US & World Daily Markets Financial Briefing 21-05-2007

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Stocks trade narrowly mixed

NEW YORK - Wall Street traded mixed Monday, as investors wavered between cashing in profits from last week's record highs and pushing stocks even higher after a fresh round of deals.
   
Reassuring investors that acquisition activity will keep up its record pace this year, General Electric Co. said before the market opened that it will sell its plastics division to Saudi Arabia's largest industrial company, Saudi Basic Industries Corp. The multibillion-dollar deal is part of a broader restructuring at the conglomerate, and has been widely anticipated since last week.
   
The news followed that of telecommunications company Alltel Corp., which said Sunday it agreed to be acquired for $24.8 billion by TPG Capital, formerly Texas Pacific Group, and GS Capital Partners, a subsidiary of Goldman Sachs.
   
Also Sunday, Blackstone Group LP -- the second-largest U.S. private equity firm -- announced it will receive a $3 billion investment from China's upstart state investment company. The investment will come in addition to its initial public offering that is slated to raise as much as $4 billion later this year.
   
Acquisitions have been one of the catalysts behind the advance in stocks, and have been driven during the past year by a large push from private equity firms. Buyout shops have racked up more than $370 billion in global buyouts this year -- and are on pace to surpass last year's record of $730 billion, according to financial data provider Dealogic.
   
In the first hour of trading, the Dow Jones industrial average fell 4.88, or 0.04 percent, to 13,551.65.
   
Broader stock indicators were higher. The Standard & Poor's 500 index rose 1.57, or 0.10 percent, to 1,524.32, and the Nasdaq composite index gained 5.55, or 0.22 percent, to 2,564.00. The Russell 2000 index of smaller companies rose 0.61, or 0.07 percent, to 824.27.
   
Wall Street has advanced sharply since April despite reports showing fragility in some areas of the economy, notably the housing market. The Dow Jones industrials hit several closing highs last week, and the Standard & Poor's 500 is within striking distance of its all-time high.
   
This week's schedule of economic data is slim; investors will be focusing mostly on Thursday's durable goods and new homes sales reports from the Commerce Department, and Friday's existing home sales data from the National Association of Realtors.
   
Bonds were little changed Monday, with the yield on the benchmark 10-year Treasury note at 4.81 percent, the same as late Friday.  Crude oil prices rose 8 cents to $65.02 a barrel on the New York Mercantile Exchange.
   
In afternoon trading, Britain's FTSE 100 gained 0.29 percent, Germany's DAX index added 0.26 percent, and France's CAC-40 slipped 0.03 percent.

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Yen pushed lower as carry trades flourish

LONDON - The yen was weaker against the dollar and off its new all-time low against the euro established in overnight trade, helped in part by a flourishing carry trade environment.
   
The spike lower comes after the weekend's meeting of G8 finance ministers made no mention of the burgeoning carry trade phenomenon where players take advantage of the low borrowing costs in places such as Japan to invest where yields are higher.
   
"With no undue concern from the weekend meeting of G8 finance ministers, the market has felt comfortable in pushing the more risky currencies higher at a cost to the yen," analysts at Thomson IFR Markets said.
   
Last weeks's monetary policy tightening by China is also working against the yen, they argued.
   
"The fact that Asian and Western stock markets absorbed the China rate news so well does not bode well for the yen, which will continue to be used as a funding vehicle for the carry trade," they said.
   
The euro reached a new all-time high against the yen of 163.94 overnight, although it has now fallen fairly sharply away from that level. There is little data out in the euro zone today, and investors are likely to await tomorrow's German Zew expectations index for some fresh leads.
   
Elsewhere, the pound was at six-week lows against the dollar, as strong money supply figures from the Bank of England were offset by soft mortgage lending figures.
   
Provisional estimates for M4 money, a broad measure of money supply, showed a rise of 1.4 pct in April from March on a seasonally adjusted basis, for a 13.3 pct yearly rise. The figures are above analysts' forecasts for money supply growth to moderate to a 0.9 pct monthly rate and a 12.4 pct yearly rate.

The Canadian dollar continued its recent strong gains, hitting fresh 30-year highs against its US counterpart to start the week where it left off on Friday.
   
The Canadian currency stormed higher on Friday after retail sales data came in way ahead of expectations, leading to speculation that the Bank of Canada is set to raise interest rates further. At 12.34 pm GMT, the US dollar was trading at 1.0867 against the Canadian unit, having earlier hit fresh 30-year lows of 1.0822 cad.

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Euroshares higher midday, Wall Street seen up, BG up on bid-talk

LONDON - Europe's leading exchanges were higher midday ahead of a firmer start on Wall Street, with merger activity in the banking sector sparking some buying interest amid an absence of economic data or earnings results. At 12.47 pm, the STOXX 50 was up 9.23 points at 3,925.79 while the STOXX 600 added 0.91 points to 394.86.
      
Resource stocks gained, fuelled by a revival of speculation that US oil giant Exxon Mobil could be mulling a bid for oil & gas explorer BG Group, with strengthening crude prices also adding support.
   
Other oil blue chips were also in demand helped by underlying sector consolidation hopes, with last week's revived rumour suggesting BP and Royal Dutch Shell could be planning a merger. BG Group added 3.46 pct, while BP climbed 1.89 pct and Shell gained 1.94 pct.
   
Anglo American rose 3.5 pct amid metals sector strength and with Merrill Lynch hiking its price target on the UK miner to 3,350 pence from 3,160 and reiterating its 'buy' advice. Meanwhile, Xstrata added 2.0 pct, while BHP Billiton gained 2.2 pct.
   
The banking sector was in flux after Italy's Unicredito and Capitalia agreed to merge in an-all share deal that will create Europe's second-largest bank after the UK's HSBC. Unicredito was last down 5.99 pct while shares in Capitalia fell 2.13 pct.
   
Goldman Sachs, in a note to clients, said the 1.2 bln eur in gross synergies mooted by the banks strikes it as "ambitious". The broker had been forecasting more modest synergies in the range of 650 mln eur to 1.05 bln eur.
   
Societe Generale, meanwhile, rose 2.1 pct on a news report the French bank still thinks a tie-up with Uncredito would make sense even in light of its merger with Capitalia. According to the sources, Unicredito's potential merger with Capitalia in no way undermines the logic of a Franco-Italian tie-up.
   
On the contrary, the possibility of a deal with a giant such as Unicredito-Capitalia, with a stock market valuation of 100 bln eur, could be just as attractive, the sources said. The Unicredito-Capitalia merger shared the spotlight with Banca Popolare di Milano (BPM) and BP Emilia Romagna. Shares in BPM, which goes ex-dividend today, fell 5.6 pct. The company's respective boards of directors approved merger plans with BPER to form the third-largest mutual bank in Italy with about 1,900 branches and 3 mln clients.
   
The banks expect the merger to generate 290 mln eur in annual pretax synergies from 2010, of which 165 mln will come from cost savings and 125 mln from additional revenues. The two deals weighed on shares of Intesa Sanpaolo, which fell 5.34 pct on concern the two newly-merged entities would present a more formidable competitive challenger for the bank in its Italian home market.
   
On the German market, on-off takeover candidate Commerzbank gained again, adding 1.17 pct. A Frankfurt-based trader said "whenever there is takeover speculation in the German market, Commerzbank jumps higher".
   
He added that Deutsche Postbank shares were not affected so much by the sector movements, due to its shareholder structure, with Deutsche Post seen as unlikely to sell its stake. The shares retreated 0.63 pct.
   
Deutsche Post shares, meanwhile, were losing ground after Austrian peer Oesterreichische Post called for a deferment of the EU wide mail market liberalisation beyond 2009, according to daily Die Welt.
   
Market watchers said the report is bad news for the German transport company, which is set to lose its own monopoly position by the end of 2007.
   
"The Post is well prepared for the liberalisation and could gain new clients," one trader said. Deutsche Post fell 1.50 pct midday.
   
Further on the German market, Siemens was still among gainers midday, adding 0.55 pct, thanks to the company's announcement over the weekend that the supervisory board has appointed Peter Loescher as President and CEO effective July 1.
    
Staying in M&A, shares in Acciona soared 5.89 pct, buoyed by a Citigroup upgrade to 'buy' and a report that it is mulling bids, in partnership with Actividades de Construccion y Servicios SA and Cintra Concesiones e Infraestructuras SA, for a 660 mln eur concession to build a new bridge over London's River Thames for the 2012 Olympics.
   
ThyssenKrupp was 1.23 pct higher after Goldman Sachs raised its price target to 49 eur from 39 for, while reiterating its 'buy' stance.
   

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Source: Thomson Financial News

Asian shares close higher on Wall St, ignoring China rate rise

HONG KONG - Shares across the Asia-Pacific region closed higher as markets followed Wall Street's rise on Friday and ignored tightening moves announced in China.
   
Tokyo shares closed firmer, with investors heartened by Wall Street's strong showing and with the softer yen helping spur interest in export-oriented stocks.
   
Gains on China's stock markets also provided wary investors some relief after China's central bank announced a rate hike on Friday. The Nikkei 225 Stock Average closed up 157.29 points or 0.9 pct at 17,556.87, off a high of 17,599.35. The TOPIX index of all first-section issues gained 14.98 points or 0.88 pct to 1,710.67, off a high of 1,714.36.
   
Kazuhiro Takahashi, equity general manager at Daiwa Securities SMBC, said the market extended its early gains, which had been sparked by Wall Street's strong performance Friday and the softer yen, amid relief that China's stock markets were riding out the rate hike.
   
Share prices in China had opened sharply lower in the wake of the rate hike announcement last Friday, but the Shanghai index quickly recovered, led by active bargain-hunting.
      
Australian shares ended up at record levels as investor sentiment was supported by China's stockmarket advancing and a widening of the yuan trading band. Buying stood out within the resource sector after base metal prices rose on London trading on Friday.
   
The S&P/ASX 200 closed up 56.5 points or 0.90 pct at a record 6,369.0, beating Thursday's record finish of 6,365.9.
  
Hong Kong shares were higher in afternoon trade following Wall Street and hopes of an inflow of liquidity into the Hong Kong market following China's latest monetary policy moves, particularly the widening of the yuan's trading band.
   
The rebound in mainland bourses after a weak opening also boosted confidence among Hong Kong investors that China's latest policy measures are not likely to have a long-term impact on the stock market. At 3.15 pm the Hang Seng Index was up 52.91 points or 0.25 pct at 20,958.75.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on sustained fund inflows after opening sharply lower following news of a central bank interest rate rise late Friday.
   
The Shanghai A-share Index was up 43.78 points or 1.04 pct to 4,260.70 and the Shenzhen A-share Index was up 26.53 points or 2.20 pct at 1,233.06.
   
Seoul shares closed sharply higher, with sentiment stabilizing quickly after Wall Street and key regional markets shrugged off China's latest tightening moves to stabilize its economy, catapulting the main index to a fresh record.
  
Builders came into the spotlight, backed by brisk overseas orders and an improving industry outlook domestically in the second half. Car makers and shipbuilders also registered solid gains.  The KOSPI index closed up 15.95 points or 0.99 pct at record 1,628.20, after moving between 1,602.64 and 1,628.68.

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Gold falls below 660 on rebounding dollar, unimpressive copper price

LONDON - Gold fell below 660 usd as the dollar continued to rebound against the euro, increasing the precious metal's appeal as an alternative asset.
   
Also weighing on gold, relatively weak base metals prices did little to boost sentiment.
   
At 2.37 pm, spot gold edged slightly higher to 657.30 usd per ounce against 661.65 usd in late New York trades Friday. Earlier in the session gold tumbled to as low as 656.80 usd.
   
The US dollar has been on an upward journey since the start of this month, noted James Steel, HSBC analyst, making gold more expensive for those trading in other currencies. "That's been the principle reason for gold being down," he explained.
   
Gold hit a high of 730 usd last year but sharply corrected. Most market players are calling for the precious metal to hit the 700 usd milestone at some point this year, but prices have failed to breach 693 usd -- a peak struck last month.
   
Elsewhere, gold was pressured amid relatively weak base metals prices which have come off recent highs. Copper is about 8 pct lower than prices at the start of this month.
   
Copper is a good barometer for base metals and sentiment for overall commodity prices, said Steel at HSBC, who forecasts gold to average 680 usd this year.
   
Oil prices, which also have an effect on the precious metal, were higher this morning. Gold usually moves in line with stronger energy prices as investors hedge against inflation. The relationship has decoupled in the past few weeks, but most players say it is not the end of the trend.
   
"It (the relationship) has decoupled, but we can't discount it," said a trader.
   
In terms of other precious metals, silver fell to 12.84 usd against 12.93 usd, and platinum was lower at 1,301 usd usd against 1,309 usd. Palladium was up at 364 usd from 362 usd.

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