US & World Daily Markets Financial Briefing 27-06-2006

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Stocks edge higher on acquisitions

NEW YORK  - Another round of acquisition nudged stocks higher in early trading Tuesday, but the muted gains were an indication that investors are nervous about buying ahead of the Federal Reserve's interest rate decision later this week.
   
Although big acquisitions gave stocks a boost Monday, news that Spanish-language broadcaster Univision Communications Inc. agreed to sell itself for $12.3 bln did little to energize the market Tuesday. Citizens Banking Corp. also made a $1.05 bln deal to buy Republic Bancorp Inc.
  
Reports on consumer confidence and existing home sales due after the opening bell could give investors guidance on economic conditions, but Wall Street was likely to resume its pattern of erratic trading as it awaits the Fed's next move on interest rates Thursday.

In the first hour of trading, the Dow Jones industrial average gained 6.09, or 0.06 percent, to 11,051.37. Broader stock indicators also advanced. The Standard & Poor's 500 index was up 1.26, or 0.1 percent, at 1,251.82, and the Nasdaq composite index added 2.74, or 0.13 percent, to 2,136.41.

Stocks in focus

U.S. stocks ended higher Monday as upbeat housing data and more than $90 bln in deals helped distract traders from Thursday's Federal Reserve decision on interest rates. The Dow industrials finished 56 points higher, the Nasdaq Composite rose 12 points and the S&P 500 rose 6 points.
   
Tuesday saw a few more deals, including Univision Communications Inc., the largest Spanish-language broadcaster, accepting an $12.3 bln takeover bid by a consortium of private-equity investors.
   
Also on the deal front, Barr Pharmaceuticals agreed to buy Croatian drugmaker Pliva for $2.2 bln.
   
Duke Energy agreed to sell its power and gas trading unit Cinergy to Fortis for $414 mln.
   
And Knight Ridder Inc. shareholders late Monday approved the company's sale to McClatchy Co., paving the way for creation of the second-largest U.S. newspaper publisher.

Elsewhere, General Motors will be in focus after saying late Monday that 35,000 employees agreed to accept its early retirement package or buyouts.
   
Vivendi said Tuesday that it sold its entire 16.4 mln share stake in DuPont for $671 mln, or $40.82 a share. The stake sale was expected after Vivendi earlier in the month said it resolved a dispute with the U.S. Internal Revenue Service over a 1995 sale of DuPont shares. DuPont closed Monday at $42.04.
   
Goodyear Tire & Rubber could see pressure after Japanese rival Bridgestone warned it wouldn't meet profit forecasts on raw material costs. European tire makers Michelin and Continental both declined.
   
Arcelor rallied in Paris trade on speculation that Russia's Severstal may come back with a better bid than what Mittal Steel agreed to pay for the steelmaker.
   
Sneaker maker Nike after the close of trading will report quarterly results.

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Euro edges higher as German data suggests faster ECB rate hikes

LONDON - The euro continued to drift higher, buoyed by strong economic data and the stark reminder that interest rates in the 12-nation area are poised to rise over the coming months.
   
Today, a key indicator of German business confidence, the Ifo index, jumped to a 15-year high, confounding expectations of a fall and sparking off speculation that the European Central Bank may be forced to speed up hiking borrowing costs.
   
The data comes on the back of hawkish commentary from the European Central Bank and a pick up in German inflation.
   
"Indeed, the euro zone is actually in danger of losing its perennial status as economic laggard; and the majority of recent economic reports appear to have further underpinned the case for higher Euro-zone interest rates, this morning's IFO survey from Germany, for example," said Neil Mellor, at Bank of New York.
   
The stage appears to be set for another ECB rate hike in August. The central bank has already lifted rates on three occasions since December, taking the refi rate to 2.75 pct from 2.00 pct.
   
Most observers are betting that the benchmark rate will hit 3.25 pct by year end. But some predict hikes to even higher levels.
   
"A host of strong Euroland data and a phalanx of ECB representatives making hawkish noises, combine to make us change our forecast for Euroland interest rates," said Gabriel Stein at Lombard Street.
   
"These vary from implying that the pace of interest rate increases could be stepped up from the current pattern of one increase per quarter, to hints that the size of the increases could be raised from 25 basis points to 50 basis points," he added.
   
While none of this commits the ECB to anything, the additional cocktail of continued rises in broad money and credit growth, suggests that monetary policy may be tightened by more than expected, he said.
   
"Where our forecast previously was that the ECB refi rate would end the year at 3-3.25 pct it now seems that the 3.5-4 pct range is more likely," Stein added.
   
Meanwhile, the flow of hawkish rhetoric from ECB official continued.

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In comments to several newspapers published this morning, ECB president Jean-Claude Trichet again highlighted his concerns about risks to price stability, saying the bank is "permanently alert" and ready to act to counter inflation risks.
   
The comments add to the hawkish tone set by governing council member Guy Quaden yesterday when he said the ECB is not ruling out the possibility of an interest rate hike in early August.
   
While the euro was propped up by the stronger focus on the prospect of rate hikes, Steve Pearson at HBOS noted, that the dollar could be set to "fight back" this afternoon if US existing home sales and consumer confidence data come in on the firm side, particularly after yesterday's strong new home sales numbers.
   
For the dollar, focus will also centre on Thursday's meeting of the US rate-setting Federal Reserve Open Market Committee, where a 25 basis point rate hike is fully expected, though there is some speculation of a hefty 50 point move.
   
The pound meanwhile remained on the weak side following last week's dovish minutes from the Bank of England's rate setting panel.
   
It was a quiet day for UK data.

Turkish lira steadies after central bank interventions

ANKARA - The Turkish lira steadied after steep recent falls as the country's central bank intervened in the open market by selling dollars for the embattled currency for the second day in a row.
   
On the second day of its direct intervention, the Turkish central bank bought 694 mln Turkish liras and said it would sell a maximum of 500 mln usd in an auction later today.
   
The lira was trading at 1.63 to the dollar Tuesday, down from Monday's close of 1.67 but still some 20 percent off its value in early May.
   
On Monday, the bank auctioned 500 mln dollars, then sold an estimated 500 to 800 mln dollars on the foreign exchange market.
   
Although analysts welcomed the bank's intervention as a sign of its determination to stabilise the markets, they have warned that a loss in reserves will be an inevitable.
   
The bank had reserves of 58.3 bln dollars on June 16.
   

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Asian shares close marginally higher as investors await FOMC news

HONG KONG - Share prices across the Asia Pacific region ended marginally higher as markets await the FOMC meeting on Wednesday and Thursday, dealers said.
   
Tokyo share prices closed up slightly, but with few investors willing to take aggressive positions as they ponder how far the Federal Open Market Committee will raise its key rates this week.
   
The blue-chip Nikkei 225 Stock Average closed up 19.41 points at 15,171.81, after trading between 15,095.11 and 15,207.38 points.
   
The TOPIX index of all first-section issues gained 0.40 points to 1,549.37. The broader index moved between 1,542.91 and 1,554.20.
   
Stock prices moved in and out of negative territory for most of the session.
   
"Investors are unwilling to make aggressive bets before the FOMC meeting," said Hiroichi Nishi, equity chief at Nikko Cordial Securities Inc."The market appears to be to be caught between some limited bargain hunting interest and caution before this event, leaving prices trapped in a narrow range," he added.
   
Australian shares finished higher as investors bought resource and energy stocks after metal and oil prices rose strongly overnight, dealers said.
   
They said the overnight rise on Wall Street, which jumped on merger activity within the US resources sector, buoyed investor sentiment from the open of trade and supported the wider market.
   
The S&P/ASX 200 rose 34.2 points or 0.69 pct to close at 4,999.2. The benchmark indicator closed off the day's high of 5,021.9 and above the low of 4,976.7.
   
Hong Kong shares were marginally higher in afternoon trade as investors bought oversold China stocks, dealers said.
   
They said trade was cautious ahead of the FOMC meeting and expiry of Hang Seng June futures contracts later this week but turnover was higher than in recent days as fund managers "dressed up" portfolios ahead of the June half close.
   
At 3.28 pm the Hang Seng Index was up 39.16 points, or 0.25 pct, at 15,843.97.
   
In mainland China, A-shares in Shanghai and Shenzhen ended higher on follow-through interest following the gains of the past eight trading days, with agriculture and retailer stocks in focus, dealers said.
   
The Shanghai A-share Index climbed 6.40 points or 0.37 pct to 1,723.49 and the Shenzhen A-share Index was up 0.95 points or 0.21 pct at 442.38.
   
Seoul shares closed higher, rising for a second session, with large cap IT stocks, banks and steelmakers posting solid gains, dealers said.
   
The market rose above 1,250 points at one stage, with sentiment boosted by Wall Street's gains and foreign investor interest, but program selling picked up and foreign investors turned net sellers late in the session.
   
Investors also hesitated to build aggressive positions ahead of the FOMC meeting.
   
The KOSPI index closed up 9.49 points or 0.77 pct at 1,247.54, after moving between 1,253.41 and 1,242.68.

Asian Bourse Round-Up

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Gold gains as dollar dips but upside limited ahead of Fed meeting

LONDON - Gold was higher helped by the dollar's falls but remained rangebound ahead of the interest rate announcement from the US Federal Reserve on Thursday.
   
At 12.22 pm, spot gold was quoted up at 587.23 usd an ounce against 584.80 usd at the time of the COMEX market close yesterday. Other precious metals were mixed.
   
Spot silver was down at 10.27 usd against 10.29 usd, platinum was up at 1,188.00 usd from 1,180.00 usd and palladium was flat at 316.09 usd against 316.00 usd.
   
Earlier, gold hit a high of 591.25 usd after the dollar lost some ground against the Asian currencies, and continued lower against the euro in the European trading session.
   
But TheBullionDesk analyst James Moore said "while gold's recent gains are positive the yellow metal still remains vulnerable" to selling pressure ahead of the Fed's rate decision Thursday.
   
Although a quarter point US rate hike has already been widely priced in, there is some speculation of a half point increase. Additionally, market players are also looking for hints about future rate hikes from the Fed's statement accompanying its rate verdict.
   
Barclays Capital analysts said in a note that "the possibility of further risk reduction as the market firms up its odds for an August hike could still prompt further liquidation in gold".
   
"In addition, a hawkish rhetoric by the Fed could further drive market inflation expectations lower, a trend that has been negatively affecting gold prices recently," they added.
   
Geopolitical tensions, high oil prices and uncertain prospects for the dollar led gold up to a 26 year high of 730 usd mid-May, but a brutal sell-off soon ensued as concerns over rising US interest rates took hold.
   
Rising US interest rates have helped address concerns about price pressures, diminishing somewhat the allure of gold as an alternative investment or hedge against inflation.

Oil continues higher on gasoline supply worries, China demand

SINGAPORE  - Oil prices continued higher as the suspension of some refinery production along the US Gulf Coast, due to a shipping snag, reignited concerns that gasoline supplies would not be able to meet demand during the summer.
   
Also, rising demand from China - Asia's largest consumer of fuels - and worries about ongoing tension between Iran and the West have lifted oil prices in recent weeks, with crude futures now trading about 19 pct higher on the year.
   
At 2.26 pm, August-dated Brent contracts were up 59 cents at 71.32 usd, after climbing 80 cents yesterday to close at 70.73 usd. Meanwhile August-dated US light crude futures were up 50 cents at 72.30 usd.
   
Prices for refined products such as gasoline are driving the market, said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
   
"Crude oil derives all of its values from product prices," Shum said. "When product prices increase, there's a knock-on effect on crude."

Elsewhere, recent Chinese customs data showed the country's oil demand growth accelerated to 13.5 pct in May, as refiners boosted output and curbed exports ahead of a domestic price increase to meet peak summer demand.

The rapid increase in car sales in China - to 24.1 pct in May from a year earlier - have also contributed to the rise in gasoline demand, Shum said.

Bonds recouped some recent losses but remained at historic lows, with the yield on the 10-year Treasury note slipping to 5.23 percent from 5.24 percent late Monday.

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