US & World Daily Markets Financial Briefing 08-03-2006

Wall Street outlook - Stock futures lower on Google, overseas declines

U.S. stock market futures declined Wednesday as Google Inc. inadvertently released a sales forecast that again led to questions over the sustainability of its growth and as overseas stock markets dropped.

S&P 500 futures fell 3.2 points at 1,274.40 and the Nasdaq 100 futures eased 6.5 points at 1,659.00.

Wall Street had a mixed performance on Tuesday, with the Dow industrials up on General Motors' move to freeze accrued pension benefits while Texas Instruments' sales forecast hurt the Nasdaq Composite.
Crude-oil futures on Wednesday eased as the OPEC oil cartel met in Vienna, with expectations that its output quota will remain unchanged, and ahead of weekly inventory data.

With little economic news to go on, the euro advanced on the dollar, while the dollar was steady against the yen.

Of companies in focus, The New York Stock Exchange begins trade after taking on Archipelago's listing. Some analysts say the stock is no bargain.

Google Inc. traded at $356 a share in the pre-open, down over 2%, after the Internet search engine said it inadvertently released sales guidance that
roughly equates to a forecast of a 57% rise in 2006 advertising revenue, in line with Wall Street forecasts.

Goldman Sachs lowered its price target on the company on the risk of slower affiliate growth.

On the results front, Dynegy posted a wider loss from continuing operations than analysts had forecast for the Houston-based power generator.

LaBarge Inc. lowered its financial outlook for the third quarter and full year due to continuing delays in bringing certain new contracts into full
production. The St. Louis electronics maker said it now expects earnings for the third quarter to "approach or be comparable" with its second-quarter profit of 17 cents a share.

Tech Data tumbled around 8% in the pre-open as its first-quarter earnings outlook fell short of analyst expectations. Prudential Financial agreed to buy Allstate Financial's variable annuity business. Prudential said it will pay approximately $560 million, while Allstate put the value at $580.5 million.

On the broker front, Citigroup upgraded retailers Urban Outfitters and Limited Brands , and AT&T Inc. was upgraded by Morgan Stanley. Overseas, the Nikkei 225 in Tokyo declined again ahead of a Bank of Japan decision on interest rates, while European stock markets shed early gains.

Dutch media group VNU agreed to be bought for $8.9 billion by a private-equity consortium, though the company's chief executive was unsure whether shareholders would back the deal.

UPM surged in Helsinki as the paper products group said it may cut 3,600 jobs.

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Dollar mixed ahead of trade, jobs data

NEW YORK -- The dollar fell against the euro early Wednesday, giving up gains in the previous session, as market participants eagerly awaited key releases later this week on U.S. trade deficit and nonfarm payrolls.

Meanwhile, the yen traded lower against rivals as investors remained jittery after the Bank of Japan began re-examining monetary policy in what may be the first major change of direction in five years amid signs of economic recovery and the return of inflation.

"The message so far this week seems to be that good news for the dollar seems to be already priced into the futures market and the short end of the U.S. money market curve, so we maintain our one-month euro target at $1.1900," said analysts from UBS.

In early New York trading, the euro was fetching $1.1899, up 0.06%, after losing more than 1% Tuesday.

The dollar changed hands at 117.89 yen, up 0.2%, while the euro was last up 0.3% at 140.31 yen.

Fed Chairman Ben Bernanke will address the Independent Community Bankers of America at noon.

The dollar has benefited from recent hawkish comments by Federal Reserve officials.

Late Tuesday, Chicago Federal Reserve President Michael Moskow said further changes may be appropriate even with the funds rate in the range of neutral. He said "if [inflation] expectations were to rise persistently, then policy clearly would have to be tightened further."

"And with inflation near the upper end of my comfort zone, an unexpected increase in inflation would be a serious concern," Moskow said in prepared remarks to the University of Chicago Graduate School of Business. 

Moskow does not hold a vote in 2006 on the interest-rate setting panel that rotates among the regional Fed presidents.

The market is fully pricing in a 5% fed funds rate by June and about a 1-in-3 chance of a 5.25% funds rate by October.     

Overnight, the yen found modest support after upbeat economic data painted the economy in a favorable light.

Underscoring the sense Japan's economy is in full recovery, the index of leading economic indicators in January stood at 85, well above the neutral growth level of 50, the government said. The release marks the fourth month the index has stayed above 50.

Separately, Japan's bank lending rose 0.2% in February from a year earlier, the first expansion in eight years. Analysts said the gains point to a new willingness among corporations to expand their capital spending plans through external financing since December 1997.

Elsewhere, the Reserve Bank of Australia left its official cash rates unchanged at 5.5%, as widely expected.

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LONDON - UK blue chips stayed weak just off session lows at midday amid expectations for an early retreat on Wall Street, with a raft of companies
going ex-dividend today also having an impact, dealers said.

At 12.06 pm, the FTSE 100 index was 62.5 points lower at 5,794.9, just above the session low of 5,790.9, having ticked up to 5,857.6 at open. All the broader
FTSE indices were also weaker, with the FTSE 250 sliding 127.3 points lower to 9,331.0.

FRANKFURT - Shares were sharply lower in midday trade following a mixed performance on Wall Street overnight and as US stock futures pointed to
losses there this afternoon, though Deutsche Post sparkled on a broker upgrade, dealers said.

At 11.45 am, the DAX 30 index was 57.24 points or 1.00 pct lower at 5,682.04, having moved between 5,666.05-5,763.27 so far this session. The MDAX
was at 8,278.45, down 60.24 points or 0.72 pct, while the TecDAX was at 713.74, down 7.83 points or 1.09 pct.

PARIS - Shares were down at midday as widespread profit-taking continued despite positive results from EADS and Credit Agricole, dealers said.

At 12.28 pm, the benchmark CAC-40 index was down 60.01 points or 1.20 pct at 4,932.10.

AMSTERDAM - Share prices were broadly down in midday trade on lower US futures, with VNU showing a small rise after the management and executive boards
approved an offer for the company worth an aggregate 8.6 bln eur in cash, dealers said.

At 12.40 pm, the AEX was down 4.44 points or 0.98 pct at 450.73, after opening at 454.70 and falling to a low of 449.15.

MILAN - Share prices were lower at midday, following a weak close on US markets and Tokyo, with Fondiaria-SAI hit by a broker downgrade and Telecom
Italia lower following the presentation of its 2006-2008 targets, dealers said.

At 1.03 pm, the Mibtel index fell 1.28 pct to 28,452 points and the S&P/Mib lost 1.21 pct at 37,060, while volumes were 2.47 bln eur.

MADRID - Share prices were lower in thin midday trade with most blue chips under continued consolidation pressure, while FCC and Sogecable outperformed, dealers said.

At 11.45 am, the IBEX-35 index shed 108.5 to 11,592.10, after trading in a range of 11,566-11,736, on turnover of 1 bln eur.

ZURICH - Share prices continued their downward trend in thin afternoon trade with Wall Street poised for another weak opening and Swisscom in focus after both its full-year results and outlook exceeded market expectations, traders said.

At 1.40 pm, the Swiss Market Index was 66.49 points lower at 7,797.77, and the Swiss Performance Index was down 48.32 points at 5,973.05.

STOCKHOLM - Shares were lower in midday trade as negative US futures prompted further profit taking, bringing the OMX30 below the 1,000 level, but with forestries gaining after an upgrade on SCA and UPM Kymmene by Goldman
Sachs, brokers said.

At 12.30 pm, the OMX Stockholm index was down 0.77 pct at 319.35, while the OMX Stockholm 30 index down 0.82 pct at 998.00. Turnover was 9.512 bln skr.

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Asian shares close lower, Tokyo cautious over future monetary policy

HONG KONG - Share prices across the Asia-Pacific region closed lower with Tokyo weaker on investor caution before the Bank of Japan's policy board concludes its two-day meeting tomorrow, dealers said.

They said the fact that foreign investors were net sellers in their pre-opening orders, for the first time in three trading days, also weighed on
market sentiment.

The Nikkei 225 Stock Average ended 98.53 points or 0.6 pct lower at 15,627.49, off a low of 15,553.14.

The broader-based TOPIX index of all first-section issues lost 12.29 points or 0.8 pct at 1,605.58, after touching a low of 1,595.93.

"Investors are awaiting the outcome of the central bank's policy-setting meeting tomorrow," said Akio Yoshino, general manager at Societe Generale Asset Management (Japan).

"Caution before the Bank of Japan verdict appeared to keep market participants at bay," he said.

The central bank's policy board began its meeting today and the nine members are widely expected to discuss whether to end its ultra-easy monetary policy, given signs that the economy is overcoming deflation.

Share prices in Australia also closed lower as investors sold resource stocks after metal prices retreated further overnight from record levels, dealers said.

They said the key S&P/ASX 200 index fell 34.9 points in early trading on the resources sell-off, while banking stocks helped boost the market after the Reserve Bank of Australia left official cash rates at 5.50 pct.

The latest monetary setting was the 11th consecutive time the central bank left interest rates steady after the 25 basis point hike in March 2005.

Reynolds & Co private client advisor Michael Heffernan said despite share prices ending slightly lower there remains underlying support for the share market.

Heffernan said a stable interest rate environment means the share market continues to offer attractive returns. "The reality is you can't go past the share market when it comes to returns," he said.

Share prices in Hong Kong were also sharply lower, extending yesterday's steep falls, on continuing worries over the prospect of a further rise in interest rates, dealers said.

They said Wall Street's mixed performance overnight and falls on the Japanese market dampened sentiment while a heavy sell-off in China stocks also contributed to the market's losses.

At 3:53 pm, the Hang Seng Index was down 157.82 points or 1.01 pct at 15,444.54.

In mainland China, A-shares in Shanghai and Shenzhen closed lower on fears of future liquidity pressure, with petrochemical producers and metal companies continuing to be weighed down, dealers said.

The Shanghai A-share Index fell 10.01 points to 1,311.87 on turnover of 9.13 bln yuan and the Shenzhen A-share Index was down 1.88 points at 313.97 on turnover of 5.18 bln yuan.

"The market continued its downward momentum on weak performance of blue chips such as Sinopec, due partly to increasing worries over future liquidity pressure," said Wang Mingzhi, an analyst at GF Securities.

Analysts said that the earlier the market regulator resumes IPO approval and launches the Qualified Domestic Institutional Investor program, the better for the market's future movement.

"I think the government should announce the news as soon as possible, which is the only way to dispel all the pessimistic expectations. Otherwise, more and more investors will become sidelined," said Zhu Haibin, an analyst at Everbright Securities.

Share prices in Seoul closed lower, extending their losses for a second day and dipping through the 1,300 point mark at one stage, as foreign investors further unloaded blue chips and futures, dealers said.

Sentiment remained cautious ahead of the Bank of Korea's rate decision and triple witching tomorrow, with fears of global tightening and a worsening profit outlook for major chipmakers suppressing any bargain hunting interest, theyadded.

The KOSPI index closed down 2.62 points or 0.2 pct to 1,314.05, after trading between 1,322.51 and 1,296.78.

"Foreign investors have been massively selling down blue chips, in particular IT stocks, for four consecutive days," Goodmorning Shinhan Securities analyst Kim Joong-Hyun said.

"Much of the uncertainty pressuring the market is not likely to be resolved soon and this is really hurting the market," he added, pointing to the global rate tightening trends and unfavorable business conditions for IT companies.

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Precious Metals Summary - London, 1537 GMT

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