US & World Daily Markets Financial Briefing 11-01-2007

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Dow, Nasdaq post gains in early trading

NEW YORK - Stocks rose in early trading Thursday as investors again debated the impact of falling oil prices and assessed a drop in jobless claims to a six-month low.
   
Wall Street has appeared indecisive since the start of the year, with investors making small bets as they wrestle with the question of whether stocks are poised to push higher as they did in the second half of last year.

Economic data, such as Thursday's unemployment figures, and oil prices, which have fallen for four straight days, have drawn the market's attention as investors try to piece together where Wall Street is headed.
   
The Labor Department said the number of newly laid off workers seeking unemployment benefits fell by 26,000 to 299,000 last week on a seasonally adjusted basis. It was the first time jobless claims have moved below 300,000 since the week of July 22.
   
Strength in employment indicates the economy is holding up well as it slows. Investors want the economy to show some signs of gradual slowdown in order to wring a cut in interest rates from the Federal Reserve.
   
In the first hour of trading, the Dow Jones industrial average rose 40.77, or 0.33 percent, to 12,482.93.
   
Broader stock indicators also rose. The Standard & Poor's 500 index was up 5.78, or 0.41 percent, at 1,420.63, and the Nasdaq composite index advanced 13.43, or 0.55 percent, to 2,472.76.
   
Bonds fell as the drop in jobless claims pointed to a healthy economy. The yield on the benchmark 10-year Treasury note rising to 4.71 percent from 4.69 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices fell.
   
Light, sweet crude fell 19 cents to $53.83 a barrel in preopening electronic trading on the New York Mercantile Exchange.
   
In corporate news, drug maker Genentech Inc. rose $2.36, or 2.8 percent, to $86.09 after reporting that robust demand for its cancer drugs helped push fourth-quarter profits up 75 percent.
   
The Russell 2000 index of smaller companies rose 6.00, or 0.77 percent, to 784.87.

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Pound reaches 19-month high vs euro on BoE surprise, dovish ECB

LONDON - The pound reached a 19-month high against the euro after the Bank of England surprised the market with a quarter point rate hike while the European Central Bank left rates unchanged and adopted somewhat soft rhetoric in its statement.
   
The pound soared on the BoE hike, pushing at the 1.9500 usd threshold, up from the 1.938 area before the news was announced. The euro eased to 0.6653 stg from 0.6690 previously.
   
The BoE hike was a shock to the market, with all of the 37 analysts polled by AFX News expecting unchanged rates and a majority seeing a hike coming only in February.
   
The BoE cited strong economic data over the past month and said risks to inflation remain to the upside compared with the forecasts it last made in its November inflation report.
   
"We would not be surprised if the tightening bias was still intact as the (BoE) hawks could be straining on the leash for a further hike to keep inflation risks battened down," said David Brown, chief European economist at Bear Stearns.
   
The euro's falls accelerated after the market seemed to interpret the words of ECB president Jean-Claude Trichet as not hawkish enough to signal a rate hike in February.
     
Although losses to the pound have been substantial, the euro is only mildly softer against the dollar, with the 1.2920 level showing solid bids, economists at IFR said.
   
Elsewhere, the yen was sharply lower across the board, extending earlier losses after the dollar went above the 120 yen level for the first time in over a year.
   
The Japanese currency has been under pressure recently on expectations that the Bank of Japan is unlikely to raise interest rates much above their current very low level while central banks elsewhere continue to push rates higher, extending interest rate differentials between Japan and elsewhere.

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The European markets at 12.50 GMT

London - UK blue chips reversed morning gains at midday, losing almost 40 points following the immediate release of the Bank of England's unexpected decision to hike borrowing rates a quarter point to 5.25 pct.

At 12.14 pm, the FTSE 100 index was down 8.7 points at 6,152.0, having fallen back from a morning high of 6,198.7, while the FTSE 250 index also fell into the red. Volume was solid, with 2.0 bln shares changing hands in 216,512 deals, swelled by talk of a PartyGaming placing.

Frankfurt - German shares were up midday, with low oil prices and overnight gains on Wall Street pushing the DAX higher. The German exchange was recovering after yesterday's profit-taking, although traders are awaiting the decisions by the Bank of England and the European Central Bank concerning interest rates later today. At 11.50 am, the DAX 30 index was up 47.35 points, or 0.72 pct at 6,614.00 after moving between 6,590.74 and 6,622.22.

Paris - Share prices were higher in brisk late-morning trade after gains overnight on Wall Street and as futures pointed to fresh gains on US markets today, although caution remained ahead of today's ECB rate decisions.  At 11.30 am the CAC-40 index was up 40.45, or 0.74 pct at 5,542.40. Volume was 1.4 bln euro.

Milan - Share prices were higher at midday trade, with sentiment supported by declining crude oil prices, and with Lottomatica leading the advance on upbeat broker comments about its growth prospects. At 12.13 pm, the Mibtel index rose 0.58 pct to 31,990 and the S&P/Mib was up 0.53 pct at 41,579, while volumes stood at 2.0 bln eur.
   
Madrid - Share prices were higher midday in line with the rest of Europe, as most blue chips recovered from yesterday's slump. At 12.43 pm, the IBEX-35 index put on 51.8 points to 14,167.9, after trading in a range of 14,150-14,220, on turnover of 1.8 bln eur.

Stockholm - Shares remained in slightly positive territory in midday trade, marginally extending the morning's gains on continued bargain hunting. At 12.05 pm, the OMX Stockholm index was up 0.68 pct at 372.72 points, while the OMX Stockholm 30 index was up 0.79 pct at 1,142.04.

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Asian shares close mixed, Tokyo falling on futures/options settlements

HONG KONG - Shares across the Asia-Pacific region closed mixed, with Tokyo falling as market players adjusted their positions ahead of tomorrow morning's special quotation (SQ) for the settlement of January futures and options contracts, dealers said.
   
Tokyo analysts said many Japanese investors opted to take profits on market talk that the recent drop in crude oil prices has spurred foreign investors to liquidate their holdings of Japanese equities.
   
The blue-chip Nikkei 225 Stock Average closed down 104.23 points or 0.62 pct at 16,838.17, off a low of 16,758.46.
   
The TOPIX index of all issues listed on the Tokyo Stock Exchange's first section ended the session down 6.28 points or 0.38 pct at 1,656.72, off a low of 1,650.82.
   
Dealers said uncertainty as to whether the Bank of Japan will raise interest rates at its policy board meeting next week kept investors jittery.
     
Australian shares closed higher, rebounding after US shares rose overnight, helping the Australian market recover some of the losses from yesterday's sell-off, dealers said.
   
They said local investors favored defensive banking stocks, as well as the resource sector despite continued volatility in metals markets.
   
The S&P/ASX 200 rose 44.0 points or 0.80 pct to close at 5,564.9. The benchmark index closed off the day's high of 5,573.4 and above the low at 5,528.4. The broader All Ordinaries index advanced 40.6 points to close at 5,542.7.    

Hong Kong shares reversed a positive morning to weaken in afternoon trade despite some bargain hunting after recent falls, dealers said. At 3.50 pm the Hang Seng Index was down 178.40 points or 0.91 pct at 19,389.94.
   
In mainland China, A-shares in Shanghai and Shenzhen closed mixed, with banks and steel companies targeted for profit taking after recent gains. The Shanghai A-share Index fell 60.31 points or 2.03 pct to 2,912.01 while the Shenzhen A-share Index finished up 0.44 points or 0.07 pct at 633.05.
   
Seoul shares closed higher with buying interest strong enough to absorb the negative impact from the expiry of options contracts. The KOSPI index closed up 9.52 points or 0.70 pct at 1,365.31, after moving between 1,355.63 and 1,375.31.
   
After a firmer close on Wall Street, the market was in positive territory for most of the session, with the Bank of Korea's decision to keep its call rate target unchanged adding to the positive tone, they noted.
   
The BoK said it is keeping its call rate target for January unchanged at 4.5 pct, in a bid to provide a further boost to the economy, with prices generally stable.
   
The central bank also noted that it wants to fully assess the impact of a recent rise in the cash reserve ratio of commercial banks before taking fresh action.

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Copper edges lower as stocks rise, the week's modest recovery subsides

LONDON - Copper edged lower as the modest recovery in prices seen over the past few days ran out of steam and as the LME reported another gain in stockpiles of the metal.
   
At 12.41 pm, LME copper for three-month delivery, which earlier hit a high of 5,950 usd, fell to 5,820 usd against 5,879 usd at the close yesterday.
       
Copper prices rose both Tuesday and yesterday as consumer buying emerged, notably from China, and as traders returning to the market following the New Year break bought into the dips.
   
Copper lost around 12 pct of its value in the first week of the year as other commodities like oil plummeted and as market participants speculated that funds were exiting the commodities complex.
   
However, the metal has since recovered somewhat. "Copper appears to have bottomed out and this will be confirmed once resistance at 6,300 usd has been breached," said UBS Investment Bank analyst Robin Bhar.
   
He noted overnight news that Chinese imports of copper rose again in December, continuing the trend observed in November. Bhar expects the trend to continue over the coming months.
   
Separately, the LME said in its daily report that copper stocks held in its warehouses had risen by a hefty 1,625 tonnes to a total 195,450 tonnes. Overall copper stocks remain at their highest levels since March 2004.
   
Elsewhere, nickel rose to 33,400 usd a tonne against 32,500 usd while zinc edged up to 3,750 usd against 3,740 usd.
   
The recovery in the two metals has been particularly encouraging to traders betting on price rises, especially given that as recently as Tuesday's close, zinc was down over 17 pct from the start of 2007 while nickel was 11 pct lower.
   
In other metals, aluminium was up at 2,736 usd a tonne against 2,710 usd at the close yesterday, tin rose to 10,625 usd against 10,450 usd while lead fell to 1,576 usd against 1,600 usd.

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