US & World Daily Markets Financial Briefing 05-07-2007

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Stock prices are mixed today after a slew of dealmaking news lifted some sectors, but investors remained jittery about rebounding bond yields and upcoming data on the U.S. service sector. In the opening minutes, the Dow Jones industrial average is down 34.47 at 13,542.83.

The Standard & Poor 500 index is down 1.29 to 1,523,58. But the Nasdaq Composite Index is higher by 0.25 at 2,645.20.

The Institute for Supply Management's index of service sector activity in June, scheduled to be released at 10 a.m., is expected to slip to 58.1 from 59.7 in May, indicating that non-manufacturing industries saw slower expansion.

A much lower reading could signal the economy is not rebounding as expected, and any signs that inflation is accelerating -- such as a index of the prices companies themselves pay -- could raise interest rate jitters. Last week, the Federal Reserve said recent data have shown inflation is moderating, but the bank wants to see more evidence.

Many stocks have benefited recently, though, from deal making. Hilton Hotels Corp. agreed Tuesday to an all-cash buyout from Blackstone Group in a $20.1 billion deal; chemical company Huntsman Corp. said Wednesday a private-equity firm made a cash buyout offer of about $6 billion that trumps last week's bid from a Dutch company; and a Coca-Cola Co. spokesman said Wednesday the company is looking into buying Cadbury Schweppes PLC's Snapple iced tea brand or building its own tea brand.

New merger and acquisition activity, as well as a retreat in bond yields, helped the Dow Jones industrial average soar a total of 126.81 points Monday and Tuesday, ahead of the 4th of July holiday.

The 10-year Treasury note's yield bounced back to 5.10 percent Thursday from 5.04 percent Tuesday, however, which could create problems for stock investors worried about high rates slowing down business. Bond prices, which move in the opposite direction from yields, fell after the Bank of England raised its benchmark interest rate by 0.25 percent for the fifth time in less than a year to 5.75 percent, as expected. The European Central Bank kept rates on hold.

Trading volumes were expected to be low again Thursday, with many traders taking time off after the holiday. That could exacerbate price swings in a nervous market.

In other economic data, the Labor Department's weekly report on jobless claims showed a modest rise. On Friday, Wall Street will be closely reading the department's report on June payrolls and unemployment.

Though deals appeared to be buoying the stock market, General Motors Corp., one of the 30 Dow components, is likely to weigh on the blue-chip index. A Bear Stearns analyst downgraded the automaker after it posted Tuesday afternoon a 21.3 percent drop in June sales compared to last year. GM fell more than 3 percent in premarket trading.

In other corporate news, buyout firm KKR & Co. LLP said late Tuesday it is planning an initial public offering, following rival buyout firm Blackstone's IPO two weeks ago.

Oil prices were headed for another 10-month high. Light sweet crude futures rose 35 cents to $71.76 a barrel in premarket trading on the New York Mercantile Exchange, ahead of the Energy Department's weekly report on U.S. petroleum inventories.

The dollar fell against most other major currencies. Gold prices rose.

Traders appeared unfazed by a 5.3 percent plunge in the often-volatile Shanghai Composite Index, sparked by worries about government steps to cool down the market and concerns that several new share listings could dampen prices.

Japan's Nikkei stock average rose despite the drop in China's stock market, gaining 0.29 percent. In afternoon trading, Britain's FTSE 100 rose 0.16 percent, Germany's DAX index fell 0.09 percent, and France's CAC-40 fell 0.25 percent.

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The pound climbed following the Bank of England's rate hike while the euro remained steady as rates were kept on hold in the 13-nation single currency zone, with markets awaiting the European Central Bank's press conference.

The BoE raised interest rates for the fifth time in less than a year to stand at 5.75 pct. Although the rise was widely expected, sterling was given a boost as the accompanying statement gave no indication that the tightening cycle was over.

Meanwhile the ECB kept euro zone interest rates on hold at 4.00 pct as expected. The euro reacted very little to the decision, but markets will keep a close eye on the upcoming press conference for indication as to when rates will next move.

Most analysts expect the ECB to hike again in September and will be monitoring president Jean-Claude Trichet's language to confirm this.

The dollar has continued to remain weak against major currencies, and markets will also be focusing on a series of US data releases as well as events in Frankfurt.

Weekly figures on US jobless claims are expected to show a rise of 2,000 to 315,000 for the week ending June 29. Meanwhile the The June ISM non-manufacturing index is seen pulling back a bit to 58.1 from 59.7 in May.

Daniel Katzive at UBS said falling yields on US Treasuries and record oil prices are helping to keep the greenback on the backfoot.

Finally rallying global equity markets have boosted risk sentiment in the currency market, putting additional downward pressure on the yen. It slumped earlier to an all-time low against the euro of 167.30 yen.

A rise in risk sentiment tends to mean a rise in enthusiasm for the carry trade, where investors borrow in low-yielding currencies such as the yen to invest in high-yielding ones elsewhere.

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Europe's leading exchanges were off lows midday after the Bank of England's (BoE) rate decision was in line with market expectations and ahead of the European Central Bank statement later this afternoon.

At 12.09 pm, the Dow Jones STOXX 50 Index was down 5.33 points, or 0.1 pct, at 3,971.03, while the DJ STOXX 600 Index dropped 0.66 points, or 0.2 pct, to 396.84.

The DJ Euro STOXX 50 Index, which tracks the performance of blue chip companies in 12 countries using the euro, fell 11.72 points, or 0.3 pct, to 4,512.47.

Looking ahead, Wall Street is set to open higher following the Independence Day holiday yesterday, as investors await jobs data and a report on the health of the nation's services sector.

According to spread bettors IG Index, the DJIA is expected to open up 2 points at 13,579. Separately, S&P 500 futures rose 1.40 points to 1,537.60, while Nasdaq 100 futures edged 2 points higher to 1,987.

Back in Europe, the basic resources sector posted some of today's gainers, buoyed by rising metals prices and a strong favourable sentiment this morning. One London-based analyst noted that the strong and on-going demand is set to keep the sector in the spotlight.

Among the biggest risers, BHP Billiton climbed 1.8 pct, Kazakhmys was up 1.4 pct, while Xstrata gained 1.7 pct.

Peer voestalpine AG -- up 2.20 pct -- was also supported by an upgrade to

'buy' from 'accumulate' at Erste Bank, which hiked its target to 88 eur from 56.

The broker said in addition to the synergies that will result from the Boehler takeover, a further positive factor for voestalpine is that it does not need to dilute its share capital to finance the deal but will buy Boehler using debt.

Yesterday, analysts at domestic brokerage RCB also upped their rating on the stock to 'buy' and placed the target at 86 eur.

Over in the hotel and leisure sector, yesterday's gains sparked a profit taking spree among investors in the absence of further consolidation news.

Accor, which gained more than 10 pct yesterday, fell by 1.84 pct at last check, while NH Hoteles, dropped 0.24 pct and Sol Melia retreated 2.61 pct.

In the telecommunications industry, telecoms services companies were on the defensive after a report Telefonica's O2 is set to reach a deal to become exclusive network associate for Apple Inc's iPhone in the UK.

Telefonica added 0.12 pct, as BT dropped 0.74 pct with Vodafone declining 1.08 pct.

An equity strategist also noted that the hype surrounding Apple's iPhone was slowly fading away as investors turn their eye towards quality comparisons and evaluating whether the phone's "quality, reach and range" are in fact able to keep up with other heavyweights such as Nokia or Ericsson

Telecommunications services peer Deutsche Telekom was further making news, after a report in Boersen-Zeitung, which said the company is experiencing a setback in its efforts to find associates for its T-Systems unit after US-based EDS dropped out as an interested party.

The newspaper cited sources close to the negotiations and said another unnamed potential associate has also decided not to pursue a tie-up. A spokesman for the telecommunications giant declined to comment on the report.

Over in France, Danone was off highs midday, but still gaining 0.66 pct in a declining market, on reemerging speculation PepsiCo is interested in buying the company.

Speculation PepsiCo may once gain cast an acquisitive eye over the group has been fuelled by news this week that Danone has sold most of its biscuits and cereals business to Kraft Foods Inc in a 5.3 bln eur deal.

Staying with M&A, Austria's Intercell AG climbed ahead as rumours circulated of a possible takeover bid by Novartis for the vaccine company in coming days with a potential price tag of 31.25 eur a share.

On Monday, shares in Intercell surged more than 20 pct to 28.80 eur when trading resumed after a pre-market suspension on news the vaccine specialist had entered into a far-ranging strategic partnership with Novartis.

On the subject on stake taking, EADS was a surprise gainer this morning, up 0.54 pct at last check, after Dubai International Capital said it has taken a 3.12 pct stake in the Franco-German aerospace company.

On the earnings front, strong results from UK staffing group Michael Page International lifted its European peers.

Vedior was up 1.51 pct, Adecco gained 0.10 pct, while Randstad climbed 1.21 pct. Michael Page shares surged 4.11 pct.

Meanwhile, Carrefour rose 2.65 pct, to top the gainers on the Euro STOXX 50, after Merrill Lynch upgraded the supermarket group to 'buy' from 'neutral', with a 59 eur price target.

The broker said conditions in France will very likely improve in time, and the half-year results will bring news of the goals of Blue Capital -- the holding company of Groupe Arnault and property company Colony Capital, which owns a 9.1 pct stake in Carrefour.

Germany's Lanxess outperformed the chemicals sector, climbing 0.12 pct higher, helped by an HSBC upgrade to 'overweight' from 'neutral', and a price target hike to 48 eur from 43.50 eur.

HSBC said the company's restructuring efforts have not been priced in yet.

The Institute for Supply Management offers investors its monthly snapshot on the nation's services sector.

The ISM Index is forecast to come in with a reading of 58.1 for June, slightly down on the 59.7 reported in the prior month. Any reading over 50, however, indicates the sector is continuing to expand.

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Bangkok

Thai share prices closed marginally lower Thursday, after hitting their highest levels in 10 years spurred by massive inflows since early this week, on profit-taking.

The sharp rise of the Thai baht, which is also at a 10-year high, has fueled concerns about Thailand's critical export sector.

The Stock Exchange of Thailand (SET) composite index shed 1.52 points or 0.18 percent to close at 823.93 points, and the blue-chip SET 50 slipped 1.84 points to 588.43.

Malaysian

Shares closed lower Thursday as investors took profits on the market's four-day advance, with heavy selling seen in big-caps and blue-chips, amid a lack of fresh leads especially since Wall Street was shut overnight for the Independence Day holiday.

The Kuala Lumpur Composite Index (KLCI) fell 7.84 points or 0.56 percent to 1,369.30, off a low of 1,365.47.

The FTSE Bursa Malaysia 30-large cap index lost 60.31 points to 8,666.58 and the second board index declined 0.17 point to 112.35.

Losers led gainers 490 to 398, with 280 stocks unchanged and 186 counters untraded.

Trading volume was 1.21 billion shares, valued at 2.2 billion ringgit.

Jakarta

Indonesian shares closed higher Thursday, with the main index finishing at a new record for the fourth straight day as the market welcomed Bank Indonesia's move cutting its benchmark interest rate by 25 basis points to 8.25 percent following tame inflation data in June.

The central bank has now trimmed its key BI rate by a cumulative 450 basis points since May 2006.

Although the rate cut had been widely expected, the market still reacted positively to the news.

The day's key movers included index heavyweight Telkom, heavy equipment distributor United Tractors and mining stocks.

The composite index closed up 24.826 points or 1.13 percent at 2,220.931, beating the previous all-time high of 2,196.105 set yesterday.

Volume was 4.89 billion shares worth 3.67 trillion rupiah.

The LQ45 index rose 5.297 points to 461.443.

Gainers led losers 128 to 59, while 65 stocks were unchanged.

The Indonesian rupiah was trading at 9,017/9,022 per US dollar against 9,000/9,010 late Wednesday. Singapore shares close mixed on profit-taking, lack of buyers

Singapore

Shares closed mixed Thursday as investors took profits on the market's recent gains, targeting in particular blue-chips in the afternoon session, with buyers scarce in the absence of new leads following the overnight closure of US markets for the Independence Day holiday.

The Straits Times Index (STI) closed down 3.17 points or 0.09 percent at the day's low of 3,551.68.

It traded to a high of 3,573.43.

But gainers edged past losers 447 to 408, with 698 stocks unchanged.

There were 4.47 billion shares traded valued at 2.52 billion Singapore dollars.

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Copper extended gains into the afternoon as fears continued that a number of threatened strikes in South America will disrupt supply, and as LME-monitored stocks of the metal dipped to a nine-month low.

The weaker dollar is encouraging fresh buying of all the base metals at the start of the new quarter- and half-year, analysts said.

Industrial metals are denominated in dollars, and weakness in the US currency makes them cheaper for holders of other currencies.

At 1.59 pm, LME copper for three-month delivery had risen to 7,795 usd a tonne against 7,725 usd at the close yesterday.

Chile's state-owned copper miner Codelco said it is meeting with workers today to discuss an end to the strike which began on June 25.

Talks also continue between Southern Copper Corp and workers at its Peruvian operations, amid hopes a strike scheduled to begin on July 9 can be averted.

Elsewhere, the strike at Xstrata's CCR refinery in Montreal, which started on June 11, continues.

Although a risk premium linked to strikes has already been added to prices, any actual disruption of supply could send them still higher, analysts said.

Prices have also been buoyed by a decline in stockpiles of the metal monitored by the LME, which dipped a further 1,650 tonnes this morning to 110,375 tonnes, their lowest level since last October.

Meanwhile lead hit new highs as the market continued to predict supplies will remain tight this year.

LME lead was trading at 2,875 usd a tonne against 2,770 usd at the close yesterday. Earlier the metal hit a fresh intraday high of 2,890 usd.

This morning's LME inventory report showed a large increase in lead cancelled warrants -- representing stocks of the metal booked and due to leave the exchange's warehouses -- which suggests immediate availability of the metal is falling.

Lead has hit a series of new highs in recent months after China imposed a 10 pct export tax on the metal to address internal shortages.

The tax further exacerbated a global shortage of the metal linked to the suspension of exports from Australia's Port Esperance, through which lead is transported from the Magellan mine.

Magellan produces around 3 pct of the world's lead supply each year.

Standard Bank raised its lead price average for 2007 to 2,175 usd per tonne from 1,940 usd on concerns over tight global supplies.

Analysts at the investment bank have increased their projected global deficit for the year to 55,000 tonnes from 35,000 tonnes, amid heightening concerns over Chinese lead production.

Tin prices rose to 14,115 usd against 13,825 usd at yesterday's close.

Among other metals, zinc edged up to 3,455 usd from 3,430 usd, while nickel dipped to 36,250 usd from 36,300 usd.

Aluminium rose to 2,775 usd from 2,746 usd.

Trade is expected to remain quiet due to the US Independence Day holiday today.

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