US & World Daily Markets Financial Briefing 19-05-2006

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U.S. stocks post modest gains after two days of heavy losses

NEW YORK - U.S. stocks edged higher in early trading Friday after two days of heavy losses, with the technology sector in focus after Dell Inc announced a restructuring that includes using chips made by Advanced Micro Devices in its personal computers.

The Dow Jones Industrial Average rose 17 points to 11,145. In the last two sessions, the benchmark index has shed nearly 300 points.

The Nasdaq Composite Index was up 2.5 points at 2,183 after ending lower for
the eighth session in a row on Wednesday. 

The S&P 500 Index was up nearly 2 points at 1,263. 

"We had some good overnight news in the technology sector that will help the market to stem the decline," said Barry Hyman, equity market strategist at Ehrenkrantz King Nussbaum. "Any look at the short-term technicals will tell you that we are oversold so a snapback rally is possible.

Hyman said the market received a further boost after influential bond guru Bill Gross of the Pacific Investment Management Co. said in a television interview that he believes the Federal Reserve is likely to pause in its rate tightening program, leaving the fed funds rate at its current 5% level.

On Thursday, stocks ended lower as the latest economic data, a drop in bond yields and hawkish remarks from a Fed official did little to change investor expectations that interest rates have further to rise.

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Dell shakes up chip giants

Intel Corp. shares tumbled 3.5% to $17.99, while shares of rival Advanced Micro Devices Inc. shot up 8.9% to $34.20 after Dell Inc. said it would begin using chips from AMD in some of its high-end servers. The announcement represents a major switch for Dell, which had used microprocessors from Intel exclusively.

Dell's move to diversify its chip suppliers came as it reported an 18% drop in fiscal first-quarter profit as sales of its flagship desktop personal computers fell amid aggressive price competition from Hewlett-Packard Co. and other rivals. The results were in line with Wall Street expectations and matched a reduced forecast given by the company on May 8. The company also announced a major restructuring plan that helped send its shares up 4.2% in morning trading.

Other stock standouts

Gap Inc. will be in focus after the apparel retailer's first-quarter net income fell 17% because of slumping clothing sales at all its store brands, with the company adding that an upturn is unlikely until the second half of the year. Gap's profit, however, managed to exceed Wall Street estimates, although sales of $3.44 billion fell just shy of estimates.

Mittal Steel raised its offer for rival Arcelor by 34%, only one day after formally launching a bid for the world's second-biggest steelmaker. U.S.-listed shares of Mittal Steel fell 2.5% to $33.31.

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Dollar rallies across the board after Fukui comments

NEW YORK - The dollar climbed to an almost two-week high versus the yen and rallied against other major foreign-exchange counterparts Friday after comments from Bank of Japan Governor Toshihiko Fukui were viewed as less hawkish than expected.

The Bank of Japan on Friday kept interest rates unchanged at 0%. Fukui dampened expectations of a June rate hike and gave no indication of when rates might rise. He also reiterated that rates would be kept low after the central bank ended its zero-rate stance.

"A combination of some hawkish comments from the St. Louis Fed President [Jeffrey Lacker on Thursday] and the Bank of Japan's decision to leave interest rates unchanged as it awaits further evidence that the country's economic recovery is sustainable helped the dollar consolidate its position against the yen," said Tim Wilbraham, a foreign exchange trader at CMC Markets, in a morning note.

In early New York trading, the euro was at $1.2721, down from $1.2846 late Thursday. The dollar traded at 111.84 yen from 110.81 yen, after rising to 112.10 yen, the highest level since May 8. The British pound was at $1.8727, down from $1.8932. The dollar was at 1.2224 Swiss francs, up from 1.2057 francs late Thursday.

Lacker said Thursday that he was "disappointed by the last two rounds of
inflation reports." He said the inflation outlook is "borderline acceptable and
perhaps even beyond," and higher inflation expectations will make "pause less likely." French Finance Minister Thierry Breton said on Wednesday that European officials will do "everything" to prevent the euro from rising further against the dollar.

"Official comments from the Fed, ECB, BOJ and BOE over the last 48 hours are likely to contribute to a slight widening of interest rate differentials in favor of the dollar," Marc Chandler, currency strategist at Brown Brothers
Harriman, wrote in a note.

'No preset idea on specific timing'

At a post-policy meeting press conference, Fukui said that "we did not
specifically discuss the end to zero interest rates at this policy meeting," and that "We have no preset idea on the specific timing for exiting zero interest rates."

"We still think that rates won't start to go up until later in the summer or
the early autumn," said Steve Barrow, chief currency strategist at Bear Stearns.

Causing more of a stir on Friday were comments by Chief Cabinet Secretary Shinzo Abe, who called on the BOJ to refrain from a policy tightening.

"We want them to work together with the government to make sure we depart from deflation," Abe said. "We want them to support the economy sufficiently from the monetary policy side by keeping rates zero." 

The yen saw an early boost after Japan's first-quarter gross domestic
product came in at 0.5%, above expectations for a 0.3% rise. The leading
economic index for March was in line with expectations at 54.5%.

The Bank of Japan's monthly economic report also slightly helped the yen by stating that "Japan's economy continues to recover steadily." It also said the economy "is expected to expand moderately."

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Asian shares close mostly higher, Tokyo higher after pullback in yen

HONG KONG - Share prices across the Asia-Pacific region ended mostly higher, with Tokyo up at the end of a volatile session during which some late bargain-hunting emerged to cancel out early losses made after Wall Street slumped again overnight, dealers said.
   
They said a retreat in the yen, which had strengthened appreciably in recent weeks against the US dollar, helped the market close the week in positive territory.
   
In late afternoon currency trading here, the dollar was back above 111 yen, having fallen briefly below 109 yen Wednesday.
   
The recent rapid appreciation of the yen had worried investors because a stronger yen hurts the earnings of Japanese exporters.
   
Stronger-than-expected GDP data for the first quarter also helped bolster stock market sentiment here today.
   
The Nikkei 225 Stock Average closed 68.27 points or 0.4 pct higher at 16,155.45. The blue-chip marker traded in a broad range of 15,925.69-16,166.34 points, reflecting the session's volatility.
   
The broader TOPIX index of all first-section issues was up 6.49 points or 0.4 pct at 1,638.57, after moving in a range of 1,615.46-1,639.80 points.
   
For the week, the Nikkei 225 lost 2.7 pct, while the TOPIX fell 2.9 pct.
   
Prices opened weaker, tracking losses in US stocks overnight amid worries about further increases in interest rates there, and despite the government here reporting stronger-than-expected GDP data for the quarter to March.
   
Share prices in Australia finished lower in lackluster trade as investors took time out to assess the market's future direction after heavy falls over most of the week, dealers said.
   
They said investors sought oversold stocks but there was little enthusiasm about whole-heartedly embracing the market, with the short-term direction of commodity prices uncertain because of continuing concerns about further US interest rate hikes.
   
The S&P/ASX 200 closed down 18.4 points or 0.36 pct at 5,100.9, making it the fifth decline in six trading days.
   
In Hong Kong, share prices were trading higher as early losses were reversed by some bargain-hunting activity in selected blue chips and China stocks after the market's sharp falls yesterday, dealers said.
   
At 3:34 pm, the Hang Seng Index was up 57.46 points or 0.35 pct at 16,323.98.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply higher on renewed fund inflows with market heavyweight steelmakers and banks driving the gains, dealers said.
   
The Shanghai A-share Index added 44.69 points to 1,742.93 on turnover of 41.22 bln yuan and the Shenzhen A-share Index was up 10.52 points at 425.47 on turnover of 23.15 bln yuan.
   
Share prices in Seoul ended at their highs in volatile trade, with investors stepping in to pick up oversold shares, dealers said.
   
After a brief initial rise, the market lost momentum to fall below its 120-day moving average of 1,365 points as foreign investors intensified their selling.
  
Foreign investors have remained net sellers since April 25, except for one trading session, unloading nearly four trln won worth of shares.
   
But the market recovered all its early losses on bargain-hunting by retail and institutional investors, as gains in Tokyo also boosted sentiment.
   
The KOSPI index closed up 7.14 points or 0.52 pct at 1,372.29.

Asian Bourse Round-Up

For a full list of closing figures, click here

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Gold futures fall to a nearly three-week low

SAN FRANCISCO - June gold fell to a low of $657 an ounce in morning trading, its weakest level since May 1, extending losses following a two-session decline of $12. The contract was last at $662.50, down $18.40, or 2.6%. July silver also fell 17 cents to $12.35 an ounce, after tapping a six-week low of $12.08. July copper dropped 17.1 cents, or 4.6%, to stand at $3.54 a pound. It fell to $3.435 earlier, its lowest level since May 8.

Dollar, gold, bonds, oil

The U.S. dollar climbed to a two-week high versus the yen and rallied
against other currencies after Bank of Japan governor Toshihiko Fukui damped expectations of a June rate hike in Japan. The dollar was up 0.9% at 111.63 yen.

The euro, meanwhile, was down 0.8% at $1.2744.

Gold futures tumbled, extending a two-session loss of more than $12 an ounce, as strength in the dollar sapped investment interest in the precious
metal. Gold for June delivery was last down $18.40 at $662.50 an ounce.

On the bond market, long-term Treasury prices fell, sending yields higher.
The benchmark 10-year note was off 4/32 at 100 13/32, with its yield at 5.07%.

Crude futures turned lower in morning trading. Crude for June delivery was
last down 69 cents at $68.76 a barrel.

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