Short Sales Curbed, S&P, Nasdaq Surge 4.8%

123jump.com Staff
18 Sep, 2008
New York City

U.S. stocks surged on the optimisim that regulators will pump new capital in capital markets and devise plans to prop up faltering financial stocks. U.S. regulators demand disclosure of short sellers activities and three largest pension funds in the country will not lend stocks for short sale. Financial stocks surged with Wachovia Bank rallying 50%, led the gainers in S&P 500 index stocks. Of the index stocks, 55 soared 10%, 275 gained more than 3%. Brazil soared 6.5%.

4:30PM New York, 10:30AM Frankfurt, 6:30AM Sydney[R]– The U.S. benchmark indexes after a roller coaster ride surged in the afternoon. The talks of government plans to pump more money in capital markets and ban on financial companies short sales boosted confidence.[/R]

Global Markets

Six central banks in a coordinated move increased dollar supply in global credit markets as interbank lending comes to a grinding halt in the wake of AIG fall. The Fed led move in conjunction with central banks in Canada, Japan, UK, Europe and Switzerland will make available as much as $247 billion of liquidity. The move, though welcome by banks around the world is not likely to calm nervous investors. Separately in the UK, Lloyds TSB will acquire HBOS for 12 billion pounds.

The Bank of England added liquidity in the short term dollar loan market. The coordinated move led by the U.S. Federal Reserve Bank will facilitate lending between banks which has dried up since the fall of AIG and Lehman Brothers. UK also banned short sale of financial stocks to prop up banks and brokerage houses. Lloyds TSB agreed to acquire HBOS plc for 12.2 billion pounds after the lender stock nearly falls 40% this week.

Short sellers were under attack from regulators, companies and lawmakers as they all try to prop up financial stocks. Three largest pension fund managers, California Public Employees’ Retirement System, New York State Common Retirement Fund and California State Teachers’ Retirement System decided to stop lending stocks to short sellers. The move appears to be done after prodding from Democratic lawmakers and brokerage companies executives complain against the practice.

John Mack, chief executive of Morgan Stanley said short sellers may be the source of false information. However, Morgan Stanley and other brokerage firms lend stock to hedge funds from their book of stocks they hold for their clients. Morgan Stanley, Goldman Sachs, Merrill Lynch, Smith Barney and other brokerage houses paid more than $400 million of fines in publishing research reports that pumped internet and telecom stocks during the dot com bubble and continues to derive substantial profits from prime brokerage services to hedge funds.

SEC Chairman Christopher Cox said the funds managing more than $100 million will be required to disclose their short holding in public filing. UK regulatory arm Financial Services Agency banned short sales of financial stocks for the rest of the year.

Stocks in Hong Kong trading plunged 7.7% before recovering in the afternoon after six largest central banks added liquidity in the credit market to tune of $188 billion. Fearful investors sold stocks in banking sector after the U.S. market indexes lost more than 4% in the overnight trading. The Hong Kong benchmark index recovered in the afternoon to close nearly unchanged. But nervousness still persists in the market and Shanghai closed 1.7% lower.

Stocks in Mumbai edged higher after banks rebounded. Central banks in six countries in a coordinated move added $180 billion in new liquidity to international credit markets, led by the U.S. Federal Reserve Bank. HDFC, State Bank of India and Kotak Mahindra closed higher. The wholesale price index increased 12.14% for the latest period ending in the first week in September.

North American Markets

Dow Jones Industrial Average increased 408.41 or 3.85% to a close of 11,018.07, S&P 500 Index closed up 48.25 or 4.17% to 1,204.64, and Nasdaq Composite Index increased 100.25 or 4.78% to close at 2,199.10. In Toronto TSX Composite closed up 324.28 or 2.73% to 12,201.97.

Of the 30 stocks in Dow Jones Industrial Average all closed higher.

AIG led gainers in Dow Jones Industrial Average with a rise of 20.5% followed by increases in Citigroup Inc of 17.7%, in General Motors of 13.80%, in Bank of America of 13.3% and in American Express of 12%.

Of the stocks in S&P 500 index, 440 increased, 58 declined and one was unchanged. Of the index stocks, 55 stocks rose more than 10%, 275 rose more than 3% and 16 fell more than 3%.

Wachovia Corp led the gainers in the S&P 500 index with a rise of 50% followed by gains in WaMu Inc of 36%, in MGIC Investment Corp of 30.5%, in American Capital of 29.9%, in National City Corp of 27.9% and in Huntington Banc of 26.9%.

State Street led decliners in the S&P 500 index with a plunge of 18% followed by losses in Federated Investors Inc of 11%, in Newmont Mining of 8.8%, in Legg Mason of 6.9%, in NetApp Inc of 6.3%, in Genworth Financial of 4.9% and in Ashland Inc of 4.6%.

South American Markets Indexes

Brazil led gainers in the region with a rise of 6.49% followed by increases in Mexico of 4.78%, in Argentina of 1.08% and in Colombia of 0.03%.

Peru led decliners in the region with a loss of 2.85% followed by losses in Chile of 2.57% and in Venezuela of 0.35%.

Europe Markets Review

In London FTSE 100 Index closed lower 32.40 or 0.66% to 4,880.00, in Paris CAC 40 Index decreased 42.25 or 1.06% to close at 3,957.86 and in Frankfurt DAX index higher 2.44 or 0.04% to close at 5,863.42. In Zurich trading SMI decreased 31.08 or 0.47% to close at 6,623.25.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 260.49 or 2.22% to 11,489.30, Hang Seng index in Hong Kong decreased 4.73 or 0.03% closed to 17,632.46. CSI 300 index in China lower 33.14 or 1.72% closed to 1895.99. ASX 200 index in Australia decreased 114.90 or 2.43% to close 4,607.30. The KL Composite index in Malaysia lower 11.33 or 1.13% closed to 991.66.

The Kospi Index in South Korea decreased 32.84 or 2.30% to close at 1,392.42, SET index in Thailand closed lower 4.76 or 0.79% to 600.38 and JSE Index in Indonesia increased 17.78 or 1.00% to 1,787.67. The Sensex index in India increased 52.70 or 0.40% closed to 13,315.60.

Commodities, Metals, and Currencies

Crude oil increased $0.77 to close at $97.93 a barrel for a front month contract, natural gas decreased 32 cent to $7.59 per mBtu and gasoline futures increased 3.44 cents to close at 249.74 cents per gallon.

Gold increased $14.60 in New York trading to close at $865.10 per ounce, silver closed up $0.58 cents to $12.26 per ounce and copper for the front month delivery increased 2.30 cent to $3.06 per pound.

Wheat futures closed down 33 cents in Chicago trading and closed at $6.92 a bushel. Sugar decreased 0.47 cent to 13.46 cents a pound. Soybean future closed down 23 cents to $11.16 a bushel.

Dollar edged lower against euro to $1.4305 and edged higher against yen to 105.68.

Yields on 10-year U.S. bonds increased to 3.53% and increased to 4.16% with 30-year of maturities.