19/9/08

US stocks soared Thursday afternoon, finding some momentum near the end of a choppy session, on talk that the government is working on a more permanent solution to absorbing bad debt. Also helping lead the advance, reports that China will cut out taxes on stock purchases.

The DJIA closed 410.03 points higher at 11019.69, the Nasdaq added 100.25 points to close 2199.10 and the S&P500 soared 49.86 points to 1206.25.

Stocks seesawed on both sides of unchanged throughout the session, but spiked in the last hour on a news report that Treasury Secretary Henry Paulson is looking to create a more long term solution to the current credit crisis, perhaps creating an independent agency to take bad loans off bank balance sheets. The Treasury Department denied that he had made any comments and said it does not comment on rumours. Volumes were particularly heavy ahead of today's options expiration.

In the aftermath of the Federal Reserve's $85bn bailout of AIG, central banks around the world agreed Thursday morning to inject as much as $180bn into global money markets in a coordinated attempt at taking the edge off nervous markets. That's in addition to the $67bn that was previously announced. The move helped, but investors remained cautious.

Morgan Stanley and Goldman Sachs fell, building on Wednesday's selloff on worries about the companies financial well-being, even though both announced better than expected quarterly reports earlier this week. Investors were also wary about Morgan Stanley amid reports that it is considering a merger with Wachovia or another bank. Shares of Washington Mutual gained on reports that Wells Fargo and Citigroup may be interested in buying the company.

Dow Jones and Co said Thursday that AIG will be evicted from the Dow Jones Industrial Average at the beginning next week, and will be replaced by Kraft Foods. AIG has been a component of the Dow since April 8th 2004. On Tuesday, the Fed said it was granting a two year, $85bn bridge loan to AIG in exchange for a stake in the company that could reach 80 percent. AIG will have to pay back the loan in full by selling off some of its assets. The stock has fallen 96 percent since the start of the year, but gained 4 percent Thursday afternoon, giving up bigger morning gains.

Stocks responded positively to an afternoon announcement that the FSA said it is banning the short selling of shares in publicly traded financial companies at least through to mid January next year. The news lifted stocks because it sparked bets that the US will follow suit.

In other company news, Constellation has agreed to be bought by MidAmerican Energy Holdings in a $4.7bn cash and stock deal, after the stock plummeted over 60 percent this week on concerns about its solvency. MidAmerican is owned by Berkshire Hathaway. FedEx reported weaker fiscal first quarter earnings that met estimates on stronger revenues that topped estimates. The company also forecast fiscal second quarter earnings that are above analysts current estimates. The stock fell nearly 2 percent.

Oil prices were volatile after rising over the last few session as investors had looked for safer places to put their money than stocks. US light crude for October delivery fell 31 cents to $96.85 after topping $102 a barrel earlier in the session. COMEX gold for December delivery rallied $56.50 per ounce to $907. Treasury prices were little changed, erasing early losses. The yield on the 10 year note was 3.42 percent, up from 3.41 percent. In currency trading, the dollar fell versus the euro and gained against the yen.

In economic news, a report showing surprise strength in the manufacturing sector helped pace the early advance, but it was trumped by other mixed readings on the economy. The September Philadelphia Fed Index, rose to 3.8 from a reading of negative 12.7 in the previous month. Economists thought it would only improve to a reading of negative 10. Any negative reading shows weakness, while a positive reading shows strength. Another report, the Conference Board's index of leading economic indicators improved in August to a reading of negative 5 from the previous months reading of negative 7. Economists expected it to improve more, to a reading of negative 2. Earlier, the Labor Department said jobless claims rose to 455,000 last week from 445,000 the previous week. Economists thought the number of Americans filing new claims for unemployment would drop to 440,000.

The Nikkei climbed 431.56 points to close at 11,920.86 this morning after central banks announced plans to boost capital and liquidity in crippled financial markets. Resona Holdings Inc, Japan's fourth biggest listed bank, surged 18% while financial services provider Orix Corp, jumped the most in two decades.

The Hang Seng is currently 1,299.16 points higher at 18,931.62 after the government said it will buy shares in the nation's three largest banks. Industrial & Commercial Bank of China Ltd and China Construction Bank Corp soared 17%. China Investment Corp, the nation's $200 billion sovereign wealth fund, will raise its holdings in the companies and Bank of China Ltd, according to the official Xinhua News Agency.

UK stocks closed lower on Thursday despite choppy trade as volatility reigned despite a concerted move by central banks to boost liquidity and Lloyds TSB's deal to buy HBOS. Investors were also cautious ahead of today's futures and options expiries. The FTSE100 closed 32.4 points lower at 4880. The turmoil in the markets prompted the Federal Reserve and other central banks to pump billions of dollars into the global money markets in a coordinated effort to ease a funding squeeze. The move initially eased some of the fears on the health of the global financial system that has seen investors dump stocks.

US stocks also traded lower following rumours of a merger of Morgan Stanley and Wachovia after the fall of Lehman Brothers and bailout of AIG. Lloyds TSB sealed a £12.2bn deal to buy HBOS to create a dominant mortgage and savings provider. HBOS gained 17 percent on the news and Lloyds TSB fell 18 percent. Other banking stocks saw earlier gains erased. RBS fell 4.5 percent and Standard Chartered lost 1.9 percent. Barclays fell 5.3 percent after a placing of 226 million shares at 310 pence each raised £701m to give it additional resources to absorb the acquisition of Lehman Brother's North American banking operations, announced on Wednesday.

On the upside, LSE added 7.8 percent. Traders cited increased volumes and talk that rival platform Turquoise may suffer as a result of its backing by embattled investment banks. Aviva was 4.9 percent higher after Keefe, Bruyette and Woods said it saw the firm as one of those benefiting most among UK insurers from the competitive weakening of AIG.

British Airways fell 11 percent as investors were concerned over the threat of a fall in business class passengers caused by the financial crisis and a £1.5bn pension deficit, analysts said. Old Mutual fell 15.5 percent after it said it had a $237m exposure to AIG. News from the High Street was positive as back to school shopping trips gave UK retail sales an unexpected boost in August. Next added 3.7 percent and Marks and Spencer gained 2.3 percent. Kingfisher gained 9.7 percent as it beat first half profit forecasts and said cost cuts would help it cope with very tough trading conditions. Enterprise Inns gained 5.4 percent after Goldman Sachs raised its rating to neutral from sell after recent share price weakness, keeping its 230 pence price target unchanged.