US & World Daily Markets Financial Briefing 09-11-2007

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Stocks fall on more credit writedowns

NEW YORK - Wall Street extended its slide in early trading Friday after Wachovia Corp. warned it will take quarterly loan losses, raising investor concern the credit slump shows no sign of abating.
   
The nation's fourth-largest bank said in a filing with the Securities and Exchange Commission that credit market volatility could cause a $1.1 bln writedown for October alone. The problem stems from its asset-backed securities, such as collateralized debt obligations, that have lost value on sinking investor demand.
   
Investors also were rattled by speculation that Barclays PLC was about to announce a $10 bln writedown. Though the British bank denied the rumors, it demonstrated that Wall Street continues to worry that the summer's credit turmoil shows no signs of abating, and has a broader impact globally.
   
Further worries about the continuing credit market slump kept investors on edge a day after Federal Reserve Chairman Ben Bernanke said he expect the economy to "slow noticeably" this quarter. His comments added to the week's declines -- contributing to a slide this week on concerns about continuing
credit woes, a weakening dollar and rising oil prices.
   
He also said the greenback's problems "may have some effect on import prices" -- which was confirmed Friday in new government data. The Commerce Department reported U.S. import prices soared last month at their fastest pace since early last year while export prices jumped at more than a decade high.
   
The Dow Jones industrials fell 144.37, or 1.09 percent, to 13,121.92 in the
first hour of trading. The Standard & Poor's 500 index was off 19.26, or 1.31 percent, at 1,455.51, while the Nasdaq composite index tumbled 54.91, or 2.04 percent, to 2,641.09.
   
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.25 percent from 4.27 percent late Thursday. Meanwhile, both gold and the dollar were lower.
   
Light, sweet crude oil fell 30 cents to $95.16 a barrel on the New York Mercantile Exchange. Investors were also uneasy about tech stocks after Qualcomm Inc., the nation's second-biggest maker of chips that run mobile phones, predicted that heightened competition and legal troubles will cause 2008 results to fall 4 percent to 7 percent below Wall Street projections.
   
Qualcom fell $2.45, or 6.2 percent, to $37.31. Wireless high-speed Internet provider Clearwire Corp. and Sprint Nextel Corp. announced before the bell they scrapped an agreement to jointly build a nationwide WiFi network. Clearwire also reported its third-quarter loss widened more than expected. Clearwire plunged $4.03, or 22.3 percent, to $14, while Sprint shed 19 cents to $16.35.
   
Merck & Co. said it will pay $4.85 bln to settle thousands of lawsuits over its painkiller Vioxx -- a move considered to be the biggest drug settlement ever. The offer was finalized early Friday as Merck and the plaintiffs met with three of the four judges overseeing the claims. Merck rose $1.70 to $56.49.
   
Walt Disney & Co. shares fell 60 cents to $33.03 after the entertainment company said late Thursday fiscal fourth-quarter profit rose 12 percent, driven by sports network ESPN and turnout at its U.S. theme parks. However, executives remain concerned about a Hollywood writers strike that began this week.
   
Overseas, Britain's FTSE 100 fell 0.66 percent, Germany's DAX index rose 0.50 percent, and France's
CAC-40 shed 0.96 percent.

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Pound comes sharply off 26-yr high vs dollar on fears of UK bank losses

LONDON - The pound dropped sharply against the dollar, immediately after hitting a fresh 26-year high, as rumours circulated that UK banks have sustained large losses on subprime linked investments.
   
Earlier today the dollar was firmly on the backfoot against the pound, also hitting a record low against the euro, as investors' expectations of a December cut in US interest rates mounted.  
   
Yesterday Fed chairman Ben Bernanke did little to ease concerns about the US economic outlook when he told a congressional committee that GDP growth would be markedly weaker in the fourth quarter of 2007 and the first half of next year due to adjustment in the credit markets.
   
This prompted markets to factor in a greater chance of another rate cut by the Fed this year, despite Bernanke also stressing the upside risks to inflation posed by the soaring oil price, leading to another sell-off of the dollar.
   
However the dollar has managed to claw back some of its losses as attention moves from the US's banking sector to the UK.
   
"The pound's dropped sharply off the 26-year high due to speculation of large losses in the UK banking sector," said Steve Pearson, currency strategist at HBOS.
   
Later today focus is likely to return to data, at least for a short while, with the release of US trade figures and the University of Michigan Confidence Indicator. The world's largest economy's trade deficit is expected to have widened slightly during September due to the rise in oil prices despite the weak dollar helping to boost exports.
   
However closer attention is likely to be paid to the confidence figures, which are expected to show consumer sentiment dipping during November.    

"A sharp decline will push US rate expectations further south, placing the dollar under pressure," said analysts at BNP Paribas.   
   
Elsewhere, the yen continued to firm as trade on major European bourses became increasingly volatile. 
   
This supports the yen as investors become more cautious, prompting them to pull out of the risky carry trade in which they sell the yen to invest in currencies with higher interest rates.
   
Nervousness in financial markets was exacerbated by reports that a collateralised debt obligation - a specialist security made up of repackaged debt - owned by State Street Corp is liquidating its assets. Many CDOs contain assets linked to the troubled US subprime sector.

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Euroshares lower midday, US futures slump, dragged lower by financials

LONDON - Europe's leading exchanges declined midday as US futures point to a sharp decline on Wall Street later today, dragged lower by financials on news that State Street has started liquidating one of its CDO funds.
  
At 12.25 pm, the Dow Jones STOXX 50 fell 39.65 points or 1.06 pct to 3,695.80, while the STOXX 600 lost 3.65 points or 0.98 pct to 369.83.  According to IG Index, the Dow Jones Industrial Average is expected to open 106 points lower at around 13,160. 
      
Amid individual banking stocks, Barclays was hit hardest, falling 6.32 pct with vague rumours circulating that the group may have to write-off as much as 10 bln stg in subprime-related losses. However, the company denied the rumours.
   
Meanwhile, peer Banca Monte dei Paschi di Siena SpA (BMPS) shed 10.18 pct after yesterday's announcement of the 9 bln eur acquisition of Banca Antonveneta from Banco Santander SA.
  
ING downgraded BMPS to 'sell' from 'hold' noting that the 60 pct premium to be paid is rather expensive, especially given the deteriorating outlook for the banking sector at the moment. Deutsche Bank cut the target to 3.8 eur from a previous 5.3 eur and reiterated with 'hold'.
   
Also in M&A news, miners were in focus, after Rio Tinto yesterday rejected an approach by rival BHP Billiton. Investors expect BHP Billiton to sweeten the 3-for-1 share bid. Rio Tinto shares jumped 7.69 pct higher in addition to yesterday's 21.75 pct surge. BHP Billiton was also up, adding 2.05 pct.
   
Elsewhere, Metro AG added 3 pct on the back of speculation that the retail giant is preparing the sale of its Extra supermarket chain and may be in 'advanced talks' with interested parties. Shares rose as much as 5.1 pct earlier in the session.
   
And EDP Energias de Portugal added 2.89 pct with investors hoping that the energy group will list its fast-growing renewables business next year.
   
In the automotive sector, suppliers were in high demand, with Continental AG adding 3.46 pct and Michelin rallying 4.57 pct after Credit Suisse initiated coverage of the stock with an 'outperform' rating. 
 

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Asian stocks mixed as Bernanke sets gloomy tone; Rio Tinto rallies

SINGAPORE - Stock markets across Asia were mixed Friday with Australia gaining after resource giant BHP Billiton Ltd made a takeover bid for rival Rio Tinto Ltd, while other markets remained under water after the head of the US Federal Reserve painted a gloomy picture of the US economy.
   
Talk in the market that another big US bank is ready to disclose major losses on subprime-related assets weighed in Tokyo.
   
Singapore and Malaysia also fell as investors caught up on the heavy selling that weighed across the region Thursday when those markets were closed for a public holiday.
   
In Australia, the S&P/ASX 200 closed up 0.4 pct at 6,545.7 and the All Ordinaries rose 0.6 pct to 6,607.4, making the two benchmarks the top performers of the region.
   
BHP Billiton late Thursday launched a 3-for-1 share bid for Rio Tinto that would create a 350 bln usd mining behemoth. Although Rio Tinto rejected the offer, it is "game on", said Richard Morrow, a director of stockbroking firm EC & L Baillieu in Sydney.
   
BHP Billiton is well positioned to make the offer, with a strong revenue base boosted by its exposure to surging oil and metals prices. Rio Tinto gained 15.4 pct to 130.90 aud while BHP Billiton finished down 1.8 pct at 42.47 aud.
   
"It (BHP) could not pick its time better, having regard to what's happening in the mining world generally. Any embedded assets have much more value than something else that might need to be developed," Morrow said.
   
In Tokyo, financial stocks fell on concerns that the US markets will fall sharply again in Friday's session if another bank discloses major subprime losses.
   
Wall Street has been volatile this week after Citigroup said it will write down up to 11 bln usd in losses, Morgan Stanley said it has 3.7 bln usd in losses and Washington Mutual said its losses could be as high as 2.9 bln usd, or double the amount estimated in July, when the subprime crisis was at its peak.
   
In Tokyo, the Nikkei 225 closed down 1.2 pct at 15,583.42 and the broader Topix was down 1.5 pct to 1,494.35. Mitsubishi UFJ Financial Group tumbled 2.5 pct to 942 yen as Mizuho Financial Group lost 1.1 pct to 557,000 yen.
   
In Hong Kong, the Hang Seng closed up 0.1 pct at 28,783.41 as property and bank shares rebounded. Cheung Kong (Holdings), the developer controlled by billionaire Li Ka-shing, was up 0.4 pct at 142.70 hkd. Sino Land, which has been buying government properties in last two months, jumped 3 pct to 26.05 hkd.
   
Industrial and Commercial Bank of China, the mainland's biggest bank, rose 0.3 pct at 6.39 hkd. The Shanghai Composite closed down 0.3 pct at 5,315.54 amid mounting worries about an imminent interest rate hike, after the central bank issued a third quarter monetary policy report projecting the economy would grow by over 11 pct and the consumer price index would increase 4.5 pct for 2007.  The central bank set the yuan central parity rate Friday at a record high of 7.4162 to the dollar.

Elsewhere, the Philippine composite index finished up 0.3 pct at 3,703.66.n Miner Lepanto was a standout after announcing Hong Kong-listed Zijin Mining Group Co Ltd is to acquire a 20 pct stake in its gold and copper mining project for 70 mln usd.
   
Lepanto's A shares, which only Filipinos can trade, surged 21.2 pct to 40 centavos. Its B shares advanced 19 pct to 44 centavos. Sector leader Philex Mining also rebounded from Thursday's downturn as gold prices rose for the fifth day overnight to a fresh 27-year peak, with investors again turning to the precious metal as an alternative to a weakening dollar. Philex jumped 7.1 pct to 11.25 pesos.
   
San Miguel's A shares rose 1.8 pct to 56 pesos. The company's B shares advanced 0.9 pct to 58.50 pesos, following its decision to sell its businesses in Australia to raise funds to expand into higher-margin businesses, such as mining and power.
   
Shares of South Korea's SK Telecom Co rallied for the fourth straight session as investors cheered a possible deal with Hanaro Telecom. The nation's largest cellphone carrier said it is considering a bid for the broadband service provider.
   
SK Telecom surged 4.1 pct to 239,000 won. The stock extended gains of 17 pct since Tuesday. The KOSPI index was up 0.6 pct at 1,990.47. The Singapore Straits Times was down 2 pct at 3,599.67 and the Kuala Lumpur Composite index closed down 0.8 pct at 1,402.25. The Taiwan weighted index closed up 0.4 pct at 8,970.92 and the Jakarta Index closed up 1.1 pct at 2,707.67.

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Metals - Gold eases from near-record highs as dollar comes off lows

LONDON - Gold fell below 830 usd as the dollar clawed back some of its losses against major currencies and as slightly lower oil prices softened the threat of inflation.
   
The precious metal moves in the opposite direction to the dollar as gold is seen as an alternative asset and rises when inflation jitters hit markets because it is seen as a hedge.
   
"Crude oil as the second fundamental driver is currently torn between worries that demand might slow on a weak US economy and concerns that supplies might not be sufficient to meet winter demand. Thus, the impact on precious metals might be ambiguous today," said Dresdner Kleinwort analyst Peter Fertig.
   
Some bouts of profit taking have also erased some of gold's recent sharp gains. Standard Bank analyst Walter De Wet said while the precious metal's rally towards the record price has stalled somewhat, gold is still "riding high" on general dollar weakness and forecasts for further slumps.
   
At 1.12 pm, spot gold was trading at 828.30 usd an ounce, against 834.50 usd in late New York trade yesterday, having hit 845.58 usd on Wednesday, its peak value in almost 30 years. Gold fetched its highest ever price in January 1980 of 850 usd per ounce.
   
"Gold could continue to strengthen through till Christmas, particularly if there is further weakening in the usd," said Fairfax IS head of resources John Meyer. "However, longer term price volatility and continuing (price) increases could damage underlying demand in the major jewellery sector," he added.
  
Gold prices were boosted yesterday to as high as 845.45 usd as fears of slower growth and inflation were reignited after US Reserve chairman Ben Bernanke made a worrying speech yesterday. He acknowledged a host of problems facing the economy, including a deeper-than-expected housing slump, a lingering
credit crunch and the falling value of the dollar.
   
"The combination of near constant warnings on inflation from Fed officials and ongoing accommodative monetary policies are theoretically the best of both worlds for gold prices," said HSBC analyst James Steel.
 
Elsewhere, silver was trading down at 15.14 usd an ounce against 15.49 usd in New York yesterday. Platinum was lower at 1,431 usd an ounce from 1,462 usd, while palladium fell to 366 usd from 373 usd.

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