US & World Daily Markets Financial Briefing 25-09-2006

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Stock prices gain on falling oil prices

NEW YORK - Stocks bounced higher in early trading Monday, strengthened by plummeting energy prices. In early trading, the Dow Jones industrial average gained 58.19, or 0.51 percent, to 11,566.29.
   
Broader stock indicators also advanced. The Standard & Poor's 500 index rose 4.72, or 0.36 percent, to 1,319.50, and the Nasdaq composite index rose 9.53, or 0.43 percent, to 2,228.46. The Russell 2000 index of smaller companies was up 1.09, or 0.15 percent, at 719.72.
   
Equity investors were heartened as oil prices dipped below $60 a barrel, hitting a six-month low. The price of natural gas also sagged, falling near its three-year low.
   
Commodities prices have fallen on signs of a slowing U.S. economy. Oil has also been pushed lower this month as the tension between the United States and Iran has eased. On Monday, BP PLC said it had permission to restart the eastern half of Alaska's Prudhoe Bay oil field, which should expand oil inventories. A barrel of light crude was quoted at $59.98, down 66 cents, in electronic pre-opening trading on the New York Mercantile Exchange.
   
Stocks fell Thursday and Friday on growing pessimism about the economy. Existing home sales for August, expected to be released later in the session, are forecast to fall. The inventory of unsold homes is expected to grow from July's 7.3-month supply, with prices dropping.
   
Bonds rose, with the yield on the 10-year Treasury note at 4.57 percent, down from 4.59 percent Friday. The yield on the 10-year Treasury bill is at a seven-month low as bond traders anticipate a weakening economy. The U.S. dollar was mixed against other major currencies in European trading. Gold prices rose.
   
In afternoon trading, Britain's FTSE 100 was up 0.15 percent, Germany's DAX index was up 0.59 percent, and France's CAC-40 was up 0.62 percent.
 
Sales of existing homes fell for the fifth consecutive month in August as the once-booming housing market slowed further.
   
The National Association of Realtors reported Monday that existing home sales slipped by 0.5 percent to a seasonally adjusted annual rate of 6.30 million units.
   
The slowdown in sales was weighing on home prices, with the median price of an existing home sold in August dropping to $225,000, 1.7 percent below August 2005. It marked the first year-over-year price decline in more than 11 years.

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Dollar stays firm on oil price falls, ahead of US home sales data

LONDON - The dollar was steady after rising overnight on the back of sharp falls in oil prices which could ease fears about the outlook for the US economy.
   
Oil prices fell below 60 usd this morning, hitting their lowest levels since early March, on rising inventories and receding supply threats.
   
"Falling crude prices seem to be moderating pessimism with respect to the US outlook, although we would not look for this dynamic to be sustained," said UBS currency analyst Daniel Katzive.
   
Gains were limited, however, ahead of this afternoon's US existing home sales data, which are expected to give further evidence of a sharp slowdown in the US housing market.
   
Meanwhile, weak German regional inflation figures weighed on the euro as evidence of weakening inflationary pressures due to lower oil prices suggest that the European Central Bank may not need to raise interest rates as much as previously thought.
   
Figures out from the five German states showed CPI inflation fell by 0.4 pct in September from August, giving annual rises of between 0.7 and 1.5 pct.
   
Bear Stearns analyst David Brown said these early reports suggest that the German annual inflation rate could be pushed down as low as 1.0 pct in September from 1.7 pct in August, potentially causing September euro zone inflation to fall well below 2 pct.
   
"This expected slowdown in euro zone inflation should not stop the ECB hiking to 3.50 pct in this cycle (from 3.0 pct currently), but it should make the ECB think long and hard about raising rates any higher next year," he said.

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Tobacco stocks drop

NEW YORK - Tobacco stocks fell early Monday after a federal judge certified a class action case against the major tobacco makers that could result in $200 billion in damages.
   
Plaintiffs in the Schwab case won class action status in a lawsuit that accuses tobacco companies of misleading smokers into believing light cigarettes are safer than regular ones. Philip Morris USA Inc., R.J. Reynolds Tobacco Co. and Lorillard Tobacco Co. are among the companies named in the lawsuit.
   
In early trading, two of the biggest tobacco makers saw shares fall. Shares of Altria Group Inc., parent company of Philip Morris USA, were down 3.1 percent, or $2.51, to $79.81, while Reynolds American Inc. stock fell 1.9 percent, or $1.15, to $60.87. Analysts expected downward pressure on all tobacco shares if the class was certified, but still saw reason for optimism.
   
"We would expect bears to talk about the continuing significant litigation risk to the industry and the likelihood that Altria's break-up could be delayed by up to 18 months," analyst Michael Smith of JPMorgan wrote. "We would expect the stock to trade down further as a result, but believe this would create a very attractive buying opportunity for investors."
   
Judge Jack Weinstein of U.S. District Court in Brooklyn ruled after holding a hearing on the case Sept. 13. The class includes anyone who bought cigarettes labeled "light" or "lights" beginning in the early 1970s.
   
Meanwhile, investors anxious to see movement on Altria's spin-off of Kraft Foods Inc. have little reason to worry about the Schwab decision, JPMorgan analysts Erik Bloomquist and Michael Smith believe. They predicted Monday that Altria will announce the spin-off at an Oct. 25 board meeting, even if the Schwab plaintiffs were certified as a class.
      
Shares of British American Tobacco PLC were down 71 cents, or 1.3 percent, at $55.86 on the American Stock Exchange, and Carolina Group, which is the tracking stock for Loews Corp. and Lorillard, slipped $1.10, or 2 percent, to $54.78 on the NYSE. American depositary shares of Gallaher Group PLC dipped 5 cents to $65.54 while those of Imperial Tobacco Group PLC, the lone gainer, were up 28 cents at $68.75 on the NYSE.

Asia at a Glance

Asian shares close mixed, Tokyo lower on US economy fears

HONG KONG - Shares across the Asia-Pacific region closed mixed, with Tokyo lower on fears over the prospects for the US economy.
   
Tokyo dealers said Wall Street's fall for a second straight day on Friday had fuelled growing anxiety about the outlook for the US economy and dampened sentiment at the open.
   
Moreover, sustained selling by foreign investors wary about tomorrow's transfer of leadership to new prime minister Shinzo Abe also weighed on the market.
   
But interest in defensive counters, which are generally immune to the performance of the US economy, and in stocks entering their ex-dividend period from tomorrow, helped offset much of the selling pressure.

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The blue-chip Nikkei 225 Stock Average closed down 0.86 points or 0.01 pct at 15,563.81, off a low of 15,513.87 touched in the morning session.

The broader TOPIX index of all first-section issues was down 3.82 points or 0.24 pct at 1,559.78, after touching a low of 1,546.03.
   
Takagi Securities market analyst Shigeo Kikuchi blamed the market's recent weakness on growing unease over the prospects for the US economy, as well as to foreign investor selling prompted by doubts over what kind of a leader Abe will be.
   
Japan's parliament will hold an extraordinary session tomorrow to formally vote in the new prime minister.
   
Australian shares closed higher, as investor sentiment was buoyed by solid gains from merger and takeover activity.
   
The S&P/ASX 200 added 3.1 points or 0.06 pct to close at 4,986.3, below the day's high of 4,997.9 and above a low of 4,963.4.
   
Hong Kong shares were flat in afternoon trade, with some interest in mainland China financial firms and in aviation stocks, dealers said. At 3.25 pm the Hang Seng Index was down 10.03 points or 0.06 pct at 17,590.62.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower on profit-taking ahead of the National Day holidays next week, with banks and power generators in particular weighed down.
   
The Shanghai A-share Index fell 3.94 points or 0.22 pct to 1,808.75 and the Shenzhen A-share Index was down 0.12 points or 0.03 pct at 446.42.
   
Seoul shares ended higher after the previous session's decline of more than 1.0 pct, with lenders and telecoms leading the rise.
   
The market moved in a very narrow range initially due to caution following Friday's losses on Wall Street and ahead of a slew of domestic economic data due out later this week.
   
But the index soon gained momentum to close near its high for the day as foreign investors' positions in the futures market triggered heavy program buying.
   
The KOSPI index closed up 6.83 points or 0.51 pct at 1,355.21, after moving between 1,345.56 and 1,357.69.

Asian Bourse Round-Up

For a full list of closing figures, click here

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Gold edges lower as dollar steadies, oil plunges

LONDON - Gold prices edged lower as oil plunged below 60 usd, hitting its lowest levels since early March, and as the dollar steadied against the euro and yen after recent weakness.
   
At 1.42 pm, spot gold, which earlier hit a low of 585.15 usd, was quoted at 587.60 usd, down from 589.40 usd at the time of the COMEX market close in New York Friday.
   
Spot silver was down at 11.10 usd against 11.18 usd, platinum fell to 1,131.50 usd against 1,143.00 usd, while palladium bucked the trend, trading flat at 316.00 usd.
  
Gold often moves counter to the dollar as it is seen as an alternate investment to the US currency. Also, a weak dollar makes gold cheaper for holders of other currencies.
   
The dollar has been week recently, hitting 2-week lows against major currencies last week, as concerns over slowing US growth cemented market expectations that the next interest rate move will be down.
    
Gold has lost about 20 pct of its value since touching 730 usd in May -- the highest level in a quarter of a century -- on concerns about geopolitical tensions and inflation.

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