13/09/07

Treasury Secretary Henry Paulson said Wednesday that the recent market turbulence has not been caused by problems in the real economy but because of bad lending practices. He also said that problems with subprime mortgages will take longer to correct than those in other financial markets because of the impact of so many adjustable rate mortgages being reset to higher levels over the next two years.

Crude oil surged after the government's weekly report showed a surprise drop in crude oil inventories. US light crude oil for October delivery rose $1.68 to settle at $79.91 a barrel on NYMEX, briefly hitting an all time trading high of $80.05 a barrel. However, the record price is still below inflation adjusted highs hit in the early 1980s, which would be equivalent to at least $95 a barrel today. Oil prices have risen about 30 percent in 2007.

Treasury prices fell, raising the yield on the 10 year note to 4.41 percent from 4.37 percent late Tuesday.

In currency trading, the dollar fell to a record low versus the euro and was little changed against the yen. COMEX gold for December delivery fell 40 cents to close at $720.70 an ounce.

Texas Instruments closed 60 cents lower at $35.12. The company narrowed its earnings and revenue forecast to a range that is roughly in line with analysts estimates. However, the company's mid quarter update, issued late Tuesday, followed Intel's more upbeat forecast earlier this week, and investors sent TI stock lower.

Amgen closed $1.76 to close at $55.64 after FDA advisors noted against requiring the company to add information about red blood cell levels to the labels of its anti anaemia drugs. The move was seen as boosting the sales potential for the drugs.

Apple closed $1.36 higher to close at $136.85 after UBS lifted its price target on the company.

Cardica closed 15.6 percent higher after it received European approval for its device that connect blood vessels during heart bypass surgery.

Japanese stocks closed mixed this morning, with the Nikkei edging higher on defensive buying of medical shares such as Terumo Corp, while strong oil prices boosted energy shares. But the TOPIX index slipped amid thin trade, with a waiting mood deepening ahead of the selection of a new Japanese prime minister and next week's US Federal Reserve meeting, while sales of high techs stocks such as Toshiba Corp weighed on the market. Much of the activity was driven by factors specific to certain companies rather than sectors of the market as a whole, but amid the general uncertainty investors moved to snap up defensive stocks like Terumo and drugs companies such as Astellas Pharma Inc. The Nikkei closed 23.6 points higher at 15821.2.

The FTSE100 reversed earlier losses in late trade on Wednesday, as record US crude prices boosted heavyweight oil stocks and BAE Systems supported. The FTSE100 closed 25.5 points higher at 6306.2, after falling to 6232 earlier in the day as credit fears pulled share's lower. BAE Systems gained 3.2 percent after it entered into talks on a "sole source" basis with the US Department of Defence about supplying 10,000 medium weight military trucks. The department is looking for medium tactical vehicles designed to protect Army troops deployed in Iraq and Afghanistan from threats such as roadside bombs. The deal could be worth $4bn, the Time reported.

Oil stocks were strong after US crude hit a record $79 a barrel as a surprise large drop in US crude oil stocks was followed by a small output increase. BP added 0.7 percent while Royal DutchShell gained 1 percent.

Weaker base metal prices and the economic concerns weighed on mining shares, with Rio Tinto, Vedanta and Anglo American all lower.

ITV fell 1.5 percent after the company pledged to restore growth by improving its programming, which it plans to fund by cost cuts and asset sales.

Home Retail added 2.5 percent after the company forecast food first half results as it gave an update for the second quarter.

After the market closed, FTSE announced in its quarterly reshuffle that Taylor Wimpey, Carphone Warehouse and Tullow Oil were joint the FTSE100 index. They replace Segro, Kelda and Drax.

Economics
UK RICs house price balance (August) 00.01bst

The balance of surveyors reporting prices rising relative to prices falling fell sharply last month. A further decline this month is expected.

EMU ECM Monthly Bulletin (Sept) 09.00 bst

The overall tone of the Monthly Bulletin generally reflects the introductory statement of the previous week's press conference. The ECB occasionally uses the insight boxes to underline issues it believes warrant clarification or broader understanding.

US Initial jobless claims (week 8 Sept) 13.30 bst

Initial jobless claims are expected to be 325,000

US Monthly budget statement (Aug) 19.00 bst

A deficit of USD70bn is expected for the month of August. The Congressional Budget Office's latest projection anticipates a total FY2007 deficit of USD158bn.

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