US & World Daily Markets Financial Briefing 20-12-2006

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Merck & CO Stocks move higher in early trading

NEW YORK - U.S. stocks advanced Wednesday, on hopes for technology sector gains after Ericsson agreed to buy a network hardware company and by a recovery in Asian stock markets.
   
In the opening minutes, the Dow Jones industrials were up 6.09 points to 12,477.41, the S&P 500 rose .44 of a point to 1,425.99, and the Nasdaq added 3.50 points to 2,433.05.
   
On Tuesday, the Dow industrials hit a record high, led by gains in the energy sector on a rise in crude oil prices. The Dow rose 30 points, the S&P 500 rose 3 points, while the Nasdaq Composite lost 6 points.
   
Asian stocks reversed Tuesday's losses, after Thailand's government reversed a decision on capital controls. Thailand's benchmark SET index rallied 11 percent - though that didn't fully offset Monday's losses - and the Nikkei 225 advanced 1.4 percent in Tokyo. European stock markets also rose on Wednesday.
   
Stocks in focus

Ericsson agreed to buy Redback Networks for $2.1 billion cash, an 18 percent premium to Tuesday's close. The deal in part will allow the Swedish telecommunications equipment maker to more closely compete against Cisco Systems.
   
Arcelor Mittal continued steel sector consolidation with its deal to buy Mexico's Sicartsa for $1.44 billion from Grupo Villacero.
   
Harrah's Entertainment late Tuesday agreed to be bought by two private-equity firms for $90 a share in cash, or $27.8 billion when including assumed debt. Texas Pacific Group and Apollo Management topped a bid from Penn National Gaming, according to published reports.
   
Outside of M&A, women's clothing retailer Christopher & Banks forecast fourth-quarter earnings below consensus estimates.
   
Medical products maker FoxHollow Technologies cut its fourth-quarter sales outlook. Merck & Co. last month bought an 11 percent stake in the company.
   
Quarterly results are due from FedEx, Darden Restaurants, and after the close of trading, Nike Inc. and Bed Bath and Beyond.

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Majors stuck in tight ranges; euro stays well-bid

LONDON - Major currencies were stuck in narrow ranges midday, with both the euro and pound coming off earlier highs.
   
The euro stayed well bid, however, as European Central Bank chief Jean-Claude Trichet warned of inflationary pressures ahead, strengthening expectations of further ECB rate hikes in the new year.
   
His comments to the European parliament were viewed as hawkish. The central bank has been on a rate hiking path since December last year, raising the benchmark repo rate from as low as 2.00 pct to 3.50 pct at present.
      
Against this backdrop, there is a growing consensus that the dollar will continue weakening against the common currency.
   
Simon Derrick at Bank of New York believes a combination of factors are in place to weaken to the dollar. For one, the support that the dollar had gained from mid 2004 onwards when the Fed started on its rate hiking cycle will now start to subside as the evidence builds for no change in borrowing costs for an extended period, he said.
   
At the same time, Trichet looks set to talk tough about monetary policy and his concerns about the inflationary outlook, Derrick added. "Complaints from French politicians will continue to be seen as electioneering," he pointed out.
   
The yen, meanwhile, was under slight pressure, especially against the euro after Bank of Japan's Toshihiko Fukui sounded vague about when the central bank will put up rates.
   
The pound found good support after a trio of housing market releases showed robust levels of mortgage lending. At the same time, the minutes of the Bank of England's last rate setting deliberations out this morning talked about the possibility that gains in house prices may fuel a spending spree.
  
The tone of the minutes was a bit hawkish, with wage pressures, money growth, and high house prices all discussed, said Katzive at UBS.
   
Still, he believes the Bank of England will not hike again in the face of slowing activity and evidence of stronger potential growth. "The implication is that the pound is due to come in for a period of rough sailing in the next few months," he added.

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The European Markets at 12.45 GMT

London -  Leading shares remained at higher levels midday, although trading sideways as positive broker comment lifted Experian, while a recovery in Asian markets was seen lifting Wall Street at the open.
   
At 11.50 am, the FTSE 100 index was up 22.2 points to 6,225.7, while the broader indices were also positive. Volume was below average, with 780 mln shares changing hands in 133,218 deals.

Frankfurt - German shares were higher in relatively quiet midday trade as shares received a boost after another record session overnight on Wall Street and on the Nikkei index this morning. At 12.11 pm, the DAX 30 index was 35.96 points, or 0.55 pct higher at 6,589.47, after moving between a low of 6,578.97 and a high of 6,606.47 this session.

Paris - Share prices were higher across the board in midday trading, bouncing back from declines seen earlier this week as a fresh round of merger and acquisition deals and speculation drew investors back into equities. At 12.13 pm, the CAC-40 index was up 31.80 points or 0.6 pct at 5,516.56, on a volume of 1.6 bln euro.

Amsterdam - Shares in Amsterdam were higher in midday trade as investors looked to indications of a higher opening on Wall Street, while Stork led decliners after the Stork Foundation said it has invoked its right to acquire just under 50 pct of all outstanding shares in the company. At 12.01 pm, the AEX was 0.53 pct or 2.61 points higher at 496.04 after opening at 495.98 and reaching an earlier high of 496.91.

Milan - Share prices were higher midday, with cooperative banks leading the advance, while Alitalia rallied on talk about potential investors interested in buying the airline. At 12.23 pm, the Mibtel index rose 0.43 pct to 31,841 points and the S&P/Mib was up 0.46 pct at 41,412, while volumes stood at 2.05 bln eur.

Madrid - Share prices were higher in quiet midday trade ahead of an expected positive start on Wall Street, with Enagas, REE and Gas Natural the main underperformers, on concerns sparked by proposed modifications to the 2007 gas tariff system. At 12.25 pm, the IBEX-35 index put on 41.1 points to 14,217.9, after trading in a range of 14,190-14,268, on turnover of 1.76 bln eur.

Zurich - Share prices were up slightly but off this morning's highs in thin midday trade, reflecting a dearth of market moving news ahead of the Christmas break. At 11.45 am, the Swiss Market Index was 29.18 points at 8,792.26, and the Swiss Performance Index up 24.12 points at 6,921.00.

Stockholm - Shares were higher in midday trade but off opening highs as the US dollar weakened against the Krona and oil prices moved higher. At 12.15 pm the OMX Stockholm index was up 0.83 pct at 368.55, and the OMX Stockholm 30 up 0.83 pct at 1,135.92. Turnover was 10.503 bln skr.

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Asian shares close higher on Wall St record, rebound in Thailand

HONG KONG - Shares across the Asia-Pacific region closed higher after Wall Street hit a new record overnight and Thai authorities scaled back capital controls that had caused a slump across south east Asian markets yesterday.
   
Tokyo shares finished sharply higher, with the benchmark Nikkei 225 index settling above 17,000 for the first time in more than seven months, helped by the Dow's fresh record close overnight and the weak yen which lifted exporters.
      
The Nikkei 225 Stock Average closed up 234.16 points or 1.40 pct at 17,011.04. This was the first time that the tech-rich index has closed above the 17,000 level since May 9 when it ended at 17,197.91.
   
The broader TOPIX index of all first-section issues climbed 21.61 points or 1.31 pct to 1,667.01, its best finish since May 15 when it settled at 1,691.81.
       
Bank of Japan governor Toshihiko Fukui said yesterday that the economy remains on the recovery path although the rise in consumer prices and private consumption have been weaker than the central bank had thought, which the market interpreted as a signal that the BoJ may not lift interest rates soon.
   
Markets in south east Asia rose after the Thai government partially rescinded the controls it had announced yesterday.
   
The Thai market recovered some of yesterday's 15 pct plunge and by 3.28 pm the Stock Exchange of Thailand (SET) composite index had risen by 65.86 points or 10.59 pct to 688.00.
   
Malaysian shares were higher on across-the-board buying spurred by the Thai government's decision. Sentiment was also bolstered by positive remarks from the Deputy Prime Minister Najib Razak that the country's economic fundamentals remains strong and the central bank's reassurance that it has no plans to impose capital controls.
   
At 3.30 pm the Kuala Lumpur Composite Index (KLCI) was up 11.88 points to 1,072.24.
   
Singapore shares also recovered and were boosted by the record close on Wall St, dealers said. At 3.28 pm the Straits Times Index was up 27.92 points or 0.96 pct at 2,925.22. The Jakarta composite index was up 27.316 points or 1.57 pct at 1,763.986.
   
Australian shares closed at new record highs, lifted by interest in banks, while major resources stocks also rose, after being excluded from previous buying over the past week.
   
The S&P/ASX 200 rose 48.1 points or 0.87 pct to finish at a new record closing high of 5,607.8, beating Monday's record finish of 5,591.5. The key index touched a new intraday high of 5,618.4 while the low for the day was 5,567.5.
   
Hong Kong shares were higher in afternoon trade on the rebound in south east Asia and with China related stocks leading the gains after recent profit-taking. At 3.28 pm the Hang Seng Index had risen 263.36 points or 1.39 pct at 19,227.91.
   
In mainland China, A-shares in Shanghai and Shenzhen closed up for an eighth consecutive day with drug makers and metal stocks gaining ground. The Shanghai A-share Index jumped 9.52 points or 0.38 pct to 2,495.31 and the Shenzhen A-share Index was up 7.78 points or 1.39 pct at 566.64.
   
Seoul shares closed sharply higher in tandem with other Asian markets, rising through 1,440 points to hit a six-month high, as fears of any wider impact from the financial turmoil in Thailand quickly fizzled out.
   
Initial sentiment was boosted by another record on the Dow Jones Industrials overnight, fanning hopes that the Seoul bourse will also hit a new high soon, they added. The KOSPI index closed up 14.52 points or 1.02 pct at 1,442.28, off a low of 1,429.77 and a high of 1,445.50. The record is 1,464.70 set on May 11.

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Oil prices firm before weekly US energy report

LONDON  - World oil prices drifted upwards on Wednesday as traders geared up for publication of the weekly report on energy stocks in major consumer the United States, analysts said.
   
At 12.40 pm, New York's main contract, light sweet crude for delivery in February, remained firm at 63.46 usd per barrel in electronic deals before the official opening of the US market.
   
In London, Brent North Sea crude for February delivery won 51 cents to 63.32 usd in electronic trading.
 
The US Department of Energy's weekly inventory report, due out later today, will be watched closely by the market where fresh leads have been scarce as business winds down ahead of year-end festive holidays.
      
Crude futures had rebounded strongly yesterday as the market reacted to thick fog barring Gulf of Mexico tankers from a busy shipping channel in Texas.    

Dealers are meanwhile forecasting that US crude reserves will have fallen last week by some 2 mln barrels.
   
"Crude futures were a little firmer (on Wednesday), holding above 63 usd per barrel in London and New York ahead of today's release of US inventories data," said Sucden analyst Michael Davies. "Fog along the Houston Ship Channel remains dense and still disrupts crude imports to refineries in the US, giving more support to the oil market."
 
Oil prices soared late last week, owing to a drop in US energy stockpiles and a pledge by the Organization of the Petroleum Exporting Countries (OPEC) to cut its output further.
   
OPEC's move to cut production by 500,000 barrels per day from February followed an earlier decision to reduce output by 1.2 mln bpd, effective last month.
  
Also moving the market since Monday has been OPEC's forecast of a possible drop in oil demand next year.

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