US & World Daily Markets Financial Briefing 29-06-2007

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New York - Stock prices opened mixed Thursday as investors awaited the Federal Reserve's decision on interest rates and remained on guard for comments policymakers might make about the economy.

Investors seemed unmoved as light, sweet crude hit $70 per barrel for the first time since August in early trading on the New York Mercantile Exchange.

Wall Street will likely remain skittish before the Fed announces its decision during the afternoon, especially after all three major indexes rallied in the previous session. Stocks have been turbulent during the past few weeks because of soaring bond yields and concern about the broader effect of faltering subprime loans.

The Fed -- widely expected to keep the benchmark rate steady at 5.25 percent after its two-day meeting ends -- has stated recently the economy is on track to recover from a weak first quarter despite difficulties in the housing market.

Investors want to get any clues on the pace of inflation, which central bankers have believe remains a paramount concern.

In the first few minutes of trading, the Dow Jones industrial average fell 19.35, or 0.14 percent, to 13,408.38.

Broader stock indicators were mixed. The Standard & Poor's 500 index slipped 0.99, or 0.07 percent, to 1,505.35, and the Nasdaq composite index rose 0.09, or less than 0.01 percent, to 2,605.44.

US finance regulators issue new guidance on reducing loan repayment risks

WASHINGTON (Thomson Financial) - US finance regulators say lending institutions need to do more to ensure borrowers take out only those loans they can afford to repay, and warned that failure to rein in certain practices
increases the risk that lenders will be found in violation of US law.

Five government regulators today issued final guidance aimed at addressing the "payment shock" that many borrowers are already facing with adjustable-rate mortgages (ARMs).

The five government regulators said lending institutions "should ensure" that they do not engage in predatory lending. The guidance defines predatory lending as involving making loans based on the liquidation value of collateral
rather than ability to repay the loan, inducing borrowers to refinance loans for a high fee, concealing the terms of the loan from unsuspecting borrowers, or any combination of these practices.

"Institutions offering mortgage loans such as these face an elevated risk that their conduct will violate Section 5 of the Federal Trade Commission Act (FCT Act), which prohibits unfair or deceptive acts or practices," today's
guidance said.

"The Agencies will take action against institutions that exhibit predatory lending practices, violate consumer protection laws or unfair lending laws, engage in unfair or deceptive acts or practices, or otherwise engage in unsafe or unsound lending practices," it added.

The guidance also said institutions should refer to real estate guidelines that require lenders to assess the ability of a borrower to repay a loan.

It added that lenders should work with borrowers who are in default or at risk of default. "The Agencies will not criticize financial institutions that pursue reasonable workout arrangements with borrowers," it said.

The guidance said promotional material needs to fully inform consumers about the risks associated with certain loans, and said advertisements should not steer consumers only to riskier products. Consumers need to be informed of the
risk of increased loan payments, prepayment penalties, balloon payments, costs for loans granted with fewer qualifying documents, and tax and insurance costs.

Finally, the guidance said lenders should develop control systems to monitor whether their lending practices follow these guidelines.

The guidance was issued by the Treasury Department's Office of the Comptroller of the Currency and Office of Thrift Supervision, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, and the National Credit Union Administration.

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Euro rises after firm euro zone data; dollar down ahead of US data

The euro rose after firm data from the single currency zone reinforced expectations that the European Central Bank may lift orrowing costs at least twice more this year.

The European Commission said its euro zone economic sentiment indicator for June eased to 111.7 from 112.1 in May, above forecasts for a bigger fall to 111.5.

The business climate indicator meanwhile rose to 1.54 in June from 1.52 in May, confounding forecasts of a fall to 1.45, although the consumer confidence indicator unexpectedly deteriorated slightly to -2 from -1.

Euro zone interest rates currently stand at 4.00 pct, with another quarter point rise to 4.25 pct broadly expected by September.

The euro also remained supported by strong consumer confidence figures from France, offsetting weak retail sales data from Germany.

Elsewhere, the pound was slightly firmer against the dollar, after strong housing mortgage and money supply data fuelled speculation that the Bank of England will hike its key repo rate next week, and possibly again beyond that.

The BoE said its preferred M4 money supply measure rose by a final monthly rate of 1.2 pct in May, with the annual growth accelerating to 13.9 pct from 13.8 pct in the preliminary estimate, and from 13.3 pct in April. Analysts were ot expecting any revisions.

The central bank also announced mortgage approvals in May rose, having softened after the last few months, despite a slowdown in net mortgage lending for the third month running to its lowest level since February 2006.

Vicky Redwood, UK economist at Capital Economics said the rebound in approvals suggests "that higher interest rates are not having quite as big an effect on housing demand as had previously appeared."

She added that this data, combined with the narrowing in the current account deficit "suggest that one more interest rate rise might not be enough to cool economic activity".

Meanwhile, the dollar was slightly weaker ahead of the release of income, spending and construction data, as well as the Chicago PMI and Michigan sentiment readings in the US.

The Federal Reserve yesterday left interest rates on hold as expected, but highlighted inflation risks.

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Leading European exchanges turned lower in midday trade in the absence of major companies news and amid M&A chatter in the hemicals sector, while declining US futures weighed on sentiments.

At 12.11 pm, the STOXX 50 fell 18.98 points or 0.48 pct to 3,903.50, as the STOXX 600 lost 1.93 points or 0.49 pct to 389.67.

Looking ahead, Wall Street is set for a slightly lower opening as investors digest the Federal Reserve's latest move and take positions ahead of a report on consumer spending.

According to spread bettors IG Index, the Dow Jones Industrial Average is expected to open around 40 points lower at around 13,382.

Back in Europe, leading indices turned lower midday as US futures fell.

M&A chatter kept dealers interested today with BASF and Linde gaining amid rumours the two chemical companies are mulling a merger. Traders noted that such a deal would probably encounter problems with regulatory authorities.

Shares in BASF gained 1.16 pct, while those of Linde rose 1.75 pct higher.

Staying in the chemicals sector, Lanxess AG shares added 2.38 pct as the chemicals company said it is planning to shift its Lustran Polymers business unit into a global joint venture with British chemical group Ineos and will fully withdraw from this line of business in around two years. Shares were 1.48 pct higher, Bayer added 0.4 pct.

Meanwhile, in the consulting sector, in Cap Gemini extended yesterday's gain, up 0.96 pct, after peer Accenture presented solid third quarter results last night, and on the back of rumours emerging yesterday afternoon that India's Infosys may be mulling a bid.

In the aviation industry, Alitalia SpA rose 1.54 pct following reports that Air France-KLM might be considering rekindling its interest in the ailing Italian airline.

Staying in Italy, Banca Italease SpA rebounded today, up 1.80 pct, after heavy losses in the past months, with investors awaiting updates regarding its derivative exposure and actions it will take to tackle the problem, including a possible recapitalisation.

In the banking sector, ING Group was fluctuating today as rumours emerged that it may be bulkling a bid for Societe Generale.

ING stock rose 0.22 pct at last check, while SG declined 0.60 pct.

On companies news, Volkswagen gained momentum in morning trade after reports that its joint venture with China's FAW Group may boost profit by at least 25 pct this year.

Shares in the German automaker were 0.73 pct higher.

Over in the Dutch market, Draka Holdings NV surged 8.21 pct after the cable engineering company said it expects operating result and net profit to double in the first half year.

In terms of broker action, Yara International ASA rose 1.25 pct, reversing recent losses, after the stock received a boost from two bullish broker reports ahead of the chemicals group's second quarter results next month, dealers said.

Swatch Group added 1.40 pct -- off intraday highs-- on the back of a Deutsche Bank upgrade to 'buy' from 'hold', with the broker citing strong trends in the watch and production units.

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Asian shares were mixed in early trade Thursday.

Tokyo shares ended the morning session higher, while Seoul opened higher and Manila was higher midsession, amid signs of window dressing activity ahead of the end of the first half.

Kuala Lumpur and Singapore shares rose on bargain-hunting.

Australian shares were flat to lower in early trade, with weakness in banks offsetting gains in the resources sector while
Wesfarmers advanced as investors grew confident it will win control of Australia's second-largest retailer Coles Group.

Hong Kong opened higher on hopes for expanded business ties between HK and the mainland, as HK prepares to mark the 10th anniversary of its return to Chinese rule on July 1, but fell later.

Indonesian share prices opened mixed, with investors cautious before the release Monday of the consumer price inflation data for this month.

A-shares in Shanghai and Shenzhen were sharply lower in early trade on continuing liquidity fears after the government approved the issuance of special bonds, and amid expectations it will announce a cut or cancellation of tax on interest income this weekend.

Japanese government bond prices ended the morning session mostly higher as buyers were tempted back into the market after nationwide consumer price data came in as expected.

Earlier the government said Japan CPI for May fell 0.1 pct, exactly as economists had predicted. "The market view that the Bank of Japan is expected to raise its (benchmark) interest rate in August has not changed," Akitsugu Tamada, senior strategist at Okasan Securities said.

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Gold stayed higher in afternoon trade, as strength in other commodities, particularly crude oil, continued to enhance the ttractiveness of the complex as a whole.

Strong gains in crude are also increasing the appeal of the precious metal as a hedge against inflation, analysts said.

At 1.43 pm in London, spot gold was trading at 649.30 usd per ounce against 647.90 usd in late New York trade yesterday.

Gold rose this morning in line with other commodities, especially crude oil and copper.

WTI crude broke through the 70 usd barrier last night for the first time since September last year, and has extended gains this morning on fears improving US refinery runs could start to pressure crude stockpiles.

Gains are further underpinned by a rise in interest from physical gold buyers, who have returned to the market since prices subsided from the intraday highs of 693.95 usd that the metal hit earlier in the year, analysts said.

Looking forward, gold is expected to hang onto gains after its recent decline in prices, with the overall outlook for commodities generally positive.

Elsewhere, broker Evolution Securities this morning upgraded its price forecasts for gold, saying it expects increased demand from India and China, weakness in the US dollar, geopoliticial risk and Central Bank diversification all to support the precious metal.

The broker said it now sees gold prices reaching 668 usd per ounce in 2007, against previous forecasts of 650 usd, then 700 usd per ounce in 2008, against 650 usd, and 650 usd in 2009, against 500 usd.

Silver meanwhile edged up to 12.46 usd against 12.41 usd in late New York trade yesterday.

Among other metals, platinum dipped to 1,273 usd from 1,275 usd yesterday, while its sister metal palladium was trading at 362 usd against 364 usd.

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