Oil Drops 5%; Stocks Rise

123jump.com Staff
22 Aug, 2008
New York City

U.S. and European stocks rallied after a sharp drop in crude oil prices and a rebound in the dollar. Talks of possible interest in acquiring Lehman Brothers by Korea Development Bank lifted financials. European markets rallied more than 1.5%. UK market index rallied on a drop in oil price but the UK economic growth in the second quarter was flat or 1.4% form a year ago. The express delivery carrier, TNT surged on the speculation of talks with UPS.

4:30PM New York, 10:30PM Frankfurt, 6:30AM Sydney[R]– Crude oil dropped 5% and dollar edged higher. Precious and base metals fell on a rebound in oil.[/R]

Global Markets Update

U.S. stocks closed sharply higher as crude oil dropped as much as 5% and talks of an interest in acquiring Lehman Brothers by Korea Development Bank. European stocks rallied as well after reinsurance broker Aon agreed to pay 840 million pounds for Benfield Group of U.K.

Lehman ((LEH)) jumped after the news of a possible takeover by Reuters but several hurdles remain to acquire the broker. The broker is mired in interlocking derivative transaction, has a high leverage on the balance sheet and is reliant of lending from the Fed to run its day to day operations.

Second quarter economic growth in the UK was reported at a flat rate compared to the previous quarter and a rise of 1.4% from a year ago in the same quarter. The anemic growth surprised economists who were expecting a rise of between 0.1% and 0.2% from the first quarter of this year. UK has been battling a surge in inflation, falling exports and retail sales.

In European trading stocks traded higher. Benfield Group soared after Aon Corp, Dutch insurance broker proposed to take over the company at 844 million pounds. Transportation companies rallied on weaker oil. PSA Peugeot Citroen added 2% to 33 euros and Deutsche Lufthansa increased 2.1% to 14.10 euros.

TNT surged 8% to 26.55 euros on a media speculation that UPS and TNT may discuss possible combinations or a merger between two companies.

Rentokil Initial Plc fell 5% to 69.81 pence after it second quarter profit declined nearly 70% and offered gloomy outlook for the next several years. Arriva Plc, the rail road and bus operator first half profit surged 32% as people switch to public transportation.

North American Markets indexes

Dow Jones Industrial Average increased 197.85 or 1.73% to a close of 11,628.06, S&P 500 Index closed up 14.48 or 1.13% to 1,292.20, and Nasdaq Composite Index increased 34.33 or 1.44% to close at 2,414.71. In Toronto TSX Composite closed down 91.93 or 0.68% to 13,447.29.

Of the 30 stocks in Dow Jones Industrial Average 28 stocks gained, 2 declined and none was unchanged.

Chevron led decliners in Dow Jones Industrial Average with a loss of 0.47% followed by losses in Exxon Mobil Corporation of 0.06%

General Motors led gainers in the Dow Jones Industrial Average with a rise of 5.24% followed by increase in American Express of 4.81% and Bank of America of 4.03% and in JP Morgan Chase of 3.89%.

Of the stocks in S&P 500 index, 411 increased, 86 declined and 3 were unchanged. Of the index stocks, 86 rose more than 3% and 14 fell more than 3%.

Key Corp led the gainers in the S&P 500 index with a rise of 8.9% followed by gains in King Pharmaceuticals of 8.45%, in Huntington Banc of 7.8%, in XL Capital Ltd of 6.97%, in XL Capital Ltd of 6.97% and in Dillard’s Inc of 6.95%.

Freddie Mac led decliners in the S&P 500 index with a loss of 11% followed by losses in Cabot Oil & Gas of 6%, in Peabody Energy of 5.3%, in XTO Energy Inc of 5.1%, in US Steel Corp of 3.90%, in Apache Corp of 3.7% and in Chesapeake Energy of 3.5%.

South American Markets Indexes

Chile led gainers in the Latin American markets with a rise of 1.86% followed by increases in Mexico of 1.28% and in Argentina of 0.85%. Peru led decliners in the region with a loss of 1.2% followed by declines in Venezuela of 0.47% and in Colombia of 0.05%.

Europe Markets Review

In London FTSE 100 Index closed higher 135.40 or 2.52% to 5,505.60, in Paris CAC 40 Index increased 95.84 or 2.23% to close at 4,400.45 and in Frankfurt DAX index higher 105.46 or 1.69% to close at 6,342.42. In Zurich trading SMI increased 93.59 or 1.34% to close at 7,094.12.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 86.17 or 0.68% to 12,666.04, ASX 200 index in Australia increased 56.20 or 1.15% to close 4,931.40. The KL Composite index in Malaysia increased 14.17 or 1.32% closed to 1,085.60. Hong Kong was closed today.

The Kospi Index in South Korea decreased 15.68 or 1.04% to close at 1,496.91, SET index in Thailand closed higher 5.40 or 0.80% to 681.93 and JSE Index in Indonesia increased 32.24 or 1.54% to 2,120.49. The Sensex index in India increased 157.76 or 1.11% closed to 14,401.49.

Commodities, Metals, and Currencies

Crude oil decreased $6.59 to close at $114.59 a barrel for a front month contract, natural gas closed down 41 cents to $7.84 per mBtu and gasoline futures decreased 17.66 cents to close at 286.86 cents per gallon.

Gold decreased $0.66 in New York trading to close at $833.50 per ounce, silver closed down $0.31 cents to $13.59 per ounce and copper for the front month delivery decreased 7.90 cent to $3.45 per pound.

Wheat futures closed down 31.75 cents in Chicago trading and closed at $8.90 a bushel. Sugar increased 0.01 cent to 14.14 cents a pound. Soybean future closed down 21.00 cents to $13.27 a bushel.

Dollar edged higher and traded near record low against euro to $1.4792 and edged higher against yen to 110.08.

Yields on U.S. bonds increased to 3.87% with 10 years of maturities and unchanged to 4.47% with 30-year of maturities.