US & World Daily Markets Financial Briefing 07-02-2006

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U.S. stocks drift lower; GM dips after dividend cut

       
NEW YORK - U.S. stocks drifted lower Tuesday as a warning from homebuilder Toll Brothers and nervousness over political tensions in the Middle East outweighed strong earnings from Walt Disney Co. and a drop in crude-oil prices.
   
General Motors Corp was under pressure after the automaker slashed its
dividend, slashed executive pay and said it would restructure its U.S. pension
plan in a bid to conserve cash.
   
The Dow Jones Industrial Average was off an early high of 10,822.76, down 2
points at 10,798. The benchmark index has spent most of the early part of the
session moving in and out of positive territory.
   
The Nasdaq Composite Index fell 4 points to 2,254 while the S&P 500 Index
dropped 3.5 points to 1,261.44.
   
"The market is simply lethargic," said Paul Mendelsohn, chief investment
strategist at Windham Financial Services. "The earnings season is winding up.
It's a light week for economic data and it's a big week for bonds as you have a
lot of government Treasurys being auctioned off. This may be shifting a lot of
focus onto the bond market."
   
Mendelsohn said investors remained unsettled by the political tensions in
the Middle East. Iran's standoff with Western nations over its nuclear
ambitions, the Hamas election victory in the Palestinian Authority and the
demonstrations in a number of countries over Danish cartoons depicting Muhammad were all a cause for concern. 
       
Treasurys were little changed ahead of this afternoon's auction of $21
billion in 3-year notes. The benchmark 10-year note last was unchanged at
99-20/32 with a yield of 4.56%.
   
The sole data release of the day is the December consumer credit report, due
out at 3 p.m. The MarketWatch forecast, based on a poll of economists, is for
$4.7 billion.

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Shares of Dow component General Motors fell 19 cents to $23.15 after its
directors, in a move to conserve cash, voted to halve its $2 annual dividend,
and slash its chief executive's salary by 50%.
   
Coca-Cola , also in the Dow, was up 34 cents at $41.28. The soft drinks
seller's adjusted quarterly results beat Wall Street expectations as unit-case
volumes rose 4% on strong growth in China, Russia, Brazil and Turkey. The
company also said it would meet its target of boosting earnings as much as 8% in the long term.
   
Walt Disney Co. rose 3.5% to $25.82 after the company reported an unexpected
gain in first-quarter earnings thanks to strong performances at its parks and
broadcast networks. The media giant also announced it was divesting its ABC
Radio operations.
   
Exxon Mobil Corp. fell 1.3% to $61.16, hurt by the fall in oil prices and
weaker-than-expected results at UK oil giant BP Plc.
   

Other stock standouts

In a further sign the U.S. housing market may be cooling off, Toll Brothers
fell 2% to $30.59 after the homebuilder cut its 2006 home-delivery estimate
because of slowing demand and regulatory delays.
   
Cisco Systems was in focus as the networking giant prepares to report its
earnings after the market closes Tuesday. The San Jose, Calif-based firm is
expected to report a 12% rise in earnings per share over year-ago levels.
Analysts believe the company has benefited from large businesses spending more on upgrading their networks to expand capacity and improve security.

The stock was up 18 cents at $18.01 in morning trading.

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Dollar falls amid talk Japan may soon tighten policy

       
NEW YORK - The dollar faced heavy selling pressure against the yen
Tuesday amid speculation the Bank of Japan may take steps that would tighten
monetary policy sooner than expected.
   
The U.S. currency was quoted almost 1.3% lower at 117.85 yen, having fallen
back from Monday's highs over 119 yen. The dollar last traded below 118 yen on
Jan. 31.
   
The euro was up 0.02% at $1.1982.
   
The Bank of Japan will hold a monetary policy meeting on Wednesday and
Thursday. Traders will carefully monitor the statements of Bank of Japan
Governor Toshihiko Fukui following the meeting.
   
Recent comments from Bank of Japan officials acknowledging improvements in
economic fundamentals have led some people to speculate a change could come as soon as a meeting on Thursday, said Russell Bloom, senior currency analyst at
IFR Forex Watch.
   
The market was heavily short on yen, said Bloom. So the speculation resulted
in "a massive unwinding of yen shorts," he said.
   
The Bank of Japan, in a move that would be bullish for the yen and bearish
for the dollar, could tighten policy by terminating its "quantitative easing
policy," under which the bank is targeting a current account reserve of 30
trillion to 35 trillion yen.
   
Action Economics predicted that the central bank will announce at its April
meeting an end to quantitative easing and readopt its zero interest rate policy.
   
"A modest tightening in the nominal call rate can be expected from?as early
as the end of the second quarter of 2006 to prevent further falls in the real
rate as inflation turns increasingly positive," Action Economics said.
   
The call rate is the rate charged for unsecured overnight loans of deposits
at the bank.
   
Boris Schlossberg, senior currency analyst at Forex Capital Markets, said
the yen benefited from heavy funds demand during European trade.
   
"How accurate that information is remains to be seen as Bank of Japan
officials have been reticent at making any definitive assurances to the market,"
Schlossberg said.
   
He also noted that a newsletter speculated that the Bank of Japan could hint
at an end to the zero interest rate policy, but said that possibility was
questionable.

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London

For a list of FTSE risers and fallers at 14.30 GMT, click here

Paris

Paris shares lower late afternoon, Arcelor weighing; telecoms gain

At 14.45 GMT the CAC-40 was down 9.66 at 4,924.93. Volume was 3.6 bln eur.
On the Matif, CAC-40 futures were trading 7.5 points weaker at 4,930, while
the euro was quoted at 1.1980 usd against 1.1976 late yesterday.
   
"The big thing today is not in Paris - it is Sonae's bid for Portugal Telecom," a dealer commented. "A move on a former national operator shows there are no taboos in the telecoms sector, and that is driving speculative interest over who is next."
   
Telecom operators led gains in Paris, with Bouygues up 0.74 at 45.52 and
Vivendi Universal, owner of mobile group SFR, up 0.40 at 25.92.
   
Arcelor was down sharply, falling 3.70 pct or 1.16 eur to 30.15 as fears
grew that Mittal Steel's takeover bid for the group will be a long drawn out
affair and following a report that Arcelor is considering acquiring
Pittsburgh-based US Steel in order to fend off Mittal.
   
Total, also weighing on the market, slid 3.00 or 1.34 pct at 220.80,
following disappointing results from peer BP.

Frankfurt

German shares lower midafternoon as Deutsche Boerse, utilities decline

At 13.37 GMT the DAX 30 index was 30.57 points or 0.54 pct lower at 5,636.21.
The MDAX was at 8,089.64, down 21.14 points or 0.26 pct, while the TecDAX
was at 696.39, down 1.10 points or 0.16 pct.
   
The DAX futures contract was at 5,655.0, down 26.00 points or 0.46 pct,
while bund futures were at 120.46, up 0.20.
  
   
Hypo Real Estate was the worst performer, down 1.13 eur, or 2.07 pct, to
53.37 eur.
   
Deutsche Boerse followed closely behind, down 1.95 eur, or 1.90 pct, to
100.55 after dealers said Fortis sold 4.3 mln shares in rival Euronext.
   
E.ON dropped 1.34 eur to 91.45 after it said yesterday it may suffer from
gas supply shortages should the cold spell in Central Europe continue.
   
Rival RWE fell 0.76 eur to 67.13.

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Asian shares close mostly down, profit taking offsets bargain hunting in Tokyo

       
HONG KONG - Share prices across the Asia-Pacific region finished
mostly lower, with Tokyo little changed as profit-taking balanced bargain
hunting, dealers said.
   
Investors were cashing in profits after the Nikkei reached a more than five
year high yesterday, they added.
   
The Nikkei closed down 26.77 points or 0.2 pct at 16,720.99. Yesterday, the
blue-chip marker surged to 16,747.76, its highest finish since Aug 31, 2000.
   
The broader TOPIX index of all first-section shares edged up 1.17 points or
0.1 pct to 1,713.47.
       
Share prices in Australia closed lower after a volatile trading session
during which the market swung between negative and positive territory following
little direction from overseas markets overnight, dealers said.
   
They said investors are becoming wary about pushing the market too far as
the December half reporting season gathers momentum, taking profits in some
sectors after a mixed National Australia Bank December quarter business survey.
   
Dealers said most resource stocks slid into negative territory despite still
strong metal prices, with investors taking profits from index leading BHP
Billiton and Rio Tinto.
   
The S&P/ASX 200 fell 10.2 points or 0.21 pct to close at 4,905.4, slipping
away from last Wednesday's record close of 4,956.7.
   
Hong Kong share prices finished lower as Wall Street's lackluster
performance overnight and interest rate worries prompted investors to lock in
profits, although follow-through interest in many H- shares narrowed losses,
dealers said.
   
They said the strong performance of mainland markets after the Chinese New
Year continued to support sentiment for China-related stocks.  
   
The Hang Seng Index closed down 31.05 points or 0.20 pct at 15,517.01.
   
In mainland China A-shares in Shanghai and Shenzhen closed mixed amid
profit-taking after recent strong gains with heavyweight petrochemical and
banking issues losing ground, dealers said.
   
The Shanghai A-share Index fell 6.23 points to 1,342.81 on turnover of 19.07
bln yuan and the Shenzhen A-share Index was up 0.11 point at 326.23 on turnover of 11.41 bln yuan.
   
Share prices in Seoul ended lower, erasing yesterday's modest rebound, with
investors cautious due to the uncertainty over the impending rate decision by
the Bank of Korea and options expiry Thursday, dealers said.
   
Initial trading was affected by Wall Street's mixed performance overnight
amid fears of further rate hikes. The local market failed to sustain a brief and
limited rebound due to selling by foreign investors, they added.
   
Market participants and analysts were split over whether the BoK would raise
its benchmark interest rate by 25 basis points to 4.00 pct on Thursday, with a
solid economic recovery and higher property prices competing with the won's rise
and a slowdown in exports as a key determinant.

The KOSPI index closed down 9.36 points or 0.70 pct to 1,332.28.

Asian Bourse Round-Up

For a full list of closing figures, click here

Crude futures fell, with most traders betting that the U.S. government will
report on Wednesday increases in crude and gasoline inventories for last week.
   
The front-month futures contract last was down $1.09 at $64.02 a barrel.
   
Gold futures tumbled in morning trading. The benchmark April contract was
down $13.80 at $560.50 an ounce.