US & World Daily Markets Financial Briefing 27-02-2007

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Stocks fall as Chinese stocks take a hit

NEW YORK - Wall Street fell sharply in early trading Tuesday, joining a global stock decline on growing concerns about slowing economies in the U.S. and China. Worries that U.S. stocks are about to embark on a major correction fed the drop, which took the Dow Jones industrials down more than 120 points.
   
A 9 percent slide in Chinese stocks earlier set the tone for U.S. trading. Concerns that China's economy will slow sent many investors selling just a day after they sent Shanghai's benchmark index to a record high close.
   
A warning from former Federal Reserve Chairman Alan Greenspan Monday that the U.S. economy may be headed for a recession also took a toll. A Commerce Department that orders for durable goods in January dropped by the largest amoung in three months exacerbated concerns about the economy, as did a Standard & Poor's index showing single-family home prices across the nation were flat in December.
   
A suicide bomber attack on the main U.S. military base in Afghanistan where Vice President Dick Cheney was visiting also rattled the market.
   
In the first hour of trading, the Dow Jones industrial average dropped 122.57, or 0.97 percent, to 12,509.69.
   
Broader stock indicators also fell sharply. The Standard & Poor's 500 index was down 16.87, or 1.16 percent, to 1,431.41, and the Nasdaq composite index was down 46.07, or 1.84 percent, to 2,458.45.
   
China's stock market plummeted Tuesday from record highs as investors took profits when concerns arose that the Chinese government may try to cool its ballooning economy by raising interest rates again or reducing more of the money available for lending. The Shanghai Composite Index tumbled 8.8 percent to close at 2.771.79, its biggest decline since it fell 8.9 percent on Feb. 18, 1997.
   
Japan's Nikkei stock average fell a more moderate 0.52 percent. But European markets were clearly rattled -- in afternoon trading, Britain's FTSE 100 was down 2.28 percent, Germany's DAX index was down 2.44 percent, and France's CAC-40 was down 2.87 percent.

Bond prices rose as investors bought into the safe-haven Treasury market, with the yield on the benchmark 10-year Treasury note dropping to 4.60 percent from 4.63 percent late Monday.

The Dow has been climbing at an extremely steady rate since last summer, but over the past few trading sessions, stocks have pulled back on the worry that the market is due for a correction. Many analysts noted that the Dow hadn't seen a 2 percent decline in 121 sessions.
   
Other data that could affect the market Tuesday are the Conference Board's consumer confidence data, and the National Association of Realtors' existing home sales figures, which are expected to show a slight rise for January,
   
The Russell 2000 index of smaller companies was down 17.60, or 2.14 percent, at 806.09.

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Dollar soft on geopolitical concerns ahead of key US housing data

LONDON - The dollar remained near its 2007 low against the euro amid concerns over Iran's nuclear intentions and ahead of some crucial US housing data later today.
   
The geopolitical concerns engendered by the stand-off with Iran were exacerbated by the overnight suicide blast at the US base in Afghanistan where US Vice President Dick Cheney was visiting.
   
Given the speculation that this week's raft of US economic data will paint a relatively downbeat picture of the world's largest economy, the tensions have added to the softness in the dollar.
   
The US currency is also being hit by concerns about the US economic outlook.
   
The economic calendar for this week kicks off today with durable goods orders for January, but the markets will pay more attention to the ensuing January existing homes sales and February consumer confidence data.
   
Concerns about the US economy were stoked overnight when former US Federal Reserve chairman Alan Greenspan warned that there were signs that the current economic cycle was coming to an end and that a recession by the end of the year is possible.
   
The Fed has kept its benchmark rate unchanged at 5.25 pct for four consecutive meetings after previously raising it 17 times in a row. Towards the end of last year, the dollar slumped on mounting talk of an easing in policy following a raft of disappointing activity news. 
   
While the Fed is on hold, the European Central Bank is expected to carry on raising borrowing costs for some months to come and that is further helping the euro against the dollar. The ECB is expected to lift its key refi rate a quarter point twice more this year at the least to 4.00 pct.  
   
Today's euro zone money supply data further reinforced expectations of at least two more rate hikes.
   
The M3 measure rose by a 17-year high of 9.8 pct in the year to January, against expectations of a 9.5 pct rise.

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Top Stories in Europe at 11.05 GMT

Stockholm - AB Volvo said it has reached an agreement with Ingersoll Rand to acquire the assets of the company's road construction and soil compaction equipment division for 1.3 bln usd or approximately 9.2 bln skr in cash. Volvo said synergies at operating profit level, mainly attributed to sales and distribution, are estimated at 600 mln skr annually and will be achieved within a five-year period.

Frankfurt - EADS's Airbus will cut about 7,700 jobs as part of its "Power 8" restructuring programme, Die Welt reported on its website citing sources close to the company. These sources said that Airbus will cut roughly 3,500 jobs in Germany and about 4,200 in France.

Madrid - Repsol YPF SA said adjusted net profit dropped 12.3 pct to 3.092 bln eur in the full-year to December from a year earlier, on a 13.7 pct slide in operating profit to 5.776 bln from 6.694 bln. In a statement, Repsol YPF said operating profit was hit by weaker refining margins as well as the dollar's depreciation against the euro, which offset higher crude prices.

Fomento de Construcciones y Contratas SA said net profit grew 27.1 pct to 536 mln eur in the full-year to December from a year earlier, as revenues rose 33.7 pct to 9.481 bln. In a statement, FCC said its construction and services order book reached a record 30.510 bln eur, up 48.9 pct from a year earlier, while EBITDA climbed 40.3 pct to 1.387 bln.

Iberia Lineas Aereas de Espana SA said its net profit dropped to 116.0 mln eur in the full year to December from 396 mln a year earlier, in line with estimates. In a statement, Iberia said EBITDAR climbed 13 pct to 790.5 mln eur from 699.9 mln, topping the market forecast consensus for 787 mln eur.

Paris - Air Liquide said 2006 net profit rose 11.4 pct to 1.002 bln eur, compared to 900 mln eur in 2005, driven by solid operating performances in Europe and the Americas and a reduction in the cost of debt. Group operating income for the full year amounted to 1.659 bln eur, up 9.3 pct on the previous year.

Zurich - Swiss engineering group Georg Fischer AG reported better-than-forecast full-year net profit of 249 mln sfr, up from 175 mln last year, citing the impact of efficiency programs, the development of new markets and new product launches. Analysts had forecast net profit to reach 205-221 mln sfr, or 213 mln on average.

Amsterdam - France Telecom's Dutch mobile phone operator Orange Netherlands, which is said to have been put up for sale by its parent, has attracted interest from a potential five bidders, Het Financieele Dagblad reported, citing "well-informed financial sources". According to the paper, Deutsche Telekom AG unit T-Mobile, which already operates in the Netherlands, is the most serious candidate to take over the unit, which France Telecom hopes will fetch 1.0-1.5 bln eur.

London - The Treasury is threatening to cut defence projects worth up to 35 bln stg in the government's next spending round, The Times has reported. It said Defence Secretary Des Browne and Chief of the Defence Staff Sir Jock Stirrup were at Treasury last week to discuss the decision to send 1,400 extra troops to Afghanistan but also to lobby against cuts to key procurement projects.

Standard Chartered PLC delivered a 19 pct increase in full-year profit, in line with market expectations, helped by strong economic growth in its key Asian markets. Standard Chartered, which is listed in London but generates over two thirds of its revenues in Asia, said pretax profit for the year to Dec 31 2006 came in at 3.178 bln usd, up from 2.681 bln usd the previous year.

Cairn Energy PLC said it plans to return about 481 mln stg of proceeds received from the flotation of its Indian business Cairn India with shareholders receiving a return of 3.0 stg for each share held. It said the return of cash is proposed to be made by giving 13 new shares for every 16 existing shares held as on March 23 and 1 B share for each existing share as on that date.

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Asian shares close lower on profit-taking, sharp drop in Chinese markets
 
HONG KONG - Shares across the Asia-Pacific region closed lower on profit taking after the rises of recent sessions and with China markets falling sharply on institutional selling.
   
Tokyo shares ended lower after investors locked-in profits on the market's recent climb. Gains in energy stocks, spurred by rising oil prices, helped curb the losses. The benchmark Nikkei 225 Stock Average finished down 95.43 points or 0.52 pct at 18,119.92, off the day's low of 18,073.22. It traded as high as 18,272.68.
   
The TOPIX index of all first-section issues gave up 5.64 points or 0.31 pct to settle at 1,811.33, off an intra-day low of 1,804.13.
   
Fumiaki Nakanishi, chief strategist at SMBC Friend Securities, said the losses were due purely to profit-taking. "It is time for position-adjusting, and the market needs to adjust its speed," he said.
   
Australian shares closed lower as investors took profits following strong gains to successive record closes over the past week. A number of blue-chip stocks went ex-dividend, which weighed on the market, although solid earnings reports continue to support sentiment.
   
The S&P/ASX 200 closed down 50.2 points or 0.83 pct at 5,993.8, retreating from yesterday's record close of 6,044.0. The broader All Ordinaries index shed 44.3 points to close at 5,977.6, also slipping from the previous record finish of 6,021.9 set yesterday.
   
Hong Kong shares had dropped by over two pct in afternoon trade on activity linked to the expiry of February futures contracts later in the day. Investors were cautious ahead of key economic data releases in the US and results announcements by major Hong Kong and mainland China firms. At 3.30 pm the Hang Seng Index had fallen 429.16 points or 2.09 pct at 20,078.79.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply lower on institutional selling and worries over the launching of index futures, with banks, steel and auto stocks hit. Over 800 companies closed down their daily limits of 10 pct, the biggest single day fall since the system of a 10 pct daily trading limit was introduced in late 1996.
   
The Shanghai A-share Index ended down 282.44 points or 8.84 pct at 2,910.76 and the Shenzhen A-share Index finished down 68.93 points or 8.54 pct at 738.30.
   
Seoul shares finished lower with investors using the pullback in China shares and a weaker close on Wall Street as an excuse to take profits, after a record performance on the KOSPI index yesterday. Market concerns around economic data due for release domestically and in the US also undercut broad sentiment, they noted. The KOSPI index closed down 15.43 points or 1.05 pct at 1,454.60, after moving between 1,453.85 and 1,468.38.
   
"Investors took their lead from the China market correction and higher oil prices today, with the Wall Street fall and a sense of fatigue over the local market's gains all contributing to the market decline," said SK Securities analyst Won Jong-Hyuck.
   
For March, he said his house is expecting the KOSPI index to move in 1,450-1,530 point range and advised investors to focus on a possible resurgence in inflation worries and on corporate earnings estimates for the first quarter.

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Oil prices decline more than $1 a barrel

NEW YORK -  Oil prices fell Tuesday amid worries that Chinese fuel demand could be dampened by a cooling economy.
   
Chinese stocks dropped nearly 9 percent on Tuesday on speculation that China's government may take steps to slow its rapidly expanding growth by taking more money available for borrowing off the table, or by hiking interest rates again.
   
In response, light, sweet crude for April delivery dropped $1.03 to $60.36 a barrel in electronic trading on the New York Mercantile Exchange. The contract had risen by 0.4 percent to close at a 2-month high of $61.39 a barrel on Monday.
   
Brent crude for April fell 92 cents at $60.41 a barrel Tuesday on the ICE Futures exchange.
   
The worries over Chinese demand reversed oil prices' recent upward trend,  fueled by forecasts that U.S. inventory data due this week will show a decline in gasoline and distillate stockpiles and that tensions between Western powers and Iran, OPEC's No. 2 supplier, and snowy weather in the U.S. Northeast, the country's largest heating oil market.
   
Analysts are expecting a U.S. government report due Wednesday to say both
distillate and gasoline stockpiles fell in the week ended Feb. 23.
   
Distillate inventories, which include heating oil and diesel fuel, are likely to fall by 2.6 million barrels in the report by the U.S. Energy Department, according to a Dow Jones Newswires survey of analysts. Gasoline stockpiles are seen declining by 1.6 million barrels while crude oil inventories are expected to rise by 1.2 million barrels.
   
On Monday, the United States, the four other permanent members of the United Nations Security Council and Germany began work on a new U.N. resolution that could impose further sanctions on Iran over its nuclear program after Tehran rejected U.N. demands it stop enriching uranium.
   
Heating oil demand was expected to rise with a winter storm that pounded the U.S. Midwest on Monday with as much as two feet of snow. The storm also dumped more than a foot of snow on some areas of the Northeast.
   
Heating oil futures dropped nearly 2 cents to $1.7289 a gallon on the Nymex, while natural gas slipped by more than 14 cents to $7.561 per 1,000 cubic feet.

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