Subprime Sector Draws Attention

Elena
18 Jun, 2007
New York City

Stock market averages turned in a lackluster performance in late morning trading, unable to sustain the earlier gains made on the heels of merger-and-acquisition new. Market failed to extend last-week rally, despite a report that BHP Billiton is planning a bid for Alcoa. Shares of the aluminum giant rose 2.5%. Worries about the subprime sector reignited on news that a group of hedge fund managers at Bear Stearns try to line up new investors to keep a fund invested in subprime assets afloat.

[R]11:30AM U.S. market averages turned flat, hurt by worries about mortgage markets.[/R]

Stock market averages turned in a lackluster performance in late morning trading, unable to sustain the earlier gains made on the heels of merger-and-acquisition new. Market failed to extend last-week rally, despite a report that BHP Billiton is planning a bid for Alcoa. Shares of the aluminum giant rose 2.5%.

Worries about the subprime sector reignited on news that a group of hedge fund managers at Bear Stearns try to line up new investors to keep a fund invested in subprime assets afloat. According to a report Merrill Lynch & Co. ((MER)) had taken control of $400 million of loan assets underlying a troubled hedge fund at Bear Stearns Cos. Inc. ((BSC)) that was heavily invested in subprime loans. Shares of Bear Stearns slipped 1.3%.

Among individual stocks, Lee Enterprises ((LEE)), newspaper publisher, slipped 95 after the company projected lower-than-expected Q3 earnings. Shares of CyberSource ((CYBS)), electronic payment company, dropped 75 after it agreed to acquire Authorize.Net ((ANET)) for $565 million in cash and stock. On the positive side, Genesco ((GCO)) climbed 8.2% after the retailer agreed to be acquired by Finish Line ((FINL)) for $1.5 billion in cash.

The Dow Jones industrial average was down 10.16 points, or 0.07%, at 13,629.32. The Standard & Poor's 500 was down 0.66 points, or 0.04%, at 1,532.25. The Nasdaq Composite Index was down 2.09 points, or 0.08%, at 2,624.62. U.S. Treasury yields moved higher, providing another worry for the market. The yield on the benchmark 10-year Treasury note rose to 5.18%.


[R]9:45AM U.S. stocks opened higher, boosted by Alcoa.[/R]

U.S. stock market advanced at opening Monday, trying to extend last-week rally on the back of deal-making news. Dow component Alcoa ((AA)) gained 2% after a report said that BHP Billiton was considering a $40 billion acquisition bid of the aluminum producer.

Boeing ((BA)) also drew attention as the Paris Air Show began and the airline carrier signed two small contracts. The stock lost 0.3%. General Electric ((GE)) and Pearson are reportedly planning to launch a joint $5 billion bid for Dow Jones & Co. ((DJ)), which would rival a $5 billion offer made by News Corp. ((NWS)). Shares of Dow Jones rose 0.6%.

Further in deal action, Nymex Holding ((NMX)) declined 2.3% after the Chicago Mercantile Holdings ((CME)) said it is not in talks to buy the commodities exchange. On the economic news front, the National Association of Homebuilders is scheduled to release its housing index for June.

In the first hour of trading, the Dow rose 14.72, or 0.11%, to 13,654.20. The Standard & Poor''s 500 index was up 1.01, or 0.07%, at 1,533.92, and the Nasdaq composite index added 1.75, or 0.07%, to 2,628.46.


[R]9:00AM U.S. stock futures predict higher opening, helped by deal speculation.[/R]

U.S. stock futures posted modest gains on Monday, supported by deal speculation involving aluminum producer Alcoa. Investors were also awaiting signals of whether market will continue to recover and bond yields will remain in check. With little other economic news due out at the beginning of the week, data on the U.S. housing market is expected Monday afternoon.

Alcoa ((AA)) shares rose 2.4% in pre-market trading amid reports that BHP Billiton is reviewing plans to buy the aluminum producer. Among other companies in focus, British Imperial Chemical Industries ((ICI)) rejected $14.2 billion offer from Akzo Nobel.

Further in M&A action, Finish Line ((FINL)) announced an agreement to buy Genesco ((GCO)) for $1.5 billion, which is a 10% premium to Genesco''s closing price on Friday. Genesco shares jumped 9%.

S&P 500 futures rose 2.4 points at 1,550.10 while Nasdaq 100 futures edged 0.75 of a point lower at 1,969.00. Dow industrial futures rose 28 points. Bonds rose, with the yield on the benchmark 10-year Treasury note fell to 5.14% from 5.16% late Friday.


[R]7:30AM NY-6:30PM Mumbai Sensex dips 83 points in a highly volatile trade.[/R]

The Sensex on BSE finished Monday 82.57 points, or 0.58%, lower at 14,080.14.

The market-breadth was weak. As 1,126 stocks advanced, 1,411 declined and only 61 stocks remained unchanged. Of the 30 stocks in the Sensex, only seven advanced, while all the others declined. The turnover on BSE was Rs 3,676 crore, signaling buying at the primary market. The turnover on BSE on Friday was Rs 4,229 crore. On NSE, the turnover was Rs 7,064 crore, lower than Rs 8,675 crore on Friday.

Economic news

The rupee gained 0.4% to 40.7125 against the dollar today. Meanwhile, India''s 10-year bonds gained for a third straight day after the government stated that there were fewer debt sales this week than last. The yield on the 7.49% bond due April 2017 shed 8 basis points, or 0.08%, to 8.20% as of to date.

The Central Board of Direct Taxes, or CBDT, announced its latest circular on Friday, 15 June 2007, after trading hours. The circular failed to clarify any further the tax on profit/gain coming from sale of shares.

Trading highlights

Time Technoplast was the most-active stock with a turnover of Rs 217 crore followed by Nestle and Reliance Industries.

Advancers

ICICI Bank led the few gainers on hopes that its plan to sell stock at a premium to the current share price will focus attention. ICICI announced on June 16 it intends to sell shares for Rs 885 to Rs 950 in the biggest Indian IPO, which opens for subscription on Tuesday, June 19 2007.

State run oil large-cap ONGC advanced 0.7% to Rs 890. The overseas exploration unit of the company, ONGC Videsh, received last week the Cabinet approval to buy a 33% stake in a deep-water gas field in Egypt from Royal Dutch Shell.

Hindalco Industries advanced 0.5% to Rs 162. The aluminium and copper large-cap has proposed to set up a new extrusion press at an investment of Rs 50 crore.

Decliners

Ranbaxy and Hero Honda led the decliners down nearly 4% each to Rs 359 and Rs 654, respectively. Hero Honda has been dropping since reports that it has reduced production on diminished demand as interest rates soared to five-year-high. Tata Steel dropped nearly 2% to Rs 589.

IT stocks declined on a further appreciation of the rupee against the dollar, as these stocks are export-oriented and deal in dollars. Satyam Computers lost 1.2% to Rs 477, Infosys declined 1% to Rs 1989, Wipro lost 1.4% to Rs 523 and TCS dipped 1.5% to Rs 1,167.

Index heavy Reliance Industries shed 0.5% to Rs 1,671. Reportedly, global oil companies including Shell, Exxon and Chevron are considering buying a stake in Reliance Industries’ overseas oil & gas assets.


[R]6:30AM European stocks edge higher in early trading Monday with bid talk in focus.[/R]

European markets were slightly higher by mid-day Monday. The FTSE 100 was steady at 6,733.70, the German DAX 30 rose 0.6% to 8,075.19 and the French CAC 40 rose 0.1% to 6,109.01.

Advancers

BHP Billiton gained 0.8%. The biggest miner in the world advanced, as it has reportedly revived plans for a $40 billion takeover of Alcoa. EADS added 1.5% amid reports that its Airbus unit is on the verge of winning two big orders, a US Airways order for 30 A350s and an Emirates order for 10 A380s.

Decliners

Akzo Nobel shed 1.3% in Holland after its 7.2-billion-pound approach for ICI was rejected. Pearson edged 1.1% lower after a report that it and General Electric are considering a joint offer for Dow Jones the owner of the Journal as well as MarketWatch.

Siemens, largest maker of equipment to make electricity in Germany, slid 1.2% and Telefonica, biggest telephone company in Spain, dropped 1.3%.

Commodities

Crude oil fell from a nine-month high in New York amid some signs violence in Nigeria will ease, allowing the country to restore some lost production. Crude oil for July delivery fell as much as 35 cents to $67.65 a barrel in after-hours electronic trading on the New York Mercantile Exchange. Brent crude oil for August settlement fell 40 cents to $71.07 a barrel on the ICE Futures exchange in London.

Gold for immediate delivery gained as much as $1.91, or 0.3%, to $657.25 an ounce. Silver for immediate delivery rose 6 cents, or 0.4%, to $13.29 an ounce. Copper for delivery in three months on the LME gained $90, or 1.2%, to $7,590 a metric ton.

Platinum gained the most in two weeks after Anglo Platinum of South Africa, the world biggest producer, stopped production at its largest mine following the deaths of five workers in the past two weeks.. Platinum for immediate delivery gained $12, or 0.9%, to $1,294 an ounce. Palladium also advanced $1.50 to $371 an ounce.

Currencies

The U.S. dollar was mostly lower against other major currencies in European trading Monday morning. The euro traded at $1.3406, up from $1.3378 late Friday in New York. The British pound traded at $1.9826, up from $1.9751. The dollar bought 123.40 Japanese yen, down from 123.46.


[R]5:30AM Gold climbs Friday on tamer U.S. inflation, crude oil rallies.[/R]

Gold for August delivery rose $2.70 to settle at $658.70 an ounce on the New York Mercantile Exchange. August silver rose 9.5 cents to finish at $13.32 an ounce.

Industrial metals climbed. Copper advanced 0.6% on the London Metal Exchange, and zinc, aluminum and nickel gained modestly as well. On the Nymex, July copper futures rose 2.5 cents to $3.4175 a pound, boosted by Xstrata pause on copper shipments from a Montreal refinery, and labor unrest in Latin America.

In the energy markets, crude oil and gasoline prices continued their rally over tight U.S. gasoline supplies. Crude oil futures for July delivery rose 35 cents to settle at $68.00 a barrel on the Nymex, its highest finish since September. July gasoline futures advanced 3.54 cents to end at $2.2601 a gallon.

Dryness in the eastern Corn Belt, along with ethanol demand, kept corn above $4 a bushel. On the CBOT, July corn gained 9.50 cents to end at $4.19 a bushel, and soybeans added 19.5 cents to finish at $8.4725 a bushel.