US & World Daily Markets Financial Briefing 27-03-2006

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U.S. stocks trade mixed; caution ahead of Fed rate move

NEW YORK - U.S. stocks were mixed in early trading Monday as strength in the technology sector boosted the Nasdaq Composite, but investor caution ahead of a Federal Reserve decision on interest rates was putting a cap on gains.
   
The Dow Jones Industrial Average was down 7 points at 11,273.
   
The Nasdaq climbed 7 points to 2,319 while the S&P 500 Index put in a fractional loss, down 0.49 point at 1,302.46.
   
Stocks on the move
   
Lucent Technologies Inc. was up 2.9% at $.15 as investors continued to mull a possible merger with France's Alacatel. On Friday, U.S.-listed shares of Alcatel rose 25 cents to $15.70.
   
General Motors Corp. was back in focus after the Detroit News reported Delphi Corp. , its main parts supplier, will propose a gradual reduction in wages and benefits instead of abrupt pay cuts. The offer would be contingent on GM subsidizing the wages for a time. The stock was off 10 cents at $22.55.
   
Walgreen Co. posted a year-over-year rise in quarterly earnings, although the nation's largest drugstore operator said results for the period were hit by stock-option-program expenses. Quarterly sales of $12.16 billion came in just shy of Thomson First Call expectations of $12.24 billion. The stock was up 1% at $44.80.
   
Broker action
   
Metals saw some early gains after Citigroup became more upbeat on the sector, upgrading key players Inco, Phelps Dodge Corp., Alcan and Rio Tinto.
   
The broker told clients its revised view represents a "significant" change of opinion on copper and nickel, where it is abandoning its longstanding bearish stance.
   
Citigroup said the sector will benefit from rising economic growth and structurally tight inventories, with sluggish new capacity additions and recurring operating outages also lending support to prices.
   
Circuit City Stores Inc. shares climbed 2% to $24.73 after Lehman Bros. upgraded the electronics retailer to equal-weight from underweight, citing strong industry trends and "vastly improved" fundamentals.
   
Shares of Sirius Satellite Radio Inc. rose 1% to $5.08 after broker J.P. Morgan upgraded the company to neutral from underweight, citing valuation and easing competition concerns.

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Dollar falls against yen ahead of FOMC

NEW YORK - The dollar started the week on a mixed note, drifting lower against the yen but trading flat versus the euro, with the market clouded by uncertainty over the outlook for U.S. interest rates.
   
The Federal Open Market Committee is widely expected to lift the benchmark interest rate by 25 basis points after its two-day monetary policy meeting on Tuesday. This would be the 15th straight FOMC meeting with a quarter point rate hike, bringing rates up to 4.75% from 1.0% in June 2004.
   
With the rate hike a foregone conclusion, investors are expected to turn their attention instead to the statement accompanying the decision, analysts said.
   
"Obviously tomorrow's FOMC verdict and any accompanying comments could once again lend support to the dollar especially if the hawkish tones continue," said Andy Cotterill, a senior FX dealer at CMC Markets.
   
In early New York trading, the dollar slipped to 116.50 yen, down 0.8%. The euro was unchanged at $1.2032. The British pound was trading up 0.3% at $1.7486, while the dollar was down 0.2% at 1.307 Swiss francs.
   
At the same time, a run of Japanese investors repatriating money ahead of the fiscal year end this week and a further appreciation of the Chinese yuan helped lift the yen against most rivals in overnight trade. At last check, the euro fell 0.8% to 140.21 yen.
   
FOMC in focus
   
Expectations for future monetary policy in the U.S. have swung wildly in recent weeks, and as a result, major currency pairs have seen volatile trading within tight ranges, traders said.
   
The dollar gained about 1.4% against the euro and the yen last week. It was boosted earlier in the week by Fed Chairman Ben Bernanke's comments on Monday, but later lost its strength after a disappointing new home sales dented
expectations for a rate hike in May.
   
Some analysts warned that the statement accompanying the interest rate decision on Tuesday could have dovish tones.
   
"Neither Bernanke nor other FOMC members have led markets to believe that the end of the tightening cycle was imminent and removing guidance along the lines of 'we will respond to changes in economic prospects as needed' could easily wrong-foot the markets," said analysts from French bank Calyon.
   
Danske Bank analysts see the Fed lifting rates to 5% in May before pausing due to a slowing of core inflation.
   
But they then expect a ratcheting up of rates.
   
"We expect continued robust growth, falling unemployment and rising core inflation to force the FOMC to start tightening monetary policy again during the second half of the year," they said.
   
Yen, yuan in spotlight
   
Focus for Asian currencies continued to center on whether U.S. Senators Chuck Schumer and Lindsey Graham will go ahead with a vote on their proposed bill to impose trade tariffs on China following their visit there, analysts said.
   
Schumer and Graham are proposing to impose 27.5% tariffs on Chinese goods if the Chinese government doesn't aggressively unwind its support for the yuan.
   
Schumer said last Thursday he's more optimistic about the yuan issue and he expects the yuan to fall to below 8 to the dollar this week.
   
The Chinese yuan posted a new post-revaluation high of 8.0215 overnight.
   
The yen, viewed as a proxy for the yuan, usually strengthens when speculation about yuan appreciation rises.
   
From Europe, a poll of French business confidence weakened to 105 in March from a revised-higher 106 in February.

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The European Markets at 12.00 BST

London - Leading shares remained lower at midday as pension deficit concerns hit Diageo and Cable & Wireless, while fund management firms bore the brunt of renewed global interest rate concerns, dealers said.
   
At 11.50 am, the FTSE 100 was 23.6 points lower at 6,012.7, with the broader indices also down.

Frankfurt - Shares were slightly lower in midday trade ahead of tomorrow's FOMC decision on US interest rates and as oil prices rose, though DaimlerChrysler gained as the market cheered news yesterday of a 1 bln eur revamp of its troubled Smart unit, dealers said.
   
At 11.53 am, the DAX 30 index was 7.98 points or 0.13 pct lower at 5,965.16, having moved between 5,957.21 and 5,976.63 so far this session.

Paris - Shares were lower midday as investors consolidated part of the gains chalked up over the previous four sessions, though Thomson sharply outperformed after it became the latest subject of takeover speculation, dealers said.
   
At 12.50, the CAC-40 index was down 17.91 points or 0.34 pct at 5,200.80, on thin volume of 1.32 bln eur.

Amsterdam - Share prices were flat in late morning trade ahead of tomorrow's FOMC meeting and interest rate announcement, dealers said.
   
At 11.33 pm, the AEX was up 1.25 points or 0.05 pct at 472.29, after opening at 472.11 and trading in a narrow range of 471.52-472.70.

Madrid - Share prices were lower in thin midday trade, with blue chips seeing profit-taking, while Gamesa outperformed after Deutsche Bank upped its target price, dealers said.
   
At 12.25 pm, the IBEX-35 index fell 47.2 points to 11,907.2, after trading in a range of 11,896-11,954, on turnover of 623 mln eur.

Milan - Share prices were lower in midday trade ahead of tomorrow's meeting and interest rate decision by the FOMC, with Parmalat leading the decliners on profit-taking after a recent rally and an analyst meeting this morning, dealers said.
   
At 12.35 am, the Mibtel index fell 0.53 pct to 29,346 and the S&P/Mib was down 0.45 pct at 38,006, while volumes stood at 1.61 bln eur.

Stockholm - Share prices remained in slightly negative territory in midday trade, marginally extending earlier losses on continued profit-taking, dealers said.
   
At 12.10 pm, the OMX Stockholm index was down 0.34 pct at 337.69, while the OMX Stockholm 30 index was down 0.34 pct at 1,060.10. Turnover was 6.70 bln skr.

Helsinki - Shares were almost flat midday in light trading, shrugging off weaker sentiment in other key European bourses, dealers said.
   
At 12.21 pm, the OMX Helsinki 25 index was 0.02 pct higher at 2,703.55. The OMX Helsinki index was up 0.08 pct at 9,352.04, while the Helsinki CAP portfolio index was 0.06 pct firmer at 5,022.55.

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Asian shares close higher, Tokyo stronger on upbeat economic view

HONG KONG - Share prices across the Asia-Pacific region ended higher with Tokyo settling at its highest level in seven weeks, as investors continued to snap up stocks amid optimism over the Japanese economy, dealers said.
   
The Nikkei 225 Stock Average closed up 89.23 points or 0.5 pct at 16,650.10, its highest close since Feb 7 when it ended at 16,720.99.
   
The broader TOPIX index of all first-section issues rose 4.50 points or 0.3 pct to 1,693.84.
   
"There are no major leads today but in such a circumstance, the market tends to reflect a wider trend, which is strong," said Hideyuki Suzuki, a strategist at SBI Securities.
   
Expectations that prices will continue to rise and that the economy will be robust supported investor sentiment.
   
In Australia, share prices closed at fresh record highs, fuelled by a burst of takeover activity and strong commodity prices, dealers said.
   
They said the announcement of friendly mergers captivated investors' interest but solid rises in leading resources stocks, including BHP Billiton which traded to record highs, were key drivers behind the market's gains.
   
The S&P/ASX 200 jumped 48.0 points or 0.95 pct to close at an all-time high of 5,088.1, also its high for the day and surpassing Friday's record close of 5,040.1.
   
Share prices in Hong Kong were trading higher on interest in select China stocks ahead of annual results announcements by several H-share firms this week, dealers said.
   
At 3:30pm the Hang Seng Index was up 119.11 points or 0.76 pct at 15,835.57.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on some bargain-hunting interest in late afternoon trade with real estate developers and food and beverage manufacturers snapped up, dealers said.
   
The Shanghai A-share Index added 1.26 points to 1,358.96 on turnover of 10.18 bln yuan and the Shenzhen A-share Index was up 3.72 points at 330.60 on turnover of 6.63 bln yuan.
   
Share prices finished higher in Seoul, rising for a third trading session, with large cap IT stocks, banks and KEPCO leading the rise, dealers said.
   
After a weak start, strong program buying sent the index through 1,330 points.
   
The KOSPI index ended up 9.11 points or 0.69 pct at 1,330.34.

Asian Bourse Round-Up

For a full list of closing figures, click here.

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Gold, metals rally as dollar remains under pressure

NEW YORK - Gold futures rose to a three-week high early Monday, adding to their more than $10-an-ounce gain from the prior session, as the dollar continued to weaken.
   
Gold for April delivery was last up $5 at $565.50 an ounce on the New York Mercantile Exchange, having earlier risen to $566.40 an ounce, its highest level since March 3.
       
"The early March peak of $570.50 is the next obvious target," said Action Economics. "The move correlates with a fresh resurgence in base metals and silver, the latter of which logged another 22-year high today, supported by fund demand."
   
Gold was further boosted by comments from an official at the Bank of China's Australian operations, who argued that the Chinese central bank should hold more gold in its forex reserves as a way of diversifying away from dollars, according to Action Economics.
  
Silver, meanwhile, was up 14.5 cents at $10.88 an ounce, having touched a high of $10.92. Silver has rallied to its highest levels since 1983 on expectations that an exchange-traded fund in registration from Barclays Global Investor will shortly be launched.
   
If the instrument receives all the necessary regulatory clearances, it would have to be backed up by physical silver, just as bullion is held in a vault to back up gold ETFs.
   
Platinum was last up $18.90 at $1,070.50 an ounce and palladium was up $7.95 at $342 an ounce.
   
On the supply side, copper inventories were down 44 short tons at 28,104 short tons as of late Friday, according to data from Nymex.
   
Gold supplies were down 487 troy ounces at 7.53 million troy ounces, while silver supplies were down 119,875 troy ounces at 124.9 million troy ounces.

On the bond market, long-term Treasury prices edged lower, sending yields higher, ahead of an afternoon auction of $22 billion in new 2-year notes. The benchmark 10-year note was last down 3/32 at 98 18/32, with its yield at 4.69%.

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