US & World Daily Markets Financial Briefing 20-06-2007

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Stocks rise on Home Depot buyback

NEW YORK - Stocks advanced Wednesday, with Wall Street enthusiastic about Home Depot Inc.'s $22.5 billion stock-repurchase plan and Morgan Stanley's wider-than-expected quarterly profit.
   
Investors were pleased that Home Depot, one of the 30 components of the Dow Jones industrial average, is buying back more than a quarter of its shares and selling its Home Depot Supply business for $10.3 billion to a group of private equity firms. The decisions are not only likely to increase the retailer's profit, but they also bolster the idea that stocks, despite their big run-up this year, have further to climb.
   
Cutting the number of shares outstanding typically lifts a company's stock price, because less stock on the market raises the value of each share, and it makes key ratios such as earnings per share look stronger.
   
Wall Street's gains were modest, though, as investors kept an eye on Treasury bond yields. The 10-year yield rose to 5.12 percent in early trading from 5.09 percent late Tuesday, keeping worries alive that rates could keep soaring and slow down business.
   
In the first hour of trading, the Dow Jones industrial average rose 20.00, or 0.15 percent, to 13,655.42, about 20 points below the record close reached June 4.
   
Broader stock indicators were also higher. The Standard & Poor's 500 index was up 1.96, or 0.13 percent, at 1,535.66, and the Nasdaq composite index rose 4.30, or 0.16 percent, to 2,631.06.
   
Home Depot rose $2.35, or 6.2 percent, to $40.54 after announcing the buyback.
   
Morgan Stanley rose $2.06, or 2.3 percent, to $89.80 after the second-largest U.S. investment bank posted a 39 percent rise in second-quarter profit compared to a year ago.
   
The Russell 2000 index of smaller companies was up 1.51, or 0.18 percent, at 849.85.
   
Overseas, Britain's FTSE 100 was up 0.53 percent, Germany's DAX index was up 1.00 percent, and France's CAC-40 was up 0.68 percent.

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Pound above 1.99 usd after BoE minutes; Yen reverses earlier gains

LONDON - The pound shot above the 1.99 usd level against the dollar for the first time in nearly two weeks after a hawkish set of Monetary Policy Committee minutes this morning, while the yen reversed overnight gains which followed talk of a rate rise in China.
   
The pound hit a 13-day high of 1.9933 against the dollar and a week high of 0.6734 per euro after the minutes to the Bank of England's MPC meeting earlier this month unexpectedly revealed a very tight 5-4 vote to leave rates unchanged at 5.50 pct.
   
Four of the nine members, including BoE governor Mervyn King, opted for a quarter point hike, suggesting that the debate was more about when than whether rates should rise, leaving a hike next month very probable.
   
The news caught the market unawares, as investors had previously been looking for a rate rise in either July or August. Now the July option looks by far the more likely.
   
Elsewhere, the yen reversed its overnight gains, which has seen the dollar drop to a low of 103.07 yen and the euro to 165.18 yen on rumours that China may be set to raise interest rates.
       
The yen's gains, however, only encouraged selling from Japanese importers and retail investors, he said.
   
On top of that, the release of the minutes to the Bank of Japan rate-setting meeting on May 16-17 gave no support to the currency, again suggesting that the BoJ is in no hurry to raise interest rates.
   
The minutes said that the central bank should raise interest rates gradually and revealed further concern and uncertainty surrounding the speed of future CPI rises.

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Euroshares higher midday as the Dow set to add to gains, on Eurpopean M&A hopes

LONDON - Leading European exchanges were higher midday as the Dow is expected to add to gains yesterday and with M&A hopes helping to lift selected European Blue Chips. Disappointing earnings news dragged Danisco and H&M lower, though.
   
At 12.37 pm, the Dow Jones STOXX 50 was up 30.39 points, or 0.77 pct, at 3,993.34, while the DJ STOXX 600 rose 2.8 points, or 0.7 pct, to 399.2.
   
Shares in France's Sanofi-Aventis were 0.35 pct lower after Bristol Myers Squibb moved more than 4 pct higher overnight on renewed talk of a merger with the French group after a US judge ruled against the generic version of the pair's blood thinning drug, Plavix.
   
Shares in Imperial Chemical Industries fell 1.17 pct after broker Lehman Bros cut its rating on the maker of Dulux paints to 'underweight' from 'equal weight.'
   
"We do not believe Akzo Nobel can offer significantly higher than its rejected 600p bid -- because of value constraints and requirement for shareholder approval," the broker said in a note to clients. Lehman said it does not expect a bid from other ICI competitors such as BASF or Dow Chemical. Akzo Nobel shares were last up 2.62 pct while shares in BASF rose 2.09 pct.
   
Allianz topped the gainers -- up 2.03 pct -- on the Euro STOXX 50 after Platow Brief, an investment tip sheet, said Deutsche Bank had held discussions with the insurers about buying Dresdner Bank AG's retail business. Dresdner is a subsidiary of Allianz.
      
Staying in the financial sector, shares in Lloyds TSB Group rose 1.31 pct amid market speculation that French bank Societe Generale is mulling a bid for the UK banking group. But shares were off intra-morning highs as dealers poo-pooed the idea.
       
SocGen's chief executive Daniel Bouton has reportedly held bilateral talks with as many as eight banks on a possible merger. SocGen shares were last up 0.7 pct.
   
News last night that US group Home Depot plans to sell its wholesale distribution business to a group of private equity firms for 10.3 bln led investors to revisit their valuations for other potential takeover candidates, like UK group Wolseley -- up 1.09 pct.
   
Evolution Securities said this suggests the UK group's non-US businesses are being heavily under-valued, and reiterated its 'buy' stance.
   
Holcim added 1.36 pct. Saint Gobain added 1.14 pct. Lafarge added 1.44 pct ahead of its investor day tomorrow as JP Morgan suggested the group may lift its EPS forecasts at the meeting.
    
BHP Billiton added 1.68 pct and Rio Tinto gained 1.13 pct after the Sydney Morning Herald said Canadian aluminium producer Alcan has opened its data room to the two mining giants in an effort to fend off a 33 bln usd offer from US rival Alcoa Inc. BHP and Rio Tinto have declined to comment on speculation surrounding Alcan.
   
The mining sector remains in focus as Credit Suisse has downgraded its stance on metals and mining to 20 pct overweight and oil to benchmark in an equity strategy note. Steel stocks were also higher amid talk a cut in Chinese export rebates will lead to higher prices in the sector. Acerinox added 0.75 pct. Voestalpine added 2.16 pct.
   
Arcelor Mittal was further supported by upbeat comments from chief executive Lakshmi Mittal said the merger between Arcelor and Mittal will have generated 830 mln usd of synergies by June 30, out of the 1.6 bln envisaged by 2009.
     
Siemens added 0.53 pct ahead of its Capital Markets Day tomorrow.    

In broker action, shares in SAP rose 0.55 pct -- adding to recent gains -- after Credit Suisse raised its target on the software manufacturer to 45 eur per share from 40 and reiterated its 'overweight' rating.

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Asian shares close mostly higher, China shares fall on credit-tightening fears

HONG KONG - Shares across the Asia-Pacific region closed mostly higher but China A-shares fell on fears of government moves to tighten credit.
   
Tokyo shares closed firmer, the weakness of the yen having increased expectations of higher corporate earnings, while lower bond yields in Japan and the US encouraged buying of stocks. The market was also supported by a government survey showing expectations of improved business sentiment in coming quarters, dealers said.
   
The Nikkei 225 Stock Average ended 48.07 points or 0.26 pct higher at 18,211.68, off a high of 18,297.00. It was the index's best finish in nearly four months. The TOPIX index of all first-section issues gained 3.23 points or 0.18 pct to finish at 1,783.72, off the day's high of 1,793.61.
    
Australian shares closed at record highs as investors again turned the indexes around from earlier selling, today focusing their attention on the wider market rather than large cap stocks. The rebound arose despite a flat lead from US markets overnight and selling in the resource sector after base metal prices retreated in London trading.
   
The S&P/ASX 200 closed up 25.0 points or 0.39 pct at a record 6,397.0, beating the previous record closing level of 6,392.9 set on June 4. The key index ended off a high of 6,403.9, below the previous intraday high of 6,409.2 set on June 4.
   
Property stocks were favored as bond yields in the US and globally continue to fall from last week's spike higher, providing a more positive environment for the interest-rate sensitive sector but the major resource stocks fell.
   
Hong Kong shares were firmer in afternoon trade but off the new record highs set in the morning. Dealers said China stocks extended their gains after PetroChina became the latest mainland firm to announce plans for an A-share listing in Shanghai.
   
The market had been closed yesterday and dealers said investors also picked up local property and banking stocks as interest rate worries eased following a drop in US bond yields. At 3.20 pm the Hang Seng Index was up 204.22 points or 0.95 pct at 21,787.11.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower on profit-taking and renewed fears of further credit-tightening measures by the government, with banks and property stocks hit.
   
The Shanghai A-share Index was down 92.73 points at 2.07 pct to 4,385.97 and the Shenzhen A-share Index was down 32.41 points or 2.43 pct at 1,302.64.
   
Seoul shares finished lower, reversing early gains inspired by Wall Street, with sentiment undermined by overheating concerns following four consecutive record closing finishes.
   
Brokerages led the decline, with the sub-index representing the sector down by more than 10 pct on comments by an official at the Financial Supervisory Service (FSS) that the agency may grant new brokerage licenses to spur industry consolidation.
   
The remarks triggered worries over a possible decline in acquisition premiums for existing brokerage houses. Banks, however, responded positively to the FSS lead. Investors believe it will pave the way for banks to set up new brokerages and lower the price of any brokerage acquisitions.
   
The KOSPI index closed down 24.06 points or 1.33 pct at 1,783.79, after moving between 1,778.26 and 1,813.05.

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Gold edges lower on profit-taking after yesterday's rally; copper up

LONDON - Gold edged lower as traders looked to bank profits following yesterday's rally on a weakening dollar and high oil prices.
       
"We're seeing a bit of profit-taking but it's pretty range-bound," said Robin Bhar, analyst at UBS. He added gold gained yesterday "on firmer crude oil and a weaker dollar."
   
At 11.15 am, spot gold was trading at 660.15 usd per ounce against 661 usd in late New York trades yesterday, having hit an intra-day high of 662 usd per ounce.
   
Gold eased marginally overnight in light Asian trade, as oil gave back some of its recent gains, though crude prices remain close to year highs hit earlier this week.
   
Prices are underpinned by a weak dollar, which fell against the euro yesterday on poor US housing figures.
   
In other precious metals, silver eased to 13.20 usd from 13.31 usd, while palladium edged down to 369 usd per ounce from 371 usd. Platinum was up to 1,295 usd from 1,290 usd. The continued closure of Anglo Platinum's Rusteburg shaft in South Africa is underpinning platinum prices.

Copper recovered from yesterday's falls as looming strike action at a number of key producers kept prices supported, while nickel turned higher after posting the biggest loss in nine months yesterday.
   
Lead meanwhile hit another all time high, extending Monday's peak, as the market continued to benefit from the 10 pct export tax levied in China a few weeks ago.
   
"The global lead market remained in deficit in the 4 months to April and thus the market is reliant on Chinese lead exports," said JP Morgan analyst Michael Jansen.
       
At 10.55 am, LME lead for three month delivery was up at 2,440 usd a tonne against 2,435 usd, having earlier hit a record high of 2,450 usd a tonne, extending Monday's all time peak of 2,430 usd.
      
Copper was up at 7,550 usd a tonne against 7,426 usd at the close yesterday, while nickel rose to 38,750 usd against 37,500 usd at the close yesterday.
    
Yesterday, nickel plunged 7 pct despite a fall in LME stocks, as traders fretted over reports that China's stainless steel producers are considering cutting production to prevent steel prices from weakening further.
       
Aluminium was up at 2,715 usd a tonne against 2,706 usd, still underpinned by China announcement yesterday that it will scrap export rebates on the metal from July 1.
       
Amongst other metals, zinc rose to 3,669 usd against 3,611 usd, while tin bucked the trend, falling to 14,100 usd against 14,150 usd amid an increase in LME inventories.

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