US & World Daily Markets Financial Briefing 29-05-2007

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Stocks rise on more takeover activity

NEW YORK - Stocks opened modestly higher Tuesday after the long holiday weekend on new takeover talk and ahead of data on consumer confidence.
   
The first day of the week frequently brings big acquisition offers, and this shortened week was no exception: on Tuesday, a consortium of banks led by Royal Bank of Scotland PLC said it will bid 71.1 billion euros, or $95.5 billion, for the Netherlands' ABN Amro, besting an offer from Barclays PLC.
   
The announcement came amid Wall Street Journal reports that Tishman Speyer Properties and Lehman Brothers Holdings Inc. may soon buy Archstone-Smith Trust for more than $12 billion and assume more than $6 billion in debt, and that technology retailer CDW Corp. and telecommunications equipment company Avaya Inc. are private equity takeover targets.
   
This year's torrent of deals -- on pace to top last year's record tally of $4 trillion, according to financial data provider Dealogic -- have aided the Dow Jones industrial average's ascent to new heights, despite U.S. economic data that has been coming in mixed.
   
This week will be heavy on economic reports, which should give investors a better idea of whether growth is strong enough to fuel companies' U.S.-based businesses, or if it's so robust that it could prevent the Fed from lowering interest rates later in the year.
   
The housing sector still looked weak Tuesday after the Standard & Poor's housing index indicated that U.S. home prices declined 1.4 percent in the first quarter compared to a year ago, the first time since 1991 that prices posted a quarterly drop.
   
The market is expecting the Conference Board to report its May index of consumer confidence came in at 105.0, a slight improvement on the April's reading of 104.0.
   
In the first hour of trading, the Dow rose 27.96, or 0.21 percent, to 13,535.24. Broader stock indicators were also higher. The Standard & Poor's 500 index advanced 2.50, or 0.16 percent, to 1,518.23, and the Nasdaq composite index added 6.45, or 0.25 percent, to 2,563.64. The Russell 2000 index of smaller companies was up 4.08, or 0.49 percent, at 834.01.
   
Bonds fell slightly, with the yield on the benchmark 10-year Treasury note rising to 4.87 percent from 4.86 percent late Friday. Crude oil futures fell 92 cents to $64.28 a barrel in electronic trading on the New York Mercantile Exchange.
   
In other takeover news, engineering and construction company URS Corp. said it will buy competitor Washington Group International for $2.6 billion. Washington Group rose $10.20, or 14.6 percent, to $80.17, and URS rose $1.79, or 3.8 percent, to $48.68
   
This week is light for earnings results, but in a good sign for technology companies, Vodafone Group PLC said it narrowed its full-year loss. The world's biggest mobile phone company's U.S. shares rose $1.07, or 3.5 percent, to $31.63.
   
Bookseller Borders Group Inc. is also scheduled to release first-quarter results Tuesday after the markets close. Borders rose 22 cents to $23.62.
   
Other economic data Tuesday will include the Dallas and Chicago Federal Reserve indexes on regional manufacturing activity.
   
Overseas, Britain's FTSE 100 was up 0.37 percent, Germany's DAX index was up 0.37 percent, and France's CAC-40 was down 0.23 percent.

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Canadian dollar strengthens after BoC hints that rates may rise
 
LONDON - The Canadian dollar strengthened to new 30-year highs after the Bank of Canada hinted that interest rates may have to rise soon.
   
The BoC kept its key interest rate unchanged at 4.25 pct today, as widely expected, but said in its statement that excess demand, inflationary pressures and demand for commodities are all higher than previously forecast in April.
   
"On balance, the Bank judges that there is an increased risk that future inflation will persist above the 2 pct inflation target and that some increase in the target for the overnight rate may be required in the near term to bring inflation back to the target," the BoC said in its statement.
   
The Canadian dollar rallied on the news, pushing the US dollar down to 1.073 cad from 1.081 cad previously.
   
"Their statement was clearly a hawkish one, signalling the likelihood of a 25 basis point rate hike at their next meeting on July 11," said Ian Gunner at Mellon Financial.
   
He noted, however, that there should be some profit-taking soon, given how long Canadian dollars the market has become in recent weeks.
   
Furthermore, the Canadian dollar has been supported by commodity prices, which have steadily risen this year and are vulnerable to a downward correction.
   
"Admittedly in the short-term the upward momentum in commodities markets could well help to drag the Canadian dollar up to parity," said Paul Ashworth at Capital Economics. "But over a longer time horizon we see considerable downside risk to commodity prices at current levels and, therefore, to the Canadian dollar too," he said.

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Euroshares higher midday as Wall St seen up; car stocks top the leader board

LONDON - Leading European exchanges were higher midday as M&A talk continued to dominate the headlines, with Wall St expected to go higher after the bank holiday weekend. At 10.34 am, the STOXX 50 was up 5.16 points at 3912.3 and the STOXX 600 was up 0.81 points at 394.29.
   
Mergers and acquisitions are continuing to be at the centre of investors' attention, with a record month of May coming to a close, dealers said. "Everything just seems too good for the moment to do anything but go with the flow," one London-based trader said.
   
The banking sector was dominated by news the Royal Bank of Scotland Group-led consortium has made a 38.40 eur per share offer for ABN Amro Holding NV, valuing the Dutch bank at 71.1 bln eur.
   
The consortium -- which also includes Banco Santander Central Hispano SA and Fortis NV -- said its offer represents a 13.7 pct premium to the value of the proposed offer for ABN Amro from Barclays PLC. SCH said it will make a rights issue of around 9.5-10 bln eur and convertible instruments.
       
Fortis shares slumped 0.61 pct. Royal Bank of Scotland shares were down 1.87 pct as Collins Stewart cut its recommendation on the UK group to 'hold' from 'buy'. For their part, ABN shares lost 0.97 pct as Santander stock added 0.36 pct.
   
Renault was up 2.81 pct amid ongoing sector consolidation hopes and was further boosted by news the group is moving more and more production outside of France.
   
Dealers also noted the positive impact of reports BMW is interested in buying Volvo cars from Ford Motor Co and comments by DaimlerChrysler chief executive, Dieter Zetsche, who said sector consolidation looks set to continue. But he said this has been overshadowed by hopes of production cost cuts.
   
BMW shares were 2.05 pct higher in morning trade as dealers dismissed talk the German luxury car manufacturer might purchase Volvo.
     
And Volkswagen rose 1.74 pct after the German state of Lower Saxony bought 367,000 shares in the automaker for about 41 mln eur to prevent its stake in the company dropping below a blocking minority of 20 pct. Dealers also said the imminent end of Porsche's bid for the company has sparked speculation the German luxury car group may start to buy up shares in VW again soon.
   
Also, in the German automotive sector, MAN shares were up 0.99 pct after news the heavy truck manufacturer is to receive around 370 mln eur from DaimlerChrysler's US truck unit Freightliner in connection with an alleged fraud case involving British truck maker ERF.
   
In the telecommunications sector, M&A talk flattened, but the sector was still in high demand. Vodafone stock climbed 4.36 pct after its full-year results statement thanks to an upbeat outlook. Cazenove reiterated its 'outperform' stance for the group and added that Vodafone's valuation continues to look attractive in both absolute and relative terms.  Merrill Lynch maintained its 'buy' stance for Vodafone, with Goldman Sachs reiterating its 'neutral' recommendation.
   
But shares in EON were 0.91 pct lower in morning deals after a media report said the utility probably won't pay out a hoped-for special dividend.
       
Meanwhile, the stock exchange sector deflated after shares in Scandinavian bourse owner OMX AB fell 1.8 pct following sharp gains yesterday.
       
On the broker front, shares in Philips gained 1.22 pct after Lehman Brothers added the electronics company to its European Recommended Portfolio.
   
And Reed Elsevier added 2.05 pct after it was upgraded to 'buy' from 'hold' by Deutsche Bank -- who also boosted its target to 715 pence from 600.

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Asian shares close higher; Tokyo up as unemployment at 9-yr low

HONG KONG - Shares across the Asia-Pacific region closed higher, with Tokyo shares rising as investors cheered data showing that Japan's unemployment rate fell to its lowest level in over nine years and household spending rose more than expected.
   
But overall trading in Tokyo was subdued as market players waited for Wall Street to reopen later today following a three-day weekend. US markets were closed overnight for the Memorial Day holiday.
   
The Nikkei 225 Stock Average finished up 84.97 points or 0.48 pct at 17,672.56, off the day's high of 17,700.52. The TOPIX index of all first-section issues gained 13.52 points or 0.78 pct at 1,737.90, off a high of 1,740.16.
   
The Ministry of Internal Affairs and Communications said spending by households in April jumped 1.1 pct in real terms from a year before to an average 316,163 yen, scoring a year-on-year gain for the fourth straight month, and higher than expected. The ministry also said unemployment fell to 3.8 pct in April, its lowest level in more than nine years, as firms hired workers to deal with increased demand.
     
Australian shares ended sharply higher as sentiment rebounded following three trading sessions dominated by selling. Bank and resource stocks were the main sources of bargain-hunting. The S&P/ASX 200 closed up 66.2 points or 1.06 pct at 6,317.6, gaining on the record finish of 6,369.0 set on May 21.
   
Hong Kong shares were lower in afternoon trade due to concerns about China stocks, which continued to rise today, and ahead of the settlement of the May futures contracts tomorrow. That trade was also weighed down by the absence of fresh local and overseas leads, with the US market closed yesterday.
   
At 3.35 pm the Hang Seng Index was down 53.37 points or 0.26 pct at 20,476.39.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher, led by property and metal stocks, as the markets continued to rise in the face of internal and external warnings that the gains may no longer be sustainable.
   
The negative series of comments on China equities last week was mitigated today when Morgan Stanley said China would find it "manageable" even if the A-share market were to fall 30 pct. The Shanghai A-share Index was up 67.81 points or 1.51 pct at 4,544.48 and the Shenzhen A-share Index was up 31.08 points or 2.35 pct at 1,353.09.
   
Seoul shares closed at another record on strong foreign investor interest, with LG Philips, machinery and shipping stocks in the spotlight. The KOSPI index was up 3.89 points or 0.23 pct at 1,661.80, off a low of 1,653.24 and a high of 1,666.95.

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Gold rises after weaker dollar prompts investment

LONDON - Gold rose as the dollar weakened against the euro, spurring demand by making the precious metal cheaper for those not trading in the US currency.
   
Weaker oil and base metals prices capped gains, however, with lower prices for other commodities dampening sentiment.
   
At 2.06 pm, spot gold was quoted at 660.20 usd per ounce against 655.50 usd in late New York trades on Friday. Prices dipped to as low as 654.50 usd yesterday in Asian trades amid thin trading as both the UK and the US enjoyed a bank holiday.
   
Gold's boost was "mostly, if not entirely, on the dollar's decline," said HSBC analyst James Steel. He added there was some "indications of improving physical demand with lower prices". The precious metal market also tends to become quieter as June approaches and the holiday season kicks off.
   
Steel noted weakness in crude oil markets, with both London and New York benchmarks down this afternoon, capped gains.
   
Base metals are at lower levels with copper prices down 8 pct since the start of May. Copper, which is the leader of the base metals board, is seen as a good barometer for commodity sentiment.
       
Traders will be watching data from the US this week to track the dollar's reaction before taking new positions in the precious metals sector. Economic data from the US today will show May Consumer confidence at 3.00 pm (BST) and the minutes of the last Fed meeting tomorrow.
   
However, the main focus will be on Thursday's US GDP reading, noted TheBullionDesk.Com analyst James Moore.
   
Friday's data includes Non-farm Payrolls, the ISM Index and the Consumer sentiment reading for May. Steel said 650 usd is seen as a key support level for gold in the short-term.
   
In other precious metals, silver was up at 13.06 usd per ounce against 12.95 usd on Friday, while platinum was down at 1,266 usd against 1,271 usd and palladium edged up to 368 usd against 365 usd.

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