US & World Daily Markets Financial Briefing 08-05-2006

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U.S. stocks open higher on cheaper oil, M&A deals

NEW YORK - U.S. stocks traded largely higher Monday, helped by a drop in oil prices and a wave of merger-and-acquisition activity, including a $26 bln banking deal, but caution ahead of this week's Federal Reserve meeting on interest rates was putting a cap on gains.
   
The Dow Jones Industrial Average rose 19 points to 11,597, extending a six-year high.
   
The Nasdaq Composite Index climbed just under 1 point to 2,343 while the S&P 500 Index put in a fractional loss, down 0.29 point at 1,325.52.
   
"It is most likely that the market will act a little nervous ahead of this week's FOMC meeting," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.
   
On Friday, stocks ended sharply higher after a weaker-than-expected jobs report improved the odds the Fed will stop raising interest rates sooner rather than later, catapulting the Dow Jones Industrial Average and the S&P 500 Index to multiyear highs.
   
Merger and acquisition deals
   
Merger Monday lived up to its reputation with a number of companies announcing deals over the weekend and ahead of the market open.
   
Warren Buffett's Berkshire Hathaway agreed to buy 80% of a privately-held Israeli toolmaker, Iscar, for $4 bln. Buffett, nicknamed the Oracle of Omaha, told investors at Berkshire's annual meeting, that he will be making more investments in the U.K. and other European companies during the next year, and would consider acquisitions in Japan.
   
Wachovia Corp., agreed late Sunday to buy California's Golden West Financial Corp. in a $26 bn cash-and-stock deal that would add to its presence in the West and put it deeper into the volatile mortgage business. The deal comes 10 months after Wachovia failed in its bid to buy MBNA Corp., the credit-card company that was eventually bought by Bank of America Corp.

Wachovia shares were off 6.4% at $55.62. Golden West shares shot up 7.8% to $75.99.
   
Also, Thermo Electron Corp. and Fisher Scientific International Inc. agreed to combine in a deal valued at about $10.6 bln, in a move to create a leading provider of laboratory products and scientific equipment. Thermo shares rose 4.6% to $41.26 while shares of Fisher Scientific climbed 10.1% to $81.25.
   
In other planned deals, Teck Cominco said it may make a bid to acquire Inco Ltd for C$17.8 bn. Inco shares shot up 19% to $70.43 in early trading.
   
Other stock standouts
  
Shares in Apple Computer Inc. rose 1.7% to $73.15 after a U.K. judge ruled that the company is entitled to use the apple logo on its iTunes Music Store. Apple Corps., the record label owned by the Beatles, contended the computer company had broken a 1991 agreement, under which each agreed not to enter into the other's field of business.

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Dollar falls to 8-month yen low, 1-year euro low

NEW YORK - The dollar continued its slide against major rivals Monday, hitting an eight-month low against the yen, after comments from U.S. and Japanese officials diminished expectations the Bank of Japan will intervene to halt the yen's rise.
   
At the same time, the U.S. currency also touched fresh one-year lows against the euro, British pound and Swiss franc.
   
U.S. Treasury Undersecretary Timothy Adams said at an Asian bank meeting in India late Friday that countries should refrain from intervening in currency markets. Over the weekend, Japan's Finance Minister Sadakazu Tanigaki said he wouldn't be commenting on day-to-day currency movements.
   
In early New York trading, the dollar fell as low as 110.97 yen, the lowest level since Sept. 21, with traders in Tokyo returning from Golden Week holidays. It last traded at 111.23 yen, down 1.2%. The euro rose 0.2% to $1.2748, after hitting $1.2787, the highest level since May 16. The euro also fell 1% to 141.84 yen.
   
The British pound strengthened to $1.8688, the highest level since May 12 and last traded up 0.2% at $1.8635. The dollar fell 0.4% to 1.2229 Swiss francs, after dropping to 1.2178 francs, the lowest level since May 19.
   
The yen also found support after Bank of Japan Governor Toshihiko Fukui said over the weekend that the bank is open about what its next policy step should be, raising expectations the central bank may start raising interest rates later this year.
   
With little US economic data due out Monday to guide the price action, "positive momentum [for the dollar] may prove difficult to find," said Tim Wilbraham, senior FX dealer at CMC Markets.
   
The federal funds futures market was pricing in a 100% chance of a quarter percentage point interest rate rise following the Fed's meeting Wednesday. Currency investors will scrutinize the accompanying statement for clues to what might happen at the next meeting in June and beyond.
   
Upbeat euro zone data
   
The euro edged higher after data showed the euro-zone retail purchasing managers index at its best level since January 1994.
   
The index, put together by NTC Economics on behalf of Bloomberg, rose to 54.6 from 48.5 in March on the back of gains in Germany and France. Weakness was seen in Italy, however, following the country's general election.
   
The European Central Bank is expected to continue its rate-tightening campaign in June, with a quarter-point hike widely expected.
   
Bearish Buffett
   
The dollar also came under pressure after bearish comments from Berkshire Hathaway Inc. Chairman Warren Buffett over the weekend.
   
At the company's annual shareholder meeting, Buffett reiterated his concerns about growing U.S. trade and current-account imbalances, which he said could
cause a painful correction in the dollar.
   
At some point, the imbalances could trigger "some chaotic markets in which currency adjustments play a part," Buffett said.
   
"There's a very high probability that the U.S. currency weakens over time," he added. "We are following policies that don't seem to leave much alternative."
   
Buffett said part of his motivation to buy 80% of Israeli manufacturer Iscar Metalworking Cos. for $4 billion in a deal announced late Friday was to hedge against dollar weakness.
  
Elsewhere, the greenback also fell to eight-year lows against the Singapore dollar and Korean won.

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German shares remain higher midafternoon as Wall Street seen gaining

At 3.10 pm, the DAX 30 index was 26.82 points or 0.44 pct higher at 6,140.11, having moved between 6,121.52 and 6,150.63 so far this session. The MDAX was at 9,115.96, up 111.48 points or 1.24 pct, while the TecDAX was at 760.31, up 8.20 points or 1.09 pct.
   
The DAX futures contract was at 6,159.00, up 1.00 points or 0.02 pct, while bund futures were at 115.43, up 0.17.
   
Metro led large-caps higher, up 1.56 eur or 3.39 pct at 47.54, for chart-technical reasons.
 
Adidas rose 3.76 to 165.86, after the company said that business in products related to the World Football Championship games has exceeded its expectations in the first quarter and will benefit first-quarter results, due to be released tomorrow.
 
Deutsche Post gained 0.39 to 22.37, as its board member Klaus Knappik told Die Welt newspaper that the company is eyeing a move into the Chinese letter delivery market.
 
Bucking the trend, MAN dropped 1.23 eur or 1.77 pct to 68.07 on profit-taking following recent solid gains.
   
Hypo Real Estate slid 0.44 to 53.92.
   
At its AGM today, the company reaffirmed its 2007 return on equity target of between 11 and 12 pct, and said that it is also targeting a 2006 operating profit of more than 1 bln eur, up from 909 mln eur in 2005.
   
Hypo Real Estate expects new business volume in Germany of around 4 bln eur and of around 18 bln eur abroad, meaning the bank expects to reach its 2005 total new business volume of 22.3 bln.

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Asian shares close higher, Tokyo up on Wall St gains

HONG KONG - Share prices across the Asia-Pacific region ended higher with Tokyo firmer as investors took their cue from Wall Street's solid gains Friday, dealers said.
   
They noted however that the dollar's slide to a seven-month low against the yen, weighed on export-oriented stocks, capping the market's upside.
   
The Nikkei 225 index closed up 137.90 points or 0.8 pct at 17,291.67, off a high of 17,375.25, marked six minutes after the opening bell.
   
The broader-based TOPIX index of all first-section issues gained 17.85 points or 1.0 pct at 1,755.03, off a peak of 1,763.76.
   
The US dollar touched its lowest level in more than seven months against the yen amid speculation the US Federal Reserve's anticipated rate hike at its policy meeting this week may be the last for some time following a weaker-than-expected US employment report released last Friday.
   
The dollar touched 111.60 yen in afternoon trade here, a level not seen since Sept 23 last year.
   
"After the long holiday last week investors took their early cue from Wall Street but as the yen surged to a seven month high this capped the market's rise," said Hideyuki Suzuki, a strategist at SBI Securities.
   
Share prices in Australia finished higher with investors buying resources following the continued rise of metal prices, together with banking stocks, adding to Friday's large rebound, dealers said.
   
They said investor sentiment was also boosted by the large rise on Wall Street, helping push the All Ordinaries index to a fresh record high.
   
Dealers said the lower US inflation outlook in turn saw local interest rate hike concerns ease while expectations that further income tax cuts will be announced when tomorrow's federal budget is delivered also boosted sentiment.
   
The S&P/ASX 200 jumped 68.6 points or 1.31 pct to close at 5,324.0, drawing near the record close of 5,327.2 reached on April 26.
   
In Hong Kong, share prices were trading sharply higher in the afternoon tracking Wall Street gains, dealers said.
   
HSBC led the gains after its American Depositary Receipts rose in New York on Friday and following forecasts by some brokerages that its share price may rise to above 150.0 hkd this year.
   
At 3:22 pm, the Hang Seng Index was up 306.61 points or 1.8 pct at 17,320.54.
   
In mainland China, A-shares in Shanghai and Shenzhen closed broadly higher on upbeat sentiment with metal companies, property developers and food stocks spearheading gains, dealers said.
   
The Shanghai A-share Index jumped 59.85 points to 1,571.56 on turnover of 29.01 bln yuan and the Shenzhen A-share Index was up 13.05 points at 378.82 on turnover of 15.77 bln yuan.
   
Share prices in Seoul ended sharply higher, rising for a fourth trading session, as large cap IT and bank stocks posted solid gains, dealers said.
   
Wall Street's sharp Friday advance brought on a firm start, helping the index set a new intraday high of 1,361.05 in initial trade.
   
The market lost some of early gains to close near its low for the day, with investors remaining cautious ahead of the policy meetings by the US Federal Reserve and the Bank of Korea and the expiry of options this Thursday.
   
The KOSPI index closed up 11.21 points or 0.78 pct at 1,452.23.

Asian Bourse Round-Up

For a full list of closing figures, click here

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Gold futures head lower after a six-session win

SAN FRANCISCO - June gold fell $6.10 to $678.20 an ounce Monday morning after posting gains in all of the trading sessions since April 27.

"Nothing goes straight up and ... it's absolutely necessary for markets in major uptrends to experience periods of retracement and consolidation," said Dale Doelling, chief market technician at Trends In Commodities.

July silver was also down 33 cents at $13.56 an ounce and July copper lost 3.85 cents to $3.455 a pound.

Crude-oil futures fell under $70 a barrel following comments from Iran that hinted at a moderating posture and after the head of an energy association said current oil price levels aren't sustainable.
   
An Iranian government spokesman told reporters that Ahmadinejad had written a letter to the President Bush proposing "new solutions" for "getting out of international problems."

Crude for June delivery was last down $1.18 at $69.01 a barrel. 
   
On the bond market, long-term Treasury prices were little changed as traders positioned ahead of an auction of 3-year notes on Tuesday and the Fed's interest-rate meeting on Wednesday.

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