US & World Daily Markets Financial Briefing 19-04-2007

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Stocks Fall After Drop in Chinese Market

NEW YORK - Stocks fell in early trading Thursday, a day after the Dow Jones industrials closed at a new high, as investors grappled with concerns about flagging profits at technology companies and a pullback in Chinese stocks.
   
The lower start to the session marked the second day that tech stocks fell following lackluster results, raising concerns about prospects for the sector. Adding to the market's unease, stocks fell in China and then Europe following word that growth in China's first quarter jumped a higher-than-expected 11.1 percent and inflation increased at its fastest pace in more than two years. The increases stirred speculation that Chinese officials will take steps such as raising interest rates to curb growth.
   
Stocks pared some losses after a research group said its barometer of future economic activity rose slightly in March, signaling modest growth in coming months. The Conference Board said its index of leading economic indicators rose 0.1 percent as expected to 137.4 in March. The reading follows two straight months of declines.
   
In the first hour of trading, the Dow Jones industrial average fell 24.38, or 0.19 percent, to 12,778.81. On Wednesday, the Dow reached fresh trading and closing highs, perhaps signaling a recovery from the late February pullback.
   
Broader stock indicators fell Thursday. The Standard & Poor's 500 index fell 3.63, or 0.25 percent, to 1,468.87. The S&P hit a new 6 1/2-year high Wednesday.
   
The Nasdaq composite index fell 10.48, or 0.42 percent, to 2,500.02. Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 239.4 million shares. The Russell 2000 index of smaller companies fell 6.64, or 0.81 percent, to 817.74.   

Bond prices rose for the fourth straight session, with the yield on the benchmark 10-year Treasury note falling to 4.64 percent from 4.66 percent late Wednesday.
       
In afternoon trading, Britain's FTSE 100 fell 0.50 percent, Germany's DAX index declined 1.15 percent, and France's CAC-40 fell 0.85 percent.
   
Oil prices fell $1.26 to $61.87 per barrel on the New York Mercantile Exchange.
   
Stocks in focus
   
EBay Inc.'s first-quarter results, which showed a 52 percent surge in profit, came as a pleasant surprise after the market closed Wednesday. Nokia Corp., the world's largest mobile phone maker, said Thursday its first-quarter net profit declined by 6.6 percent amid slipping handset prices. However, it added that its share of the global mobile phone market increased.
   
Ebay rose 91 cents to $34.64 and Nokia advanced 90 cents, or 3.8 percent, to $24.77.
   
On Thursday, Merrill Lynch & Co. said first-quarter profits soared from a year earlier, when the nation's largest retail brokerage booked a charge related to compensation expenses. Merrill slipped 31 cents to $90.35.
   
Dow component Merck & Co. on Thursday said its first-quarter profit jumped 12 percent as the drug maker saw higher sales and sold off some products. Merck fell 25 cents to $90.41.
   
Another one of the 30 stocks that make up the Dow industrials, Altria Group Inc., said its first-quarter profit fell 21 percent as it saw weakness in domestic cigarette sales. The parent of Philip Morris raised its full-year earnings forecast, however, which could offset some concern about the quarter's results. Altria fell 66 cents to $69.42.
   
Most major U.S. companies -- even those reporting drops in first-quarter profits -- have been exceeding the forecasts of analysts, who reined in their expectations after the stock market plunged in late February amid worries about tumbling markets overseas, the weakening dollar, a slowing economy and financial troubles among subprime lenders, which makes loans to those with poor credit.
   
UnitedHealth Group Inc., the nation's second-largest health insurer, fell $2.48, or 4.6 percent, to $51.73, after the company recorded payments related to its stock options problems and lackluster enrollment in Medicare-related programs.
   
Pharmaceutical company Wyeth's 12 percent rise in first-quarter profit surpassed expectations, though sales of the company's biggest product, a depression drug, fell. Wyeth slipped 94 cents to $55.39.
   
Schering-Plough Corp. said its first-quarter profit soared 55 percent, boosted by strong demand for its Remicade drug and other products; its results beat Wall Street's forecast. Schering-Plough rose $2.13, or 7.4 percent to $30.68.
   
Late Wednesday, Kraft Foods Inc., the world's second-largest food and beverage maker, said its first-quarter profit fell 30 percent, but excluding certain items the report was better than analysts predicted. Kraft rose 3 cents to $32.32.
   

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Pound lower as strong China GDP boosts risk aversion

LONDON - The pound was lower, although back above 2 usd having slipped back earlier this morning to 1.9983, after strong China GDP data and weak Asian equity markets led to a rise in risk aversion, and weighed on carry trades.
   
China's GDP grew 11.1 pct year-on-year in the first quarter, beating the People's Bank of China's projected growth of 10.2 pct. The strong data boosts expectations the Chinese central bank will hike interest rates to slow the country's overheating economy.
   
The delay of the data, till after market close, had prompted speculation it would be on the upside, leading to falls in Asian equity markets.
   
"Much as they were in February, events in China's markets were also reflected in the currency markets," said Bank of New York currency strategist Simon Derrick.
   
Destination currencies for carry trades such as the pound fell back while low-yielding currencies such as the yen, which investors borrow in for the trades, strengthened.
   
However, the pound and other high-yielding currencies have since recovered slightly, although investors remain cautious.
   
"The reaction of the currency markets to all of this in the past few hours has been logical enough, with the key currency pairs awaiting further detail out of China," said Derrick.
   
Earlier, the yen was also boosted by news the Japanese tertiary index, which measures spending in the services sector, increased 1.0 pct in February from January to 110.7 -- its highest level in almost 20 years.
   
"The result supports the view that consumer spending remains solid in Japan, despite the fall recorded in February, and may signal that private consumption is likely to continue expanding moderately in the coming months," said BNP Paribas analysts.
   
Meanwhile, the dollar was stable, having earlier regained some ground as it was boosted by events in Asia.
   
Further direction for the dollar will come this afternoon from the Philadelphia Fed's survey of manufacturing activity, which is seen jumping to 2.4 in April from 0.2 in late March, while the weekly job claims numbers are expected to show a fall to 325,000 from 342,000 last week.
   
"Since the market looks to be moving sideways after heavy dollar losses, today's data may be of moderate support for the dollar ahead of the weekend," said Gavin Friend, currency strategist at Commerzbank.
   
Elsewhere, the euro was slightly higher, though still below 1.36 usd, receiving a boost from news Germany's five research institutes have revised upward their GDP growth forecast for this year to 2.4 pct from a previous 1.4 pct, buoyed by domestic demand as world demand for local exports continue.
   
Earlier, the currency was largely unaffected by figures in-line with expectations showing producer prices in Germany rose 0.3 pct in March from February and rose 2.5 pct from March last year.

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Top Stories in Europe at 12.05 GMT

Madrid - Sacyr Vallehermoso SA has made an all-share bid for rival Eiffage, offering 12 of its own shares in exchange for five of its French rival, according to an announcement. Trading in Sacyr shares and Eiffage shares were suspended ahead of the open.

Telefonica SA said it has sold its Airwave affiliate to Guardian Digital Communications, an affiliate of Macquarie for 2.982 bln eur, confirming earlier reports in The Financial Times. In a statement, Telefonica said the sale will be finalised on April 20 and is not subject to any conditions.

Frankfurt - Deutsche Bank AG said the switch to IFRS accounting standards from US GAAP rules lifted its 2006 full year net profit to 6.070 bln eur compared to 5.986 bln eur. Deutsche Bank is required to base its financial statements on IFRS from 2007 onwards and has to present one year of comparative figures, it added.

Volkswagen AG's chief executive Martin Winterkorn said he welcomes Porsche AG's move to increase its stake in the German automaker to more than 30 pct. "We are pleased by Porsche's commitment and are certain we will continue the long-lasting cooperation of our companies on development and production of
cars," he said at the company's annual general meeting today.

Paris - Societe Generale said it has acquired 75 pct of Banka Popullore in Albania for an undisclosed sum. Banka Popullore operates 30 branches and had total assets of 230 mln eur at the end of 2006, Societe Generale said in its press release.

Italian group Finmeccanica is to offer Thales its 25 pct stake in missile systems maker MBDA in exchange for a stake in its French partner, La Tribune reported, citing unnamed sources. The business daily said Finmeccanica values its MBDA stake at around 1 bln eur.

French reinsurer Scor SA said it still expects to succeed with its bid for Converium Holdings AG despite the rejection of the offer by the Swiss company's board.
 
"Scor regrets the Converium board of directors' decision to recommend its shareholders to reject the offer. Nevertheless, Scor is confident that Converium shareholders will acknowledge the merit of the combination with Scor," the company said.

London - Bank of America Corp and BNP Paribas SA have joined a line-up of banks lending their support to Barclays PLC's attempts to buy ABN Amro Holding NV in the face of pressure from a rival European bank consortium, the Wall Street Journal reported.
 
The US and French banks plus Banco Bilbao Vizcaya Argentaria SA -  yesterday reported by website elconfidencial.com as studying backing Barclays - either oppose the consortium or would be willing to buy ABN assets if Barclays sells any, the newspaper quoted people familiar with the situation as saying.

Zurich - Actelion said its first quarter net swung to a loss of 150 mln sfr, from a 53.7 mln sfr profit in the year earlier period, blaming research and development charges of 224.8 mln sfr. The Swiss biotech firm also hiked its full year guidance.

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Asian shares close lower on fears of rate rise in China

HONG KONG - Shares across the Asia-Pacific region closed lower, recording sharp falls on fears of a tightening in monetary policy in China.
   
China released GDP and CPI data at 3 pm after most markets had closed. GDP growth accelerated 11.1 pct year-on-year to 5.0287 trln yuan in the first quarter, compared with 10.4 pct in the fourth quarter and 10.7 pct in 2006, the National Bureau of Statistics said.
   
The consumer price index rose 2.7 pct year-on-year in the first quarter, compared with an increase of 1.2 pct for the same period last year, the Bureau said.
   
Tokyo share prices closed sharply lower, after conjecture about an increase in Chinese interest rates, which depressed markets elsewhere in East Asia, created fear of a plunge in stock markets worldwide.
   
Earlier in the day, prices had slipped on profit-taking as a lack of new leads prompted investors to lock-in recent gains. Investors were also cautious as they awaited the start next week of the corporate earnings reporting season.
   
The blue-chip Nikkei 225 Stock Average closed 295.36 points or 1.67 pct lower at 17,371.97, off a low of 17,219.73. The TOPIX index of all first-section issues closed 23.78 points or 1.37 pct lower at 1,706.93, off a low of 1,693.43.
       
Kazuhiro Takahashi, an equities official at Daiwa Securities SMBC, said: "Whether the Nikkei erodes further towards the 17,000 point mark depends on developments in China." He said that if there was no sign of an immediate rise in interest rates there, the Nikkei would most likely hold in the near term above today's intra-day low.
   
Australian shares closed sharply lower as investors locked in profits after a record-breaking run and responded to a downturn on Asian markets on fears that China's continuing strong growth could prompt Beijing to hike interest rates.
   
Fears that China's authorities will move decisively to cool the economy overshadowed positive leads including the Dow Jones Industrial Average hitting record levels in New York.
   
The S&P/ASX 200 closed down 71.8 points or 1.15 pct at 6,165.1 after Wednesday's record close of 6,236.9. The benchmark index closed off a high of 6,229.2 and a low of 6,159.4. Leading miners were sold off on fears that any slowdown in China's growth will impact on commodity prices.
   
Hong Kong shares slumped over 2 pct in afternoon trade as investors locked in profits after falls on the Japanese and China markets. China-related stocks led the fall on fears that the mainland's A-share markets may be in for a big correction after hitting new highs repeatedly in recent sessions, they said, adding that speculation regarding another interest rate hike in China also weighed on sentiment.
   
At 3.40 pm the Hang Seng Index was down 419.71 points or 2.02 pct at 20,357.38.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply lower amid concerns about possible credit-tightening measures with banks, steelmakers and property developers hit. The Shanghai A-share Index was down 171.79 points or 4.52 pct at 3,624.90 and the Shenzhen A-share Index was down 52.10 points or 4.92 pct at 1,006.08.
   
Seoul shares closed sharply lower amid sell offs in the region amid uncertainty over China's monetary policy. The KOSPI index closed down 20.92 points or 1.36 pct at 1,513.66, off a high of 1,537.43 and a low of 1,506.14.

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Copper still down on concerns China may raise rates to cool economy

LONDON - Copper continued lower in early afternoon trade, still weighed down by a slump in Asian equities that was triggered by concerns China might raise interest rates to cool its overheating economy.
   
The metal was off its day lows, however, as traders took the view the equities downturn in Asia will not spill over onto global markets as it did in February. Falls were also limited by supply disruptions in Indonesia.
   
LME copper for 3 month delivery was quoted at 7,911 usd a tonne in early afternoon floor trades on the LME floor, down from the kerb close of 7,980 usd a tonne yesterday but off a day low of 7,770 usd a tonne.
   
"After this morning's little shakeout, the complex has rallied and is showing mixed for the day," said Alex Heath, head of base metals at RBC Capital Markets.
   
He said this is because today's retreat in Asian equities is unlikely to spill over onto global equity markets as it did in February, when markets were in any case vulnerable because of concerns about the US housing market.
   
The Chinese data released earlier showed the economy grew by 11.1 pct in the first quarter. The rise was ahead of market expectations. The data also showed the consumer price index rose 2.7 pct year-on-year in the same period.
   
Last year the CPI, the chief barometer of inflation, rose 1.2 pct in the first quarter.
    
Separately, falls in copper were limited as traders tracked developments at Free-port-McMoRan's Grasberg mine in Indonesia, where workers yesterday began a protest rally to demand better wages and welfare.
   
News reports out in Asia earlier quoted the country's energy minister as saying the mine was still running, but well below capacity. Grasberg is one of the world's largest copper and gold mines.
   
Analysts said the market was not rallying on the Grasberg news because it had already been priced in on Tuesday, when copper shot up to a 7 month high on expected supply disruptions at Grasberg.
   
Tin was up, recovering from a fall of 7.7 pct yesterday, which was sparked by news Indonesia has approved export permits to two more smelters, including PT Koba Tin, the country's second largest producer.
       
Tin was quoted up at 13,849 usd a tonne in early afternoon floor trades, against a kerb close of 13,700 usd yesterday.
   
Nickel was also up, trading at 48,195 usd a tonne against 47,900 usd, after stocks of the metal resumed their downtrend on the LME, falling by 192 tonnes to 4,266 tonnes.
   
Aluminium was down at 2,847 usd a tonne against 2,878 usd after LME inventories surged by 11,950 tonnes to 822,425 tonnes.
   
Lead was up at 1,995 usd a tonne against 1,980 usd a tonne, while zinc was down at 3,622 usd a tonne against 3,680 usd.

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