US & World Daily Markets Financial Briefing 09-03-2006

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U.S. stocks rise; GM surges on report of union deal

NEW YORK - U.S. stocks rose Thursday as investors took some comfort from stabilizing long-term interest rates, with General Motors in focus as its shares surged on a report it may be nearing an agreement with the United Auto Workers union.
   
News that the Bank of Japan will leave its zero interest-rate policy in place also offered some support.
   
The Dow Jones Industrial Average was up 23 points at 11,029. The Nasdaq Composite Index rose 10 points to 2,277 while the S&P 500 Index gained 3 points to 1,281.
   
"The market has been wringing its hands for a while now on interest rate fears," said Sasha Kostadinov, portfolio manager and research at Shaker Investments. "You've seen the 10-year yield this year go from somewhere around 4.3% to 4.75%, which is a pretty big move but in last few days that upward move has stalled."
   
On the broader market for equities, advancers outpaced decliners by more than 2 to 1 on the New York Stock Exchange, and by 16 to 9 on the Nasdaq. 
       
Stocks on the move
   
Shares of Dow component General Motors rose 5.6% to $21.58 on a Wall Street
Journal report the carmaker and auto parts maker Delphi , are nearing agreement on a potential deal with the United Auto Workers that would encourage early retirements for union workers.
   
NYSE Group climbed another 6.1% to $84.85 after rallying 25% Wednesday on the first day of the exchange's life as a publicly- traded company.
   
Sun Microsytems gained 4.1% to $4.43. The stock was upgraded to equal weight at Lehman Brothers, which cited expectations of research and development cost cuts and a stabilization in revenue growth.

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Dollar dips after record trade deficit

NEW YORK - The dollar edged slightly lower against major rivals early Thursday after fresh economic data showed the nation's trade deficit widened to a new monthly record in January.
   
"Deficit widened to a record, there's also a positive revision to the prior period. The surprising thing is despite the trade deficit widening to a record, the dollar has not suffered a significant damage," said Brian Dolan, head of currency research at Gain Capital. "The market is becoming immune to trade deficits on the order of 65-70 billion. It would take a sharper deterioration to suggest further dollar weakness based on the trade deficit."
   
The market is focusing on Friday's nonfarm payrolls report, he said.
   
The yen initially rallied on the Bank of Japan news, but later lost some of its strength during European hours. Dealers said trade could be bumpy for some time as the market sorts of the implications of the change.
   
The dollar was last down 0.2% at 117.53 yen, as the euro fell 0.1% to $1.1917.

Earlier, the Commerce Department said the trade gap widened 5.3% to a new monthly record of $68.5 billion. The previous record was $67.84 billion in October. Both exports and imports hit new records in January, although imports outpaced goods shipped overseas.
   
The estimate of the December trade deficit was slightly lowered to $65.1 billion from the initial estimate of $65.7 billion.
   
Dolan said "the rise in imports is a strong indicative of continued robust U.S. domestic demand, and the overall rise in exports is an indicative of solid global demand."
   
Separately, the Labor Department said initial applications for U.S. state unemployment benefits unexpectedly rose by 8,000 to 303,000 in the week ending March 4. 
   
Ultra-easing policy ends
   
The Bank of Japan, by a vote of 7 to 1, concluded that economic and price conditions favor the return to a more normal monetary-policy position, according
to a statement at the end of a two-day meeting in Tokyo.
   
The BoJ said it would encourage the overnight call rate to remain at effectively 0%, but would gradually seek to reduce the amount of cash it has been injecting into the banking system.
   
Bank of Japan Governor Toshihiko Fukui later told a press conference that the central bank sought to reassure financial markets that monetary conditions
will remain stimulative, even as the central bank abandons what's been called the most aggressive monetary easing in the history of central banking.
   
"We find this shift of the Bank of Japan is extremely important and nothing to take lightly. It will have a far reaching effect in drying up the liquidity pool that may be a source of world funding," said analysts from KBC Securities.
   
Analysts from UBS added that the Tankan business sentiment survey in April now grows in importance, as markets try to figure out when the bank will hike actual interest rates.
   
Elsewhere, the Bank of England, as expected, held interest rates at 4.5%, for the seventh month in a row. The British pound was last up 0.1% at $1.7387.

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The European Markets at 12.00 GMT

London - Leading shares remained higher at midday, paced by sharp gains in AstraZeneca amid talk of a bid from Novartis, while a solid performance in Royal & Sun Alliance and positive US futures also helped provide support, dealers said.
   
By 12.10 pm, the FTSE 100 was 42.2 points firmer at 5855.1, although the broader market was mixed, with the smallcaps turning lower.

Frankfurt - Shares were sharply higher in midday trade, recovering from yesterday's sharp losses, following gains on Wall Street overnight and across Asia this morning and as oil prices fell, dealers said.   
   
At 11.43 am, the DAX 30 index was 54.76 points or 0.97 pct higher at 5,728.12, having moved between 5,707.85-5,741.83 so far this session. The MDAX was at 8,257.39, up 57.91 points or 0.71 pct, while the TecDAX was at 713.77, up 5.80 points or 0.82 pct.

Paris - Shares were firmer at midday as yesterday's late gains on Wall Street put an end to recent profit-taking.
   
At 1.12 pm the CAC-40 index was up 30.21 points or 0.61 pct at 4,999.29.

Amsterdam - Share prices were slightly higher in early afternoon trade, with tech stocks leading the gainers but Aegon slightly lower after fourth-quarter results, dealers said.
   
At 1.34 pm, the AEX was up 2.92 points or 0.65 pct at 454.30, after opening at 454.76, reaching a high of 455.31 and falling to a low of 453.29.

Brussels - Shares were higher midday on well-received fourth-quarter results from Agfa-Gevaert and Fortis, balanced by a slight drop in Suez after several days of gains.
   
At 11.58 am, the Bel-20 was up 12.62 points or 0.33 pct at 3,864.81.

Milan - Share prices were higher midday, led by Capitalia, which was up on continued merger speculation, and other banks, while Enel was flat awaiting developments in its battle for Suez's energy operations, dealers said.
   
At 12.52 pm, the Mibtel index rose 0.61 pct to 28,811 points and the S&P/Mib
added 0.58 pct to 37,576, while volumes stood at 1.89 bln eur.

Stockholm - Share prices remained in positive territory in midday trade, easing marginally off earlier levels, with Holmen performing strongly, still benefitting from yesterday's news of plant closures from UPM-Kymmene, dealers said.
   
At 12.10 pm, the OMX Stockholm index was up 0.63 pct at 321.24, while the OMX Stockholm 30 index was up 0.75 pct at 1,004.97. Turnover was 6.74 bln skr.

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Asian shares close higher, Tokyo stronger after BoJ ends ultra-loose policy

HONG KONG - Share prices in the Asia-Pacific region closed mostly higher with Tokyo buoyed by the Bank of Japan's decision to exit its five-year-old ultra-loose monetary policy, ending weeks of uncertainty, dealers said.
   
The Nikkei 225 Stock Average finished up 409.42 points or 2.6 pct at 16,036.91, off a high of 16,049.61.
   
The broader-based TOPIX index of all first-section issues rose 35.43 points or 2.2 pct to close at its day-high of 1,641.01.
   
At the end of a two-day meeting, the central bank's board voted 7-1 to scrap its so-called quantitative easing policy, under which the BoJ has poured liquidity into the financial system.
   
Dealers said the market took comfort in the BoJ's assurance to keep the overnight call rate near zero until its next meeting in April.
   
The BoJ's decision comes after consumer prices rose for the third consecutive month in January. In the medium to long term, the central bank expects the consumer price index to rise by 0-2 pct.
   
"The market was already strong in the morning as investors were expecting the lifting (of the ultra-loose policy) would come today," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
   
In Australia, share prices closed higher as investors brushed off a relatively flat market for most of the trading session, dealers said.
   
They said investors added to their holdings of banking stocks as Australia's stable interest rate environment is likely to continue in the months ahead following yesterday's decision by the central bank to keep rates unchanged at 5.50 pct.
   
Dealers said the late rally was helped by better-than-expected labor data which showed employment in Australia rose 25,900 in February and the unemployment rate fell to 5.2 pct from 5.3 pct in January.
   
The S&P/ASX 200 rose 21.4 points or 0.44 pct to close at 4,894.4.
   
The key indicator closed below the day's high of 4,897.8 and above the low of 4,852.6.
   
CommSec chief equities economist Craig James said the market staged a remarkable turnaround after being more than 20 points down.
   
"The fact that oil, gold, base metals prices were all off, the Dow Jones didn't provide much guidance and the fact that our market turned up to be more than 20 points higher shows confidence is building," James said.
   
"Investors are continuing to buy the global economic story which is showing that the US and China are underpinning solid growth and we've seen that in support for BHP Billiton and Rio Tinto today," he added.
   
Share prices in Hong Kong were trading higher on gains on the Tokyo market and bargain-hunting, dealers said.
   
At 3:55 pm, the Hang Seng Index was up 50.93 points or 0.33 pct at 15,544.02.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower on lingering worries over prospective liquidity pressure with lenders and metal listings under pressure, dealers said.
   
The Shanghai A-share Index fell 5.48 points to 1,306.39 on turnover of 7.49 bln yuan and the Shenzhen A-share Index was down 1.25 points at 312.72 on turnover of 3.79 bln yuan.
   
In Seoul, share prices closed mixed, with positive comments by the Bank of Korea on the economic recovery offset by program selling linked to the triple witching today, dealers said.
   
After keeping the call rate target for March unchanged at four pct this morning, central bank governor Park Seung expressed strong confidence in South Korea's economic growth.
   
"Private consumption, exports and production are all showing positive signs amid stable prices and five pct gross domestic product growth seems achievable this year despite existing uncertainties, such as high oil prices and strength in the local currency," he said.
   
Easing oil prices and the sharp rise in Tokyo shares also helped sentiment here, with the index rising through 1,320 points at one stage.
   
But massive program selling right before the market close, amounting to 151.2 bln won, led the market to shed much of its early gains.
   
The KOSPI index closed down 2.84 points or 0.22 pct at 1,311.21, after moving between 1,324.21 and 1,310.58.

Asian Bourse Round-Up

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Treasurys were under a little pressure ahead of an afternoon auction of $8 billion in 10-year notes. The sale will be monitored for indications of whether foreign central bank interest in U.S. assets remains strong.
   
The benchmark note last was down 2/32 at 98-3/32 with a yield of 4.74%.
   
Gold futures were on the rise, after falling more than $10 on Wednesday. The front-month contract last was up $6.90 at $551.20 an ounce.
   
Crude oil prices also managed to recover a bit from heavy selling the prior day. The futures contract last was up 38 cents at $60.40 a barrel.

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