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World Daily Markets Bulletin

Daily world financial news from Thomson Financial News

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US Stocks at a Glance

U.S. Stocks Mixed As Madoff Losses Hit Home

U.S. stocks sputtered in mixed trade at Monday's start, with energy shares climbing along with the price of crude and the financial sector weighed as firms detailed their exposure to the alleged $50 billion fraud by Bernard Madoff.

The Dow Jones Industrial Average (DJI) gained 9.8 points to 8,639.48. The S&P 500 (SPX) gained 1.04 points to 880.77, while the Nasdaq Composite (RIXF) shed 3.83 points to 1,536.89.

The economic calendar for Monday included the December Empire State Index, with the gauge of manufacturing activity in the New York region contracting at a record pace in November.

In a separate report, the Federal Reserve said output of the nation's factories, mines and utilities declined 0.6% in November on broad-based weakness across manufacturing industries. .

Investors will also be looking ahead to Tuesday's Federal Reserve interest-rate decision, where rates are expected to come down half a point to 0.5%. .

"The FOMC meeting should be overshadowed this week by earnings from Goldman Sachs (GS) on Tuesday and Morgan Stanley (MS) on Thursday," said Marc Pado, U.S. strategist at Cantor Fitzgerald.

Crude-oil futures rose before a meeting of the Organization of Petroleum Exporting Countries later in the week, where production is expected to be cut again. Light crude for January delivery climbed $2.29 to $48.57 a barrel in early trade on the New York Mercantile Exchange. .

The dollar fell sharply against other major currencies, with the dollar index (DXY) down 0.8% to 82.44. "The uncertainty surrounding the fate of the U.S. auto industry, coupled with the market's expectation of an imminent Fed rate cut on Tuesday, pressured the dollar to start the week in a distresses state," said Rebecca Lia, a currencies analyst with Wachovia Corp.

The Wall Street Journal reported Monday that the Bush administration is sizing up what terms to seek from the auto industry in return for a bailout, including whether to push the companies to file for liquidation.

The administration is discussing a rescue totaling $10 billion to $40 billion or more, the Journal reported. Shares in General Motors Corp. (GM) and Ford Motor Co. (F) both rose in early trade.

As more details of the alleged fraud by former Nasdaq Chairman Bernard Madoff emerged, Banco Santander (STD) said its customers had an exposure of around $3.1 billion though its Optimal asset-management business, while Japan's Nomura (NMR) has an exposure of around $302 million.

Former Dow component Honeywell International Inc. (HON) shares 9.3% after the industrial company reaffirmed its full-year guidance. Late Sunday Huntsman Corp. (HUN) ended its agreement to be acquired by Hexion Specialty Chemicals Inc. and reached a settlement over litigation. Huntsman said it is due payments totaling $1 billion.

In international markets, Japan's Nikkei 225 rose 5.3% and the French CAC 40 index added 0.3%.


Forex

FOREX-Dollar hits 2-mth low vs euro; US bailout, Fed eyed

LONDON - The dollar hit a two-month low against the euro and a basket of currencies on Monday, as investors shunned the U.S. unit on uncertainty surrounding the fate of its ailing automakers and the possible economic impact.

The dollar was starting to respond negatively to concerns about further weakness in the U.S. economy, after an ongoing run of weak data had boosted the currency due to an exodus from risky positions. "The tide seems to have turned around in recent sessions, with bad U.S. economic news now hurting the dollar rather than helping it," said UBS analysts in a research note.

By 1223 GMT, the euro was up 1.0 percent at an eight-week high of $1.3508, according to electronic platform EBS. The dollar also hit a two-month low against a basket of currencies at 82.897. Analysts said the dollar was also suffering as investor demand to dump risky positions and repatriate those funds back into the U.S. currency have started to dry up. Deleveraging trades have also started to calm as currency markets show some sign of stabilising, they added.

The yen fell slightly against the dollar to 90.65 yen, after hitting 13-year highs of 88.10 yen on Friday. Yen gains were capped on speculation that Japanese authorities could intervene to curb further rapid appreciation. Sterling was supported against the broadly weak dollar, although ongoing concerns about the rapid deterioration of the UK economy helped to push the pound to a record low of 90.22 pence against the euro, according to Reuters data.

Investors also awaited the outcome of a policy meeting by the Federal Reserve on Tuesday to see how close to zero the U.S. central bank will cut interest rates and indicate whether it will aggressively deploy quantitative easing measures to shelter the economy from a downturn.

The Fed is widely expected to cut rates by 50 basis points or more from 1 percent. With interest rates rapidly approaching zero, the Fed may also indicate more steps to provide liquidity into the market to help support the economy through a recession.

Investors fear a failure of any of the automakers would exacerbate a year-long recession and drag other companies under. A 0.3 percent rise in European shares and rallying Asian shares eased extreme risk aversion, prompting demand for higher-yielding currencies. The Australian dollar rose 0.3 percent and New Zealand dollar was up 1.2 percent.

Market reaction was limited to the Bank of Japan's quarterly tankan survey showing corporate sentiment deteriorated sharply. The headline index for big manufacturers' sentiment fell to a nearly seven-year low of minus 24, down from minus 3 in the previous survey in September.



Oils lead Europe shares up at midday; banks fall

LONDON - European shares rose at midday on Monday, with oils gaining as crude rose on expectations of an OPEC production cut, more than offsetting banks that fell on worries about the sector's exposure to an alleged fraud.

At 1142 GMT, the FTSEurofirst 300 index of top European shares was up 0.8 percent at 836.05 points after rising as high as 843.89. The benchmark has lost more than 44 percent in 2008.

Oil prices rose more than 5 percent to $48.60 a barrel with OPEC Secretary General Abdullah al-Badri saying he expected a "very sizeable reduction" at this week's meeting in Algeria and that the market was oversupplied by about 100 million barrels.

Further, Fed fund futures pointed to a 76 percent probability of a 75-basis point U.S. Federal Reserve rate cut on Tuesday following a two-day meeting.

However, Irish banks were some of the biggest gainers in the index, as a pledge from the country's government to bolster their capital with an injection of up to 10 billion euros ($13.47 billion) was welcomed by investors.

Asia Markets

Tokyo Sizzles, Ignoring Bad News; Karachi Drops

Most Asian markets ended higher Monday, spurred by hopes for a steep U.S. interest rate cut and after the Bush administration said it would step in to prevent a failure of U.S. automakers.

Japanese stocks led the charge, recovering most of the ground that they lost Friday, as investors brushed aside bad news, including a survey that showed a plunge in business confidence, Nomura Holdings' $302 million exposure to an investment firm run by Bernard Madoff and a report Toyota Motor Corp. could cut its earnings forecast.

"I think this is only a seasonal rally. The fundamentals can change overnight," said Dale Tsang, managing director at Imperial Dragon Asset Management Co. "One may not see the kind of panic-selling we saw earlier, but there will be continued selling over a long period of time," he added.


The Nikkei 225 Average finished 5.2% higher at 8,664.66, after dropping 5.6% Friday, while the broader Topix index gained 4.1% to 846.93.

The advance ignored Bank of Japan's tankan survey, which showed business sentiment dropped sharply, with the headline diffusion index for large manufacturers deteriorating at its fastest pace since August 1974, falling 21 points to minus 24. The reading was the worst in nearly seven years.


China's Shanghai Composite rose 0.4% to 1,962.60. Peter Pak, vice president at BOCI Research, said expectations that the U.S. government will find "an alternative plan to save the Big Three" automakers and that the Federal Reserve may cut interest rates by at least a half-point later this week contributed to the buoyancy in the markets.

"Investors are anticipating stimulus measures from China before the Chinese New Year [in January]. The expectation is that the government may revise taxes to increase disposable incomes and also raise infrastructure spending," said Pak.

Taiwan's Taiex ended 3% up at 4,613.72 and Singapore's Straits Times Index gained 2% to 1,774.76, while India's Sensitive Index, or Sensex, added 1.3% to 9,815.23 by late afternoon.

Australia's S&P/ASX 200 rose 2.3% to 3,591.40 and South Korea's Kospi jumped 4.9% to 1,158.19, while New Zealand's NZX 50 index ended little changed at 2,676.43.


Commodities

PRECIOUS-Gold rises on weaker dollar, equity rally

LONDON - Gold climbed in Europe on Monday as the dollar weakened against the euro and the yen, boosting interest in the metal as a currency hedge, and gains in equities and other commodities fuelled buying appetite.

Spot gold was quoted at $826.90/828.90 an ounce at 0950 GMT, against $819.90 an ounce in New York late on Friday. Traders are looking ahead to a decision on U.S. interest rates on Tuesday, after the Federal Open Market Committee's two-day policy meeting.

A cut in rates is likely to have a significant impact on the foreign exchange market, and consequently on gold. "We have the Fed interest rate decision this week... which should be the last big event of the year," said Afshin Nabavi, head of trading at MKS Finance in Geneva.

"Everyone is banking on a lower interest rate in the U.S. If the dollar continues to lose value, of course it will benefit gold."

Gold was reacting to a move higher in the euro versus the dollar, with selling of physical gold stocks in the Far East and technical resistance keeping a lid on gains, he said.

Gold tends to track the euro/dollar exchange rate closely, as it is often bought as an alternative investment to the U.S. currency and tends to move in the opposite direction to it. The dollar slipped against both the yen and the euro, striking a two-month low against the single currency as traders weighed comments from European Central Bank officials suggesting rate cuts may not be imminent.

Interest rate differentials between the United States and the euro zone are likely to widen, dealers said. The Federal Reserve is widely seen cutting rates by at least 50 basis points on Tuesday.

Equity markets are also rallying, demonstrating a sharper appetite for risk that is also buoying commodities. Asian stocks climbed nearly 4 percent on hopes the U.S. car industry will be bailed out. European shares rose at the open.

Firm buying interest also trickled into other markets, with commodities such as oil and industrial metals posting strong gains in Asian trade. Oil rose more than $1 a barrel on expectations of a deep OPEC supply cut.

Among other precious metals, spot silver tracked gold higher to $10.36/10.44 an ounce, against $10.23 in New York late on Friday.