US & World Daily Markets Financial Briefing 18-05-2006

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U.S. stocks post timid gains after Wednesday's rout

NEW YORK - U.S. stocks staged a modest rebound in early trading Thursday after a prior session in which the Dow Jones Industrial Average suffered its biggest one-day point decline in more than three years.
   
The Dow Jones Industrial Average rose 31 points to 11,236. The Nasdaq Composite Index was up 16 points at 2,211 while the S&P 500 gained 4 points at 1,274.
   
During Wednesday's rout, which was sparked by brisker-than-forecast monthly consumer price increases, the Dow gave up 214 points and the Nasdaq Composite fell for the seventh session in a row, wiping out all its gains for 2006. The S&P 500 Index ended at a more than three-month low.
   
In contrast, Thursday's market action is likely to be positive but tepid.
   
"We should have a bounce here," said Michael Metz, chief investment strategist at Oppenheimer & Co. "Certainly, any upside momentum that the market had has been lost, but the selloff yesterday was overdone."
   
"There are a lot of short-term-oriented traders right now and when the market is not performing well, they want out at all costs," Metz said. "There are a lot of hedge funds and a lot of program trading now and this makes the market very quick to overreact to any stimulus."
   
The central bank has made clear that future monetary policy decisions will be linked to the strength of data reports and the pace of inflation.
   
"Even though the CPI will get all the blame, DuPont announcing higher prices due to a 16% increase in year-over-year first-quarter raw material costs, which raised a red flag that other companies might join in on the price hike parade," Pado said.

Stocks on the move
   
Home Depot Inc. shares rose 1% to $38.40 after the home improvement retailer late Wednesday said its board has approved a $2 billion share buyback program.
   
Burger King's shares rose 5.3% to $17.95 on its first day as a publicly-listed company.
   
Sears Holding was up 12.4% at $155. The retailer's first-quarter earnings came in well above forecast. Separately, the company agreed to settle one class-action lawsuit for $215 million, resulting in a $85 million pre-tax payment after insurance.
   
Dell Inc was up 21 cents at $23.84 as it prepares to release quarterly results after the market closes. A broker upgrade boosted rival Hewlett-Packard Co. , sending its shares up 2.1% to $32.85.

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Dollar edges lower; market awaits data, Fed speeches

NEW YORK - The dollar was modestly lower against major rivals early Thursday with market players awaiting economic data and speeches by Federal Reserve officials for more clues on the U.S. economy and interest-rate outlook.
   
In early New York trading, the euro was at $1.2785, up from $1.2744 late Wednesday. The dollar rose to 110.9 yen, down from 110.94 yen. The British pound was at $1.8872, up from $1.8825. The dollar was at 1.2132 Swiss francs, down from 1.2141 francs late Wednesday.
   
The greenback knee jerked lower, then pared losses after data showing initial jobless claims at the highest level since early October.

First-time applications for jobless benefits surged by 42,000 to 367,000 in the week ending May 13, but the gain was largely due to a partial government shutdown in Puerto Rico. It was the largest weekly gain since early September, the Labor Department said.
   
Later in the session, financial markets will scrutinize readings on manufacturing activity in the Philadelphia region and leading indicators to gauge the strength of the U.S. economy.
   
A number of Fed officials, including Fed Chairman Ben Bernanke and St. Louis Fed president William Poole, are also slated to speak Thursday. Former Fed Chairman Alan Greenspan is scheduled to address the annual meeting of the Bond Market Association in New York late Thursday.
   
The dollar rallied across the board Wednesday amid fears over accelerating inflation and driven by comments from French Finance Minister Thierry Breton that European officials will do "everything" to prevent the euro from rising further against the dollar.
   
The dollar's gain "reflects the markets' willingness to play by the Fed's script and await further data. This may help smooth the dollar's declines, but the dynamics likely to trigger fresh dollar selling remain palpable," MG's Laidi said.
   
BOJ policy decision looms
   
The bank of Japan began its two-day policy meeting with traders eagerly awaiting the bank's verdict on interest rates Friday. Most analysts expect the central bank to start raising interest rates from near zero percent as early as July.
   
"Dollar/yen has been battling with the psychological 110 mark in recent days and although we saw a sustained break through this line, Yen gains have been eroded in the longer term," said Tim Wilbraham, senior FX dealer at CMC Markets.

"Any suggestion that we're going to see better returns out of Japan - even if it is just on the overnight rate - may prove sufficient to start edging the yen higher in due course."

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The European Markets at 12.00 BST

London - Leading shares remained firm midday in volatile trade as pleasing results from BT and positive broker comment provided support, while Wall Street is seen up, recovering from yesterday's losses as inflation jitters persist, dealers said.
   
At 12.08 pm, the FTSE 100 was 6.2 firmer at at 5,681.7, bouncing back from a low of 5,618.7, in stark contrast to the ongoing weakness in the wider market.

Frankfurt - Shares were higher in midday trade, regaining some of the ground lost in recent sessions, with the DAX closing down more than 3 pct yesterday on inflation and interest rate concerns, dealers said.
   
At 12.05 pm, the DAX 30 index was 22.21 points or 0.39 pct higher at 5,674.93, having moved between 5,587.92 and 5,706.41 so far this session.

Paris - Shares were higher at midsession, rebounding from an opening slide, as investors made a cautious return to stocks after yesterday's sharp correction, seen after US equities tumbled on fears of further interest rate hikes to come, dealers said.
   
At 12.55 pm, the CAC-40 index was 22.01 points or 0.45 pct higher at 4,941.71, on heavy volume of 3.44 bln eur.

Amsterdam - Shares were slightly higher at midday, with the index kept up by solid progress amongst the financials, dealers said.
   
At 12.45 pm, the AEX was up 3.00 points or 0.69 pct to 439.57.

Madrid - Share prices were flat in moderate trade on a mixed performance from blue chips after yesterday's heavy losses, with FCC and Acerinox also benefiting from positive analysts recommendations, dealers said.
   
At 11.45 am, the IBEX-35 index rose 10.2 points to 11,258.4, after trading in a range of 11,069-11,306, on turnover of 1.8 bln eur.

Milan - Share prices were higher at midday in a rebound from yesterday's sharp losses, dealers said, adding that the focus is on the newcomer Saras.
   
At 11.41 am, the Mibtel index was up 0.25 pct at 28,227 and the S&P/Mib rose 0.67 pct to 36,714.

Stockholm - Shares remained in slightly negative territory in midday trade, virtually unchanged from earlier levels, with metal and oil firms continuing to underperform, dealers said.
   
At 12.05 pm, the OMX Stockholm index was down 0.24 pct at 310.64, while the OMX Stockholm 30 index was up 0.66 pct at 964.56. Turnover was 18.04 bln skr.

Helsinki - Helsinki shares were lower in midday trade, extending yesterday's sharp losses on further profit-taking, with Orion sliding on news that it may fund a third costly clinical trial of its heart failure drug Simdax, dealers said.
   
At 12.39 pm, the OMX Helsinki 25 was 0.77 pct lower at 2,473.95, the OMX Helsinki was down 0.86 pct at 8,772.63 and the Helsinki CAP portfolio index was 1.18 pct lower at 4,636.17.

Zurich - Share prices were little changed in volatile midday trade with heavy falls in the DJIA and interest rate fears weighing on bourses across Europe, dealers said.
   
Zurich was also under pressure on profit-taking and concern over litigation although headline figures were well-received by analysts.

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Asian shares close sharply lower after Wall St slide

HONG KONG - Shares prices across the Asia-Pacific region ended down, with Tokyo's benchmark index posting its weakest finish in over two months after Wall Street was battered overnight on news of higher-than-expected US April consumer price data, dealers said.
   
The CPI numbers have reignited fears of another rise in the Federal Reserve's key target interest rate at its June policy meeting, sparking heavy selloffs in markets across Asia as investors fret that higher US rates will dampen demand for Asian exports.
   
The blue-chip Nikkei 225 Stock Average closed down 220.49 points or 1.3 pct at 16,087.18. This is its weakest finish since March 9 when the Nikkei ended at 16,036.91
   
The broader TOPIX index of all first-section issues fell 24.99 pct or 1.5 pct to close at 1,632.08.
   
"There's no doubt the overnight slump on Wall Street is behind the sharp losses in Japanese equities," said Fumiyuki Nakanishi, chief strategist at SMBC Friend Securities.
   
"The stronger-than-anticipated US April CPI revived speculation that Fed policymakers will probably again hike interest rates at their next meeting in June in order to keep inflation in check," he said.
   
Share prices in Australia finished sharply down also as investors followed the inflation-driven drop in New York trading, with resource stocks taking the biggest hit, dealers said.
   
Dealers said index-leading resource stocks BHP Billiton and Rio Tinto mirrored the large falls in their London-listed stocks overnight, while the wider resources sector also experienced heavy selling.
   
The S&P/ASX 200 dropped 98.2 points or 1.88 pct to close at 5,119.3.
   
Share prices in Hong Kong were trading lower in the afternoon on Wall Street loses, dealers said.
   
They said investors were also unnerved by losses on the Japanese market.
   
At 3.40 pm, the Hang Seng Index was down 375.03 points or 2.26 pct at 16,240.52
   
In mainland China, A-shares in Shanghai and Shenzhen closed mixed after the China Securities Regulatory Commission announced the resumption of IPO approvals, as metals stocks and banks lost ground, dealers said.
   
The Shanghai A-share Index slipped 7.97 points to 1,698.24 on turnover of 35.31 bln yuan and the Shenzhen A-share Index was up 1.79 points at 414.95 on turnover of 21.25 bln yuan.
  
Share prices in Seoul ended sharply lower, wiping out yesterday's gains, as foreign investors unloaded blue chips after Wall Street's weaker close, dealers said.
   
The KOSPI index closed down 36.32 points or 2.59 pct at 1,365.15.

Asian Bourse Round-Up

For a full list of closing figures, click here

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Gold futures climb but hold under the $700 mark

SAN FRANCISCO - June gold was up $3 at $694.80 an ounce in morning trading after rising as high as $695 earlier. "Precious metals appear to be in a dilemma as to whether to continue their (welcome) correction or simply turn around and climb higher as dollar difficulties continue to undermine confidence and bolster defensive posturing," said Jon Nadler, an analyst at Kitco.com.

July silver was down 4 cents at $13.20 an ounce. But July copper tackedc on 5.85 cents, or 1.6%, to $3.73 a pound.

Treasurys also took back a bit of the losses they endured during heavy prior day selling that also was triggered by the inflation fears. The benchmark 10-year Treasury note last was up 9/32 at 100-2/32 with a yield of 5.1%, down from 5.152% at Wednesday's close.
   
Crude-oil futures dipped 16 cents to $68.53 a barrel. 

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