US & World Daily Markets Financial Briefing 29-03-2006

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U.S. stocks post early gains; GM down on annual report

NEW YORK - U.S. stocks rose in early trading Wednesday amid some optimism the economy will show resilience in the face of higher interest rates.
   
The Dow Jones Industrial Average was up 27 points at 11,181 after falling nearly 100 points in the prior session. The benchmark index still remains on course to post one of its best quarters in two years.
   
The Nasdaq Composite Index gained 8 points to 2,312 while the S&P 500 Index lost 3 points to 1,296. 
       
The Federal Open Market Committee, the Fed's interest-rate setting body, lifted its key short-term rate Tuesday for the fifteenth time in a row to 4.75%, and signaled further rate hikes may be on the way.

GM files annual report
   
Shares in Dow component General Motors Corp. fell 3.2% to $22.01 after the troubled car maker filed late Tuesday its delayed annual report with the U.S. Securities and Exchange Commission.
   
The company said it would restate financial results for its GMAC financing unit from 2003 through to the third quarter of 2005. GM said the move aims to tidy up book-keeping problems at GMAC that might otherwise scuttle a possible stake sale as well as ease pressure on GMAC's credit rating.
   
GM, however, warned that these initiatives may not be enough for it to be able to offload a controlling stake in GMAC.
   
Other Dow standouts
   
Brokers turned their attention to two other Dow components, Caterpillar Inc. and 3M.
   
Caterpillar's stock is likely to come under pressure after UBS downgraded the heavy machinery group to neutral from buy. The broker said the move reflects "our expectation of decelerating end-market growth and stock prices now approaching what we believe is fair value." The stock fell 2.9% to $72.59.
   
3M, meanwhile, was up 2.3% at $78.06 after Merrill Lynch raised its recommendation on the diversified industrial company to buy from neutral, saying its overseas exposure means it is poised to benefit from faster international economic expansion.
   
Elsewhere, Sun Microsystems was up 5.2% at $5.30 after Morgan Stanley upgraded the network computing company two notches to overweight from underweight, citing the financial benefits of an expected cost-cutting effort.
   
Shares in Accenture fell 7.3% to $28.64 after its fiscal second-quarter net income slumped 67% over year-ago levels. The consulting firm said the profit decline was caused by a $450 million, pre-tax provision related to contracts with Britain's National Health Service.

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Dollar steadies after post-FOMC rally, sterling slides

NEW YORK - The dollar stabilized against most of its major rivals early Wednesday, holding on to gains scored in the previous session after a hawkish statement on interest rates from the Federal Reserve.
   
Meanwhile, the British pound took a hit following worse-than-expected current account deficit and retail sector data.
   
In early New York trading, the dollar was fetching 118.12 yen, up 0.3%. The euro was flat at $1.1998, down 0.1%. The British pound slumped 0.6% to $1.7321. The dollar changed hands at 1.3116 Swiss francs, up 0.2%.
   
Following the Fed's decision, the markets heightened expectations of a May Fed hike to almost a certainty and boosted the chances of a rate increase in June.
   
The federal-funds-futures market is now pricing in a 94% chance of a rate hike in May, up from about 83% odds before the FOMC announcement Tuesday. The market is giving about 1-in-4 odds that the federal funds rate will go to 5.25% by November.
   
At 4.75%, the U.S. federal funds rate is now the highest it's been in five years. In contrast, interest rates in the euro zone stand at 2.5% and Japan still has a zero rate after recently ending its ultra-easy monetary policy.
   
The steady program of incremental rate hikes put in place by the Fed since June 2004 has given the dollar a very attractive rates differential against the euro and yen.
   
Weak U.K. economic data
   
U.K. current account deficit in the fourth-quarter came in at 10.95 billion pounds, significantly worse than the consensus forecast of 6.9 billion pounds.
   
Boris Schlossberg, senior currency strategist at Forex Capital Markets, said the growth in the current account deficit may prevent the Bank of England from reducing interest rates in the near future even if economic activity slows down.
   
A weaker-than-expected March Confederation of British Industry distributive trades survey further weighed on the pound.
   
The CBI showed a net 16% of retailers reported declining sales in March. That's better than the net 18% of retailers that did so in February, but below expectations of a net 13% showing a decline.
   
Elsewhere, the New Zealand and Australian currencies posted new 22-month and 18-month lows against the U.S. dollar.
   
At last check, the Aussie dollar was trading at 0.7044, down 0.2 %, while the kiwi dollar was buying 0.6022, down 0.4 %.

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The European Markets at 12.00 BST

London - UK bluechips remained firm in midday trade with Wall Street seen rallying after yesterday's widely expected FOMC's quarter-point increase, and spurred by speculation surrounding BG, Centrica and Alliance & Leicester and strong numbers from Sainsbury, dealers said.
   
At 12.04 pm, the FTSE 100 was up 32.0 points at 5,967.7, off earlier lows of 5,927.2. All the broader indices were lower.
   
Volume was average, with 1.156 bln shares changing hands in 128,852 deals.

Frankfurt - Shares were higher in midday trade, recovering from this week's losses, as US futures pointed to gains on Wall Street after yesterday's slide on interest rate concerns, with Schwarz Pharma soaring on the MDAX on positive Phase III data on its Lacosamide drug to treat epilepsy, dealers said.
   
At 11.37 am, the DAX 30 index was 23.73 points or 0.40 pct higher at 5,914.36, having moved between 5,868.21 and 5,916.44 so far this session.

Paris - Shares were higher at midday as a steady flow of merger talk stimulated trading after the caution seen yesterday, dealers said.
   
At 12.53 pm, the CAC-40 index was up 18.91 points at 5,168.90, on volume of 1.58 bln eur. Among CAC-40 shares, 27 were higher and 13 were lower.

Amsterdam - Share prices turned slightly higher in early afternoon trade, boosted by higher oils and heavyweight financials, with Ahold still down following disappointing full-year results, dealers said.
   
At 1.08 pm, the AEX was up 0.09 pct at 468.17.

Milan - Milan shares were slightly higher at midday trade led by gains in Fondiaria-SAI on positive broker comments and among oil sector stocks, dealers said.
   
At 12.35 pm, the Mibtel index rose 0.28 pct to 29,033 and the S&P/Mib was up 0.28 pct at 37,549, while volumes stood at 2.15 bln eur.

Madrid - Share prices were higher in light midday trade, with Inditex leading the market gainers on a bullish outlook for 2006, while Ferrovial also soared after an agreement with Macquarie boosted its chances of winning BAA, dealers said.
   
At 12.29 pm, the IBEX-35 index added 43.5 points to 11,817.2, after trading in a range of 11,745-11,841, on turnover of 936 mln eur.

Stockholm - Share prices were flat in midday trade, off earlier lows, buoyed by gains among the index heavyweight banks, with Hennes & Mauritz underperforming, but clawing back some earlier losses sparked by its first quarter report, dealers said.
   
At 12.25 pm, the OMX Stockholm index was up 0.06 pct at 336.81, while the OMX Stockholm 30 index was up 0.12 pct at 1,053.93. Turnover was 11.10 bln skr.

Helsinki - Share prices were almost flat at midday, held back by a weaker Nokia, with IT services group TietoEnator outperforming after a broker upgrade, dealers said.
   
At 12.26 pm, the OMX Helsinki 25 index was 0.18 pct higher at 2,666.66. The OMX Helsinki index was 0.09 pct lower at 9,226.87, while the Helsinki CAP portfolio index was up 0.08 pct at 4,981.90.

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Asian shares close mostly up, Tokyo stronger on hopes for local economy
       
HONG KONG - Share prices across the Asia-Pacific region ended mostly up with Tokyo finishing at a 67-month high on upbeat prospects for the Japanese economy in the coming fiscal year, dealers said.
   
The local market rebounded after early losses in response to Wall Street's overnight dive which followed news of another Federal Reserve rate hike along with prospects for further increases.
   
Dealers said investors have been heartened by recent economic indicators showing the economy on a rebound and they are looking forward to further data including next Monday's Tankan survey of business sentiment which is expected to reinforce the upbeat view.
   
They added that the market is typically volatile going into the end of the financial year and the surge today appears to reflect some renewed speculative buying by institutional investors.
   
The Nikkei 225 Stock Average closed up 248.17 points or 1.5 pct at 16,938.41. It was the highest finish since August 29 2000 when the index closed at 17,141.75.
   
The broader TOPIX index of all first-section issues rose 18.85 points or 1.1 pct to 1,711.54.
   
"The market tends to fluctuate going in to the end of the fiscal year (March 31) and this seemed to be the case today with some speculative buyers coming into the market," said Hideyuki Suzuki, a strategist at SBI Securities.
   
Share prices in Australia closed higher, pushing the key indices back to record highs as investors ignored a sharp fall and bought bank and resources stocks, dealers said.
   
They said the fact that the key market indices managed gains despite the sell-off in New York points to underlying resilience in the local market with still solid earnings outlooks keeping the market from being overvalued.
   
The S&P/ASX 200 rose 4.7 points or 0.09 pct to close at 5,090.5, beating Monday's record closing high of 5,088.1.
   
In Hong Kong, share prices were trading lower in the afternoon in line with Wall Street's falls.
   
At 3:38 pm, the Hang Seng Index was down 65.87 points or 0.42 pct at 15,790.71.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on strong follow-through buying with heavyweight steelmakers and property developers gaining ground, dealers said.
   
The Shanghai A-share Index added 7.02 points to 1,369.02 on turnover of 17.07 bln yuan and the Shenzhen A-share Index was up 1.33 points at 334.13 on turnover of 10.53 bln yuan.
   
Share prices in Seoul ended little changed, as heavy profit-taking by retail and foreign investors was offset by strong institutional investor support, dealers said.
   
Disappointing domestic economic indicators also chilled investor sentiment, they said.
   
South Korea's industrial output contracted 4.4 pct in February, reversing a six pct rise in January, while private consumption decreased 0.2 pct from a month earlier, continuing its decline after a 4.4 pct drop the previous month.
   
The February current account was also in deficit by 760.7 mln usd, after a surplus of 91.2 mln usd in January.
   
But intensified program buying, amounting to 353 bln won, and a sharp rise in Tokyo shares in late trade helped the market recover much of its early losses.
   
The KOSPI index closed up 1.41 points or 0.11 pct at 1,332.71.

Asian Bourse Round-Up

For a full list of closing prices, click here

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NEW YORK - Gold futures fell early, continuing to trade in the opposite direction to the dollar, after the Fed offered no sign it is in a mood to stop raising rates. Gold for April delivery was last down $1 at $566 an ounce.
   
On the bond market, long-term Treasury prices fell, sending yields higher, after selling off Tuesday on expectations of higher rates to come.
   
The benchmark 10-year note was last down 4/32 at 97 21/32, with its yield at 4.8%. The yield is at a 21-month high.
   
Crude-oil futures were slightly lower in early trading, easing back from seven-week highs ahead of a weekly update on supplies expected to show the nation remains adequately supplied with oil and its products.
   
The benchmark May contract was last down 6 cents at $66.01 a barrel.

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