US & World Daily Markets Financial Briefing 16-02-2007

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Dow, Nasdaq tumble in early trading

NEW YORK - Wall Street slipped Friday as a plunge in new housing starts and a sales warning from Microsoft Corp. prompted investors to sell ahead of a holiday weekend.
   
Investors remained cautious after economic data released before the market opened showed a bigger-than-expected drop in the construction of new homes. Meanwhile, wholesale prices fell in January by the largest amount in three months amid retreating energy prices.
   
Technology stocks were weaker after Microsoft Chief Executive Steve Ballmer said late Thursday that Wall Street's revenue forecasts for the Vista operating system were "overly aggressive." The stock, trading just off its 52-week high, fell 2 percent in early trading.
   
The decline on Wall Street halts a three-day advance that sent the Dow Jones industrials up more than 200 points. The February rally has been driven by growing confidence that interest rates will hold steady as Federal Reserve Chairman Ben Bernanke battles inflation and tries to ease the economy into a soft landing.
   
In the first hour of trading, the Dow fell 11.30, or 0.09 percent, to 12,753.71.
   
Broader stock indicators edged lower. The Standard & Poor's 500 index was down 3.67, or 0.25 percent, to 1,453.14, and the Nasdaq composite index dropped 10.36, or 0.41 percent, to 2,486.74.
   
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.69 percent from 4.71 percent late Thursday. The dollar was mixed against other major currencies, while gold prices fell.
   
The Labor Department reported its measure of wholesale inflation, the producer price index, declined 0.6 percent in January to match Wall Street expectations. Excluding food and energy, the core PPI was also in line with projections with a 0.2 percent increase.
   
However, the markets were started by a report from the Commerce Department that construction of new homes and apartments sank 14.3 percent in January. This reflects the biggest drop in nearly 10 years.
   
Microsoft fell 56 cents, or 2 percent, to $28.89 after Ballmer told Wall Street analysts they need to lower sales projections for Vista. The consumer version of Vista was released in late January, while businesses will get their version in November.
   
The Russell 2000 index of smaller companies declined 1.39, or 0.17 percent, to 814.04.

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Dollar remains in a range before set of US data
 
LONDON - The dollar remained steady against other major currencies before the publication of a string of US data later in the afternoon.
   
The PPI is expected to show wholesale inflation falling a monthly 0.5 pct in January, with the annual rate of core wholesale inflation easing to 1.8 pct from 2.0 pct. Housing starts are seen falling to a seasonally adjusted annual pace of 1.6 mln units in January while consumer sentiment, as measured by the University of Michigan, is seen rising slightly to 97 in early February from 96.9 in late January.
   
Investors will be watching the data closely after US indicators have been soft in recent weeks and Federal Reserve comments have turned somewhat dovish.
   
The euro was this morning supported by robust trade numbers showing a surplus of 2.5 bln eur in December, with previous months' surpluses also revised upwards. Also, the European Commission raised its GDP forecasts for the year.
   
This has kept the euro near five week highs against the pound, around 0.6730 stg.
   
For its part, the pound remained weak, still suffering below-consensus retail sales data yesterday.
   
Retail sales fell a monthly 1.8 pct in January, against expectations of a 0.1 pct rise. The number further diminished expectations for a Bank of England rate hike in March after inflation and earnings growth this week also came in low.
   
Also, pay data from the Industrial Relations Services this morning came in at an annual 3.5 pct, which is not expected to worry the BoE too much, either.
   
"We doubt the latest developments are worrying enough to compel the bank into raising interest rates again as soon as March, but we still believe that interest rates are headed for 5.50 pct in April or May," said Howard Archer at Global Insight.

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The European Markets at 11.00 GMT

London - Cinven has abandoned plans for a rival consortium to bid for J Sainsbury PLC after its partner Texas Pacific Group joined the CVC-led team that is planning a takeover proposal, The Times reported. Citing sources, it said that with Sainsbury's share price above 500 pence, Cinven has decided not to proceed.

Weir Group PLC said it is in advanced talks to sell its Glasgow-based pump manufacturing unit Weir Pumps to Switzerland's Sulzer AG for 48 mln stg.
 
Weir Group chief executive Mark Selway said: "Weir Pumps business represents 8 pct of Weir Group revenue and a lower percentage of annual profits. The business competes in the global marketplace against manufacturers who have an established presence in low cost countries.
 
Paris - France's current account showed a provisional, seasonally-adjusted deficit of 2.9 bln eur in December compared with a revised deficit of 2.2 bln in November, the Finance Ministry said.
 
The seasonally-adjusted deficit totalled 25.2 bln eur last year as a whole, compared with 19.9 bln in the same period last year.

BNP Paribas aims to grow 2007 revenues by 25 pct in emerging countries in Europe, the Middle East and the Mediterranean Basin, and will focus primarily on organic growth with 190 branch openings planned in the region over the year, chief executive Baudouin Prot told French daily Le Figaro today.
 
After expanding significantly in 2006, notably with the acquisition of BNL in Italy, Prot said the group will now concentrate on organic growth which will mean "turning all our growth drivers to maximum potential."

Brussels - The European Commission raised its euro zone growth forecast for 2007 to 2.4 pct from its previous estimate of 2.1 pct published in November. This compares with record growth of 2.7 pct in 2006.

Steel wire and cord manufacturer Bekaert SA said full year combined sales rose 4.0 pct from a year earlier to 3.2 bln eur. Combined sales include sales of consolidated companies as well as 100 pct of joint ventures and associates.

Madrid - Banco Bilbao Vizcaya Argentaria SA said it has reached an agreement to buy Texas based Compass Bancshares Inc for about 9.6 bln usd to be paid in cash and stock. In a statement, BBVA said the acquisition will be paid in cash and stock, noting that 52 pct of the total will be financed through a 196 mln new share issue.

Milan - Telefonica SA is offering 2 bln eur to Pirelli & C SpA to buy a 30 pct stake in Olimpia SpA, a holding company that owns 18 pct of Telecom Italia SpA, the daily Il Sole 24 Ore said without identifying its source. The Spanish group's offer values Telecom Italia around 3.0 eur per share, it added.

Italy's Bracco medical diagnostics company is planning an initial public offering in the summer, Il Mondo said, adding at least two global coordinators should be chosen by the end of February.
 
In an unsourced report, the weekly said company president Diana Bracco, also a leading light in the Lombardy regional employers association, has approved the listing of the company for June or July this year.

Zurich - Switzerland's competition authority said it fined telecoms group Swisscom AG 333 mln sfr for excessive pricing on mobile phone calls. According to the watchdog, Swisscom Mobile abused its dominant market position, forcing customers to pay an inappropriately high termination rate of 0.335 sfr per minute.

Oslo - Aker Yards ASA posted fourth quarter figures ahead of expectations across the board, and announced it is to hike its full-year dividend to 18 nkr a share from 15.5 last year, as the Norwegian shipbuilder benefits from increased activity in the marketplace and from recent acquisitions.
 
For the fourth quarter, Aker Yards posted operating profits of 452 mln nkr, up from 209 mln a year earlier, and well ahead of the 300 mln consensus forecast of analysts polled by TDN Finans.

Frankfurt - Consumer prices in Germany fell 0.2 pct in January from December and were up 1.6 pct from a year earlier, according to final figures from the Federal Statistics Office. The figures confirmed the preliminary estimates given by the Statistics Office on Jan 30.

Stockholm - Swedbank AB said its fourth-quarter operating profit rose 4 pct from a year earlier to 3.887 bln skr, buoyed by strong net interest and net commission income growth, and positive net gains on financial items. The result was above analyst forecasts for an operating profit of 3.427 bln skr in the period, as recorded by SME Direkt.

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Asian shares close mixed, with profit taking after strong gains

HONG KONG - Shares across the Asia-Pacific region closed mixed, with profit-taking after strong gains this week and with several markets winding down ahead of the Lunar New Year holidays, dealers said.
   
The mainland China and Taiwan markets will be closed all next week, Seoul will be closed Monday and the Hong Kong, Singapore and Malaysian markets will be closed Monday and Tuesday.
   
Tokyo shares finished lower after investors locked in profits on yesterday's gains, when the benchmark Nikkei 225 Stock Average closed at its highest level in nearly seven years. Losses in early trading were narrowed on bargain hunting but investors refrained from chasing prices any higher while they await the outcome of next week's meeting of the Bank of Japan's policy board.
   
Stronger-than-expected GDP data released yesterday have encouraged conjecture that the central bank will increase interest rates.

The Nikkei 225 Stock Average closed 21.58 points or 0.12 pct lower at 17,875.65, off a high of 17,884.89. Over the week, the index climbed by 2.12 pct. The TOPIX index of all first-section issues dropped 2.18 points or 0.12 pct to 1,774.53, just off its intra-day peak of 1,775.64. Over the week, the index rose by 1.69 pct.
   
Australian shares closed lower as investors decided to lock-in profits after a record breaking run this week which saw the benchmark S&P/ASX 200 briefly hit the psychologically-important 6,000 mark yesterday.
   
Strong earnings reports to date for the December half, coupled with increased dividends and share buy back announcements, are continuing to provide support, together with takeover speculation.
   
The S&P/ASX 200 ended down 39.1 points or 0.65 pct at 5,953.7 and off yesterday's fresh record close of 5,992.8. The index hit an intraday high of 5,994.4 and a low of 5,940.4. For the week, the benchmark index rose 26.5 points or 0.45 pct.
   
The broader All Ordinaries index lost 33.6 points to close at 5,935.5, off yesterday's record close of 5,969.1.
   
Hong Kong shares were weaker in afternoon trade as many investors moved to the sidelines ahead of Chinese New Year holidays. At 3.25 pm the Hang Seng Index was down 53.45 points or 0.26 pct at 20,484.97.
   
In mainland China, A-shares in Shanghai and Shenzhen closed at record levels after hitting all-time highs intraday, amid follow-through buying and easing interest rate fears, with financial and property stocks in favour.
   
The Shanghai A-share Index was up 5.85 points or 0.19 pct to 3,148.79 and the Shenzhen A-share Index was up 7.68 points or 0.98 pct at 787.78.
   
Seoul shares ended higher for a fourth day, with Samsung Electronics surging nearly three pct on the company's share buy back program.
   
Hyundai Motor was also in focus on strong foreign investor interest, with a UBS Securities research note sparking hopes that an expected rate hike in Japan and the resulting strength in the yen will help improve the car maker's competitiveness.
   
Broad sentiment was raised by Wall Street's sustained rally and easing geopolitical concerns, although the upside was capped in the run up to the three-day holiday.
   
The KOSPI index closed up 5.18 points or 0.36 pct at 1,448.81, off a low of 1,439.03 and a high of 1,448.96. The benchmark index gained 21.13 points for this week.

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Gold edges down ahead of weekend but analyst say uptrend still in place

LONDON - Gold edged lower as the past week's gains of more than 2 pct were seen as slightly overdone, even though most players believe the metal's uptrend is still firmly in place.
   
At 10.56 am, spot gold was quoted at 665.43 usd an ounce, down from 667.30 usd seen yesterday in late New York trades yesterday. On Wednesday, the metal touched a seven-month high of 671.70 usd.
   
"Friday volatility looks set to continue today however with US markets shut Monday and Chinese players out next week for New year celebrations we may see profit taking" today, said TheBullionDesk.com analyst James Moore.
   
He said the metal is clearly facing technical resistance at the 670 and 676 usd level, although it remains underpinned by firm oil prices, a weak dollar, low mine output and continued geo-political tensions.
   
The dollar steadied after slumping yesterday following a string of weak US economic data. However, it remains weak overall, making dollar-priced gold cheaper for holders of other currencies.
   
Separately, traders were tracking oil prices, which edged lower today as demand looked set to soften on warmer weather forecasts for the US Northeast, the world's largest heating oil market.
   
Lower oil prices usually weigh on gold as they lessen the metal's appeal as a hedge against inflation. Today's falls aside, oil prices have steadied in recent weeks, helping underpin gold.
   
"I still think gold will go to 700 usd because everyone wants it to basically... but towards the end of the year it might start to decline," said Virtual Metals analyst Matthew Turner.
   
In other precious metals, silver was down at 13.89 usd an ounce against 13.93 usd in late New York trades yesterday, platinum was down at 1,195 usd against 1,208 usd while palladium was down at 337 usd against 338 usd.

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