US & World Daily Markets Financial Briefing 09-05-2006

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U.S. stocks open mixed; Dell slides on profit warning

NEW YORK - U.S. stocks were mixed in early trading Tuesday, with a profit warning from Dell Inc. weighing on the technology sector, but a broker upgrade for General Motors and strong April sales for McDonald's Corp. lent some support to the Dow Jones Industrial Average.
   
Investors, however, remain cautious ahead of a Federal Reserve decision on interest rates due on Wednesday.
   
The Dow Jones Industrial Average rose 3 points to 11,588.
   
The Nasdaq Composite Index fell 8 points to 2,336 while the S&P 500 Index slipped 2 points to 1,322.
   
"There is a touch of anxiety ahead of the Fed," said Brian Williamson, vice president of equity trading at Boston Company Asset Management. "You may not see people people taking a big bet either way.
   
"Dell is the biggest news story outside the Fed. They brought their earnings in a little bit and that's going to weigh."
   
On the data front, wholesale inventories data are due at 10 a.m. Eastern Time.
   
Dell tumbles on profit warning
   
Dell Inc. was one of the most actively traded stocks in pre-market trading on Instinet, sliding 6.2% to $24.77. The company warned its first-quarter profit and revenue would fall short of Wall Street expectations, saying it had been forced to cut prices to maintain its leading share of the personal computer market.
   
Shares in rival Hewlett-Packard were off 1.4% at $33.31 as Dell's warning raised questions among analysts about a broader slowdown in the PC market.
   
H-P was not the only Dow industrials stock in focus.
   
Shares in General Motors Corp. rallied 5% to $24.74, buoyed by a Deutsche Bank upgrade to hold from sell. The broker said recent moves have generated a substantial amount of liquidity and that the risk of catastrophic developments has diminished. In addition, Deutsche said there appears to be "a reasonably good chance that an agreement on Delphi can be reached within the next 60 days."
   
McDonald's Corp. tacked on 30 cents to $35.69 after the fast-food giant said worldwide same-store sales rose 6.2% in April. U.S. same-store sales rose 4.1% but Europe, which has struggled of late, posted the strongest growth, with same-same stores shooting up 9.3%. Same-stores sales in the Asia/Pacific, Middle East and Africa regions climbed 6.5%.
   
Separately, McDonald's has filed to sell 4.2 million shares of Chipotle Mexican Grill Inc. , reducing its stake of Class A shares in its fast-food spinoff to 52% from 65%.
   
In another development, Walt Disney Co. has decided to let its exclusive cross-promotional agreement with McDonald's run out at year's end, although it added that it wanted to continue working with the company. Disney shares rose 10 cents to $28.87.
   
Elsewhere on the blue-chip index, Verizon Communications reportedly made an offer of $38 billion to buy the 45% it doesn't already own of Verizon Wireless, only to see Vodafone Group demand $12 billion more, according to UK newspaper The Daily Telegraph. On Monday, Verizon shares were up 5 cents at $32.97 while U.S.-listed shares of Vodafone rose 3.4% to $24.24.

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Dollar modestly lower ahead of Fed meeting, Treasury report

NEW YORK - The dollar edged modestly lower against major rivals early Tuesday, as markets continued to consolidate ahead of the Federal Reserve statement on interest rates and a Treasury report on the currency market, both due on Wednesday.
   
In early New York trading, the dollar weakened to 111.32 yen, down 0.3%. The euro changed hands at $1.2713, up 0.1%. The British pound last traded up 0.2% at $1.8616. The dollar weakened 0.3% to 1.2246 Swiss francs.
   
Yen rises on rate outlook
   
Overnight, the yen strengthened after news that the Bank of Japan will upgrade its economic assessment for the first time in 15 years. The talk fueled speculation that the BOJ will start raising interest rates sooner than expected after ending its ultra-easy monetary policy in March.
   
The central bank would improve its economic outlook to "expansion" from "recovery" when it issues its monthly report on May 19, Jiji Press news agency reported, quoting unnamed sources.
   
"There is increased speculation that the Bank of Japan may raise rates as early as next month, rather than in July-August as most had thought likely," said Marc Chandler, currency strategist at Brown Brothers Harriman.
   
Bank of Japan Governor Toshihiko Fukui said over the weekend that the central bank is open about what its next policy step should be. He also said the bank is in the process of mopping up the excess liquidity and would take several more weeks to complete this process.
   
Also on Tuesday, Japanese Finance Minister Sadakazu Tanigaki said excessive moves in the currency market are undesirable.
   
German data disappoint
   
Sentiment towards the euro was undermined after data showed German industrial production declined 2.4% on a month-over-month basis, below market expectations for a 0.4% gain, hampered by rising oil prices.
   
"The downside surprise was considerable and could well serve as the nail to the coffin for the recent euro/dollar rally as attention now turns to the FOMC meeting and Treasury's report on China," said FXCM's Schlossberg.
   
But "that dynamic could change rapidly should either one of the two scenarios occur tomorrow - the Fed issues a dovish statement on interest rates going forward or the Treasury brands China a currency manipulator," he added.
   
Analysts are split over whether China would be cited as a currency manipulator.
   
"We have said for a while that they in fact are moving toward more flexibility," Treasury spokesman Tony Fratto told reporters on Monday. "They could and should do more."
   
Ashraf Laidi, chief currency analyst at MG Financial Group said the report will be "a lose-lose situation for the dollar" regardless of whether the Treasury names China as a manipulator.

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The European Markets at 12.00 BST

London - Leading shares traded higher at midday, reversing early morning losses as M&A speculation fuelled interest in Vodafone and Cadbury Schweppes, while strength in high street stocks offset heavy selling in money managers after Man Group was accused of fraud in the US, dealers said.
   
By 12.03 pm, the FTSE 100 index was up 35.1 points to the better at 6,102.6, having fallen as low as 6,054.6, in contrast to the weak wider market sentiment.

Frankfurt - Shares were flat in midday trade following a mixed session on Wall Street overnight and amid caution ahead of the Federal Reserve's meeting on interest rates tomorrow, though Adidas-Salomon and TUI sparkled after releasing consensus-beating first-quarter results, dealers said.
   
At 11.35 am, the DAX 30 index was 1.37 points or 0.02 pct higher at 6,129.35, having moved between 6,100.04 and 6,137.99 so far this session. The MDAX was at 9,119.36, down 1.01 points or 0.01 pct, while the TecDAX was at 751.63, down 8.69 points or 1.14 pct.

Paris - Shares were slightly higher at midday, with the CAC-40 index hovering around the 5,300 mark, as investors digested a flow of news regarding Arcelor and Bouygues ahead of the US Federal Reserve decision tomorrow, dealers said.
   
At 1.16 pm the CAC-40 index was 14.45 points or 0.27 pct higher at 5,296.85, on volume of 1.74 bln eur.

Amsterdam - Shares were down at midday, as KPN, Mittal Steel and Royal Dutch Shell bucked the trend of low-volume trading to add solid gains, dealers said.   
   
At 12.10 pm, the AEX was down 0.02 points at 472.65, with the AMX Index up 1.42 points to 648.19.

Milan - Share prices were slightly up at midday, led by gains among telecom issues and in BMPS, which was supported by press speculation it and Sanpaolo IMI are studying the possibility of a merger, dealers said.
   
At 12.16 pm, the Mibtel index was up 0.22 pct to 29,963 points and the S&P/Mib added 0.17 pct to 38,619, while volumes stood at 2.09 bln eur.

Madrid - Share prices were slightly higher in light midday trade, led by Telefonica, with Gas Natural suffering some profit-taking after first quarter results and Gamesa under pressure after a Citigroup downgrade, dealers said.
   
At 12.20 pm, the IBEX-35 index was up 21.9 points at 12,089.6, after trading in a range of 12,046-12,092, on turnover of 1.146 bln eur.

Zurich - Shares were moderately higher in late morning, extending recent gains and tracking other European markets on more well-received corporate results, although volumes were light ahead of tomorrow's US interest rate decision, dealers said.
   
At 11.34 am, the SMI was up 23.93 points at 8,127.55 and the SPI was up 15.93 at 6,340.85.

Stockholm - Shares were in marginally positive territory in midday trade, up a touch from earlier levels, with Securitas off its earlier lows in the wake of its first quarter results, dealers said.
   
At 12.30 pm, the OMX Stockholm index was up 0.06 pct at 342.75, while the OMX Stockholm 30 index was up 0.12 pct at 1,054.99. Turnover was 10.61 bln skr.

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Asian shares close mixed, Tokyo lower over stronger yen

HONG KONG - Share prices across the Asia-Pacific region ended mixed, with Tokyo lower as investors fretted over the yen's sharp gains and adopted a cautious stance ahead of the upcoming US Federal Open Market Committee meeting, dealers said.
   
The Nikkei 225 Stock Average closed down 100.76 points or 0.6 pct at 17,190.91.
   
The broader TOPIX index of all first-section issues fell 7.53 points or 0.4 pct to 1,747.50, just off a low of 1,747.37.
   
"Share prices fell today as continuing worries over the yen's strength weighed on export-oriented companies, with the bearish sentiment spreading to other sectors as well. In addition many investors were on the sidelines awaiting the outcome of the FOMC meeting (tomorrow)," said Toshihiko Matsuno, a senior strategist at SMBC Friends Securities.
   
In Australia, share prices finished slightly higher as investors await tonight's federal budget and its implications for economic growth and risks to inflation, dealers said.
   
They said while profit taking occurred in individual banking and resource stocks, cautious sentiment prevailed as investors took a wait and see approach ahead of the release of the budget at 7:30 pm Sydney time.
   
The S&P/ASX 200 gained 1.8 points or 0.03 pct to close at 5,325.8, just short of the record close of 5,327.2 reached on April 26.
   
Share prices in Hong Kong were trading lower in the afternoon on profit-taking after yesterday's sharp gains and on concerns over a share placement by Sun Hung Kai Properties, dealers said.
   
They said investors are also cautious ahead of the US Federal Reserve policy meeting.
   
At 3:25 pm, the Hang Seng Index was down 138.14 points or 0.80 pct at 17,163.65.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply higher on strong follow-through interest with power generators, automakers and financial issues in favor, dealers said.
   
The Shanghai A-share Index jumped 35.80 points to 1,607.36 on turnover of 35.99 bln yuan and the Shenzhen A-share Index was up 10.80 points at 389.62 on turnover of 21.43 bln yuan.
   
Share prices in Seoul ended little changed after a solid run of gains over the past four trading days as investors were reluctant to move ahead of the expiry of options and rate meetings this week in South Korea and the US, dealers said.
   
Wall Street's mixed overnight performance and lackluster South Korean consumer confidence data, released this morning, brought on a weak start.
   
But the market soon set a new intraday high of 1,461.20 on strong foreign investor support before shedding all gains to close almost flat from the previous session.
   
The KOSPI index closed down 1.79 points or 0.12 pct at 1,450.44.

Asian Bourse Round-Up

For a full list of closing figures, click here 

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Gold strikes fresh 25-yr high above $690 an ounce

NEW YORK - Gold futures struck a fresh 26-year high above $690 an ounce early Tuesday, propelled higher by a falling dollar and renewed concerns about Iran's nuclear standoff with the West.

Gold was last up $11.10 at $691 an ounce on the New York Mercantile Exchange, having risen to as high as $692.50, its highest level since 1980.

Platinum set a record at $1,236 an ounce and was last up $30.60 at $1,232.50.

Crude-oil futures edged back over $70 a barrel after U.S. Secretary of State Condoleezza Rice said a letter from the Iranian president to President Bush contained nothing new in the form of proposals that might help end its nuclear standoff with the West.
   
Crude for June delivery was last up 27 cents at $70.04 a barrel.

On the bond market, long-term Treasury prices moved lower, sending yields higher ahead of inventories data and an auction of $21 billion in 3-year notes. The benchmark 10-year note was off 4/32 at 95 5/32, with its yield at 5.14%. 

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