US & World Daily Markets Financial Briefing 01-10-2007

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Stocks little changed after Citi warning

NEW YORK - Wall Street rose moderately in early trading Monday as a major acquisition by Nokia helped offset investor unease over profit warnings from two major global banks.
   
Nokia's $8.1 billion offer to buy navigation-software maker Navteq Corp. reassured investors that acquisition activity might pick up as Wall Street begins the fourth quarter. The deal was seen as a signal that corporations are feeling comfortable in making big moves despite recent market turbulence.
   
However, enthusiasm about the deal was tempered after both Citigroup Inc. and Switzerland's UBS AG warned that credit market upheaval took its toll on third-quarter results. Citi said profit will fall 60 percent, while UBS expects a loss for the period.
   
Investors also awaited key data on the health of the manufacturing sector. The Institute for Supply Management is expected to report that manufacturing activity grew at roughly the same rate in September as in August, according to economists surveyed by Thomson Financial. Later in the week, investors will watch for readings on the health of the service sector and employment.
   
In the first few minutes of trading, the Dow Jones industrial average rose 46.41, or 0.33 percent, to 13,942.04.
   
Broader market indexes were slightly higher. The Standard & Poor's 500 index rose 5.09, or 0.33 percent, to 1,531.84; and the Nasdaq composite index rose a12.80, or 0.47 percent, at 2,714.30.

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Dollar range-bound ahead of ISM manufacturing survey

LONDON - The dollar was range-bound against the euro ahead of a key US manufacturing survey, while the yen was pushed lower as investors' appetite for the carry trade continues to recover.
   
The greenback hit an all-time low against the euro of 1.4282 usd during Asian trade but subsequently firmed and was confined to a narrow range against major currencies during the morning
   
The Institute of Supply Management's manufacturing index for September, due out at 3.00 pm BST, is expected to show little change from August with analysts forecasting a slip to 52.8 from 52.9. However, a weaker-than expected reading is likely to push the dollar back towards its all-time low as it would add to the already gloomy outlook for the US economy.
   
"Even though the ISM index for September is expected to remain above the 50 expansion/contraction level, it will weaken slightly compared to the prior month thus fuelling investors' fears about the negative effects of the financial markets crisis on the real economy," said Gavin Friend, currency strategist at
Commerzbank.
   
Meanwhile, the yen was weaker across the board, despite a stronger-than-xpected Tankan Survey, as investors' enthusiasm for the carry trade - where they sell low-yielding currencies such as the yen to invest in high yielding ones elsewhere continues to recover.
   
The Tankan report showed confidence among large Japanese manufacturers held flat for the second straight quarter in the third quarter, with strong confidence about sustained profit growth weighing against uncertainty about the subprime loan problem and the direction of financial markets.    
   
"The apparently ceaseless tide of funds looking for better yield both from the "carry trade" angle and from domestic Japanese investors continues to underpin the Yen crosses, despite a better-than-expected Tankan survey," said Peter Stoneham at IFR Markets.     Finally, the pound was weaker after figures from the Bank of England provided further evidence that the UK housing market is slowing and a key manufacturing survey came in below expectations.
   
The BoE reported the number of mortgage approvals fell to 109,000 during August from July's 115,000, while net mortgage lending slipped to 8.5 bln stg from 8.9 bln.
   
Analysts set the trend is set to continue as lenders pass on higher interbank borrowing costs to householders in the coming months.
   
"These are August data and are picking up only the first effects of any credit restrictions which will become more apparent in the coming months", said Geoff Dicks at Royal Bank of Scotland.
   
Meanwhile, the purchasing managers' manufacturing index fell to a three-month low in September of 55.1 from 56.1 in August.

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Euroshares lower midday in quiet trade after Citigroup profit warning

LONDON - Europe's leading shares turned slightly lower again at midday, following a profit warning by Citigroup after earlier statements by Credit Suisse and UBS put pressure on stocks in early morning trade.
    
At 12.32 pm, the Dow Jones STOXX 50 fell 16.28 points or 0.43 pct to 3,804.05, while the STOXX 600 was down 0.65 points or 0.17 pct to 377.21.
       
In Europe, the banking sector was showing resilience as well and the STOXX 600 for the banking sector only slipped 0.85 pct.
   
"It was generally very quiet today. There is nothing happening here -- and the sole focus is on UBS and now also Citigroup," a trader at a large international investment bank said. "People aren't yet excited about the rate-setting meetings, and UBS has actually been digested now," he noted.
   
UBS recovered from earlier lows and was outperforming its market -- down 0.32 pct.
   
Peer Credit Suisse declined 0.39 pct, also recovering after the group said it expects Investment Banking and Asset Management results to have been adversely impacted by recent market events. It reassured investors, however, that it will post a net profit in the third quarter.
   
Also in the banking sector, Northern Rock was the biggest loser, down 15.07 pct following a slew of press reports about the beleaguered bank.
   
The Sunday Express reported that the Northern Rock sale is "doomed to failure" and large investors doubt any deal can succeed, while the Saturday Financial Times reported that brokers said its shares could fall further and a bid could come in at under 200 pence.
   
Elsewhere, Air France-KLM rose 4.35 pct after investors welcomed reports the group is targeting a 49 pct stake in Spanish airline Iberia, coupled with Goldman Sachs' decision to include the stock in its 'conviction buy' list.
   
Unconfirmed reports this morning that Air France is targeting Iberia rather than Alitalia were positively received by investors, with one Paris dealer calling the news "pretty reassuring."
   
But Nokia shed 1.43 pct as brokers said a reported bid for navigation-software maker Navteq Corp could be on the high side, impacting the  Finnish handset giant's shares in the short-term.
   
Commenting on a Wall Street Journal report that Nokia is in talks to buy the US navigation-software maker for 8 bln usd, Exane BNP Paribas said the price tag "may seem a bit steep".
   
Among gainers, Akzo Nobel advanced 2.82 pct after the company raised its synergies estimates to 2.5 bln eur following the acquisition of ICI.

Rabo Securities  noted the increased synergies estimate. "(Up to now,) Akzo estimated 280 mln per year (in synergies) leading to 2.1 bln eur after implementation costs. This is now raised by 375 mln to 2.5 bln," analyst Niels de Zwart at Rabo Securities said.
   
Also in M&A news, TUI AG gained 3.40 pct after investor Guy Wyser-Pratte said he is considering raising his 1 pct stake in the company and signalled that he may support its break-up.
   
"The newspaper article could be the kind of catalyst necessary to get positive change rolling -- both in terms of the share price, but also restructuring at the company," said a Frankfurt-based trader.
   
"Wyser-Pratt said that TUI needs to be restructured, is strongly under-valued and is poorly managed," he added.  

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Asian stocks rally afresh as commodities shine; Japan's Tankan surprises

SINGAPORE - Asian stock markets extended their rally Monday, with the Australia and Singapore benchmarks hitting fresh intraday records as commodities prices continued to trade at multiyear highs.
   
Japan gave back early gains made after a stronger-than-expected survey of business sentiment. Japan's blue-chip Nikkei 225 Stock Average ended up 0.4 pct at 16,845.96, while the broader TOPIX index fell 0.1 pct to 1,615.89, giving up early gains.

The Bank of Japan's closely-watched Tankan survey showed sentiment at the country's large manufacturers was steady in the third quarter, with the so-called diffusion index coming in at 23, above the consensus forecast of 21.
   
Australia's S&P/ASX 200 ended the day down 0.1 pct at 6,563.7 after hitting a record intraday high of 6,605.0. The All Ordinaries slipped 1.1 points at 6,579.8.
   
Resources giant BHP Billiton Ltd ended down 5 Australian cents at 44.50 aud after hitting a record 45.10 aud in intraday trade. Rival Rio Tinto Ltd finished up 62 cents at a record 108.84 aud.
   
In Singapore, the Straits Times Index finished up 1.3 at a new record high of 3,755.22, led by Chinese stocks on the first day of a scheme allowing Chinese citizens to invest in overseas markets.
   
In South Korea, the KOSPI index closed up 0.8 pct at 1,962.88 as sentiment was buoyed by the latest positive developments over North Korea's disarmament plan and the stronger-than-expected industrial output.
   
Industrial output rose a seasonally adjusted 0.8 pct in August from July, rising for the fifth straight month, largely due to solid semiconductor chip output and ship production amid brisk export demand. Economists were expecting an increase of 0.3 pct on an average.

In Singapore, stocks of Chinese companies were key gainers at the start of a government-backed scheme allowing Chinese citizens to invest in overseas markets.
   
Jiashi, a fund backed by Deutsche Asset Management, was approved by Beijing as the first fund under China's Qualified Domestic Institutional Investor (QDII) scheme to be allowed to invest in stocks other than Hong Kong H-shares and red chips. This bodes well for Singapore, where more than 100 S-shares, or stocks of Chinese companies, are listed.

Indian shares ended slightly higher Monday, in volatile trade that saw spurts of heavy profit-booking. However power stocks notched up impressive gains, led once again by Reliance Energy on reports of its
unit's IPO.
   
The Bombay Stock Exchange's Sensex, which opened firm but later plunged 200 points as investors started locking in gains, eventually closed up 37.52 points or 0.22 pct at 17,328.62. The National Stock Exchange's S&P CNX Nifty closed up 0.95 pct at 5,068.95.
   
Elsewhere, Taiwan's weighted index closed up 0.1 pct at 9,488.50 while the Philippine composite index rose 0.7 pct at 3,597.92.

Malaysia's Kuala Lumpur Composite Index rose 0.8 pct to 1,347.05 and Indonesia's Jakarta index rose 1.7 pct to 2,399.46.
   
The Chinese and Hong Kong markets were closed for a national holiday.

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Copper edges up on dollar weakness, Gold rises to new 28-year high

LONDON - Copper prices edged up as the dollar plumbed new depths against the euro and as traders focused on further falls in LME inventories and impending strike action in Peru.
   
The red metal has been underpinned in recent weeks by the ever weakening dollar, which makes it cheaper for holders of other currencies to invest in commodities. The dollar was quoted at above 1.4280 usd against the euro in Asian trade, its lowest ever level.
   
At 11.36 am, LME copper for three month delivery was up at 8,085 usd a tonne against 8,020 usd at the close Friday.
   
The LME said earlier copper stocks held in its warehouses fell again today, declining by 100 tonnes to total 130,375 tonnes. On Friday, the Shanghai exchange reported an 8,190 tonne week-on-week fall in copper stocks.
   
The inventory falls in copper are exacerbating supply worries in the market, with traders eyeing a strike set to begin tomorrow at two mines and one smelter operated by Southern Copper Corp in Peru.
   
Zinc rose to 3,080 usd a tonne against 3,050 usd at the close Friday, underpinned by a 500 tonne drop in LME inventories, which as of today total 30,850 tonnes -- their lowest since 1991.
   
In other base metals, nickel was down at 30,412 usd a tonne against 30,500 usd, aluminium was little changed at 2,518 usd a tonne against 2,520 usd, tin rose to 15,400 usd against 15,375 usd, while lead was flat at 3,380 usd.

Gold prices extended an earlier high to climb even closer to an all time record set in January 1980, as traders eyed the ever weakening dollar.
       
Gold rose to 746.63 usd an ounce -- extending an earlier high of 746.20 usd -- before retreating to 746.18 usd at 11.14 am. In late New York trade Friday, the metal was quoted at 743.30 usd.
   
Players are now awaiting data from the Institute of Supply Management, due later this afternoon, for further clues on the US economic outlook and how it will affect gold and dollar values going forward.
      
Elsewhere, platinum rose to a year's high of 1,932.50 usd an ounce -- nearing last November's all time record peak of 1,395 usd -- before retreating sharply to 1,376 usd against 1,382 usd in late New York trades.
   
Rising investment and industrial demand, tight supply and dollar weakness helped drive platinum prices in early Asian trades, although the metal later lost ground following an announcement from Mazda.
   
The car manufacturer said it has developed a new type of auto catalyst that reduces platinum and palladium use by 70 to 90 pct. "Despite the catalyst development, the white metal fundamentals remain more than favourable and could easily see prices extend beyond 1,400 usd in the coming weeks," said Moore.
   
Silver was little changed at 13.80 usd an ounce against 13.79 usd, while palladium was flat at 346 usd.

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