shares are among sectors that analysts see poised to be the biggest beneficiaries in an economic revival.

Shares of Exxon Mobil, however, succumbed to profit-taking following quarterly results to trade off 0.8 percent at $74.10. Shares of rival Chevron were up 1.4 percent at $72.97 ahead of the company's results on Friday.

The costs for banks to borrow dollars from each other over three months fell for a 15th straight day on Thursday, suggesting efforts to restore confidence in the credit markets are beginning to bear fruit.

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FOREX-U.S. dollar slides as global optimism rises

NEW YORK - The dollar weakened for a second straight session on Thursday, as an easing in extreme risk aversion among investors boosted equities worldwide following a Federal Reserve rate cut the previous
session.
      
Data showing a smaller-than-expected contraction in the U.S. economy in the third quarter underpinned sentiment on risky assets, including higher-yielding currencies, and helped the dollar hold gains versus the yen.
      
Still, the fall in U.S. gross domestic product in the last quarter was the sharpest contraction in seven years. "The GDP number is bad but it's not horrible. At this point any number that is not disastrous is considered positive for risky assets and bad for the dollar and yen," said Boris Schlossberg, director of currency research at GFT Forex in New York.
      
But he was skeptical about the sustainability of the rally in stocks and of high-yielding currencies such as the euro, sterling and the Australian dollar. "These currencies have had a steep short-covering rally in recent days against the dollar and I don't know how much further they can go. There's strong
resistance at $1.32 in euro/dollar."
      
In early New York trading, the the euro was up around 0.6 percent at $1.3030 in volatile trade, pulling further away from a 2-1/2-year low of $1.2329 hit this week on electronic trading platform EBS.
      
The ICE Futures dollar index, which measures the dollar's value against six other major currencies, fell 1 percent to 84.232. Despite its broad losses, the dollar climbed 1.2 percent to 98.65 yen, extending its recovery from a 13-year trough just below 91 yen touched on EBS late last week.
      
Sterling rose 0.2 percent against the dollar to $1.6453 while the Australian and New Zealand dollars rose roughly 2 percent and 1 percent respectively. 
             
Higher share prices showed some investors had retreated from extreme risk aversion seen after a meltdown in the banking sector triggered waves of selling in past weeks.
     
The recovery in stocks and high-yielders was triggered by the Fed -- the U.S. central bank -- reducing borrowing costs by a half percentage point to 1 percent on Wednesday and leaving the door open for further easing of monetary policy.
      
The Fed also approved on Wednesday currency swap lines with central banks in several major emerging countries, making dollars available to help them deal with the credit crunch.
      
Analysts, however, expressed caution about the market's renewed optimism, saying for instance that the U.S. GDP report was a harbinger of distressing things to come. "I think the relief over the GDP's headline number will not last long," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.
      
"The report points to terrible outlooks for U.S. firms and U.S. stocks, so the initial rally should not last and we may be in for a downdraft in risky assets."
      
The GDP report showed a steep pullback in consumer spending. which fuels two-thirds of U.S. economic growth. It fell at a 3.1 percent annual rate in the third quarter -- the first cut in quarterly spending since the closing quarter of 1991 and the biggest since the second quarter of 1980.

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Banks, miners help lift European stocks by midday

LONDON - European shares were higher midday on Thursday, led by banking stocks after encouraging results from Deutsche Bank, though energy stocks were weaker.

By 1210 GMT, the FTSEurofirst 300 index of top European shares was up 2 percent at 915.37 points, adding to a 7.5 percent rise on Wednesday. Banking stocks added the most points to the index. Deutsche Bank gained 15.6 percent after the group avoided a third-quarter loss thanks to new accounting rules but unveiled heavy losses in proprietary trading as global financial markets remained rocky.

"Deutsche Bank results were much better than expected. This is influencing gains in the banking sector to a degree," said David Buik, partner at BGC Partners. "The banking sector is also at horribly low valuations, unrealistic of their true values, and investors are now starting to put money in," he added.

Banco Santander, UniCredit, Credit Agricole, Credit Suisse and UBS were up between 3.7 and 7.9 percent. Miners were also heavyweight gainers across Europe. Gold rose to near a one-week high on safe-haven buying as the U.S. dollar posted its biggest one-day drop in 23 years after the U.S Federal Reserve cut interest rates by half a percent on Wednesday.

Anglo American, BHP Billiton, Lonmin, Kazakhmys, Rio Tinto, Vedanta Resources and Xstrata were up between 3.9 and 11.3 percent. "The mining sector is still off 50 percent from where it was three months ago. There is still demand for iron and copper," Buik added.

Across Europe, the FTSE 100 index was up 1.65 percent, Germany's DAX was 4.2 percent higher, and France's CAC 40 was up 1.2 percent.

Energy stocks slipped, with Royal Dutch Shell Plc falling 1.9 percent despite third-quarter results beating forecasts. BP and Total were also down. "Oil has had big moves recently, so we can expect a bit of profit taking," said Buik.

Among individual stocks, Irish drug-maker Elan slumped 21 percent after U.S. marketing-partner Biogen Idec reported a new case of a potentially deadly brain disease in a patient being treated with Elan's flagship drug Tysabri.

But Volkswagen surged 11 percent as the group reaffirmed its full-year targets after posting third-quarter operating profit that just missed expectations.

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Asian Market Summary

Asian stocks were set for a record rise and a third straight day of gains on Thursday as lower borrowing costs and international efforts to provide liquidity to emerging markets coaxed investors from safe havens like the yen.
      
Markets in Japan, Hong Kong and South Korea rocketed 10-12 percent higher, dragging along commodity prices in the wake of the Federal Reserve's cut in rates to the lowest since June 2004, aimed at softening the blow of a potentially deep U.S. recession. 
      
China, Hong Kong, Norway and Taiwan all delivered cuts of their own, and pressure mounted on the Bank of Japan to reduce rates after it meets on Friday.

In active trade, the benchmark Nikkei climbed 817.86 points to end at 9,029.76, the highest close since Oct. 22. The 10 percent jump was the biggest one-day gain since Oct. 14, when the Nikkei surged 14.2 percent for the biggest one-day gain in its history.
  
The benchmark remains down 41 percent so far this year, but it has gained 26 percent over the past three days. The broader Topix shot up 8.3 percent to 899.37.

The benchmark Shanghai Composite Index closed up 43.80 points or 2.55 pct at 1,763.61, after falling to a 25-month low yesterday.

Turnover was little changed at 35.41 bln yuan compared with 35.42 bln yesterday. The weighted index closed up 277.12 points or 6.29 pct at 4,683.64, after moving in the range of 4,448.51 and 4,684.11. Turnover was 67.70 bln twd.

The KOSPI index is now up 21.5 percent from the year's low of 892.16 hit on October 27, but down 43 percent on the year.

The Hang Seng index closed up 1,627.78 points or 12.8 pct at the day's high of 14,329.85, off a low of 13,280.44. It was the index's second-biggest percentage gain this year after Tuesday's 14.35 pct surge.

The benchmark S&P/ASX 200 closed up 155.5 points at 4,001.1, based on the latest available data, extending a 1.3 percent gain on Wednesday. Prior to that the index had fallen for five sessions in a row, losing 12 percent on global recession fears.
   
New Zealand's benchmark NZ50 index firmed 17.2 points, or 0.6 percent, to 2,762.8.  Top miner, and the benchmark index's top weighted stock, BHP Billiton roared up 8.7 percent to A$28.60, while rival and takeover target Rio Tinto jumped 9.2 percent to A$77.32.

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Oil rises to $68 on weak dollar, rate cuts

LONDON - Oil rose to $68 a barrel on Thursday, boosted by a weak U.S. dollar and hopes that interest rate cuts in the U.S. and China would bolster the world economy. 
      
"The financial picture is still leading oil prices with attention being drawn away from fundamental oil news," ODL Securities said in a report.
      
U.S. crude rose $1.00 to $68.50 a barrel by 1150 GMT, off an earlier high of $70.60. That added to a $4.77, or 7.6 percent, gain on Wednesday. London Brent crude was up 83 cents at $66.30.
     
Oil has more than halved from its record high of $147.27 struck in July and is down by 30 percent so far this month, putting it on track for its biggest ever monthly fall.
      
The U.S. Federal Reserve cut interest rates by half a percentage point, taking its target for overnight bank lending to 1 percent, the lowest since 2004, in an attempt to revive the sagging economy.
      
China also cut its interest rates on Wednesday, kicking off what is likely to be a global round of interest rate cuts, with Norway having already followed suit, and Taiwan and Hong Kong cutting rates too on Thursday.
     
The Fed cut pushed the dollar lower, making dollar-priced commodities like oil cheaper and more attractive for holders of other currencies.
 
Also supporting oil were OPEC's decision last week to cut output by 1.5 million barrels per day, or about 5 percent, to prop up prices and hints that it may reduce supply further. 
      
U.S. weekly inventory data on Wednesday was mixed. Crude oil stocks gained 500,000 barrels, less than the expected 1.4 million rise, but distillate stocks rose 2.3 million, above the 800,000 barrels increase forecast.

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