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While you were sleeping: Probes pressure stocks

Friday 14th May 2010

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Equities in the US fell, led by financial shares on concern about widening probes of mortgage-bond deals by the major American banks and whether ratings agencies were duped.

New York Attorney General Andrew Cuomo was investigating eight banks over whether they misled the agencies that rated mortgage securities, reports said.

Bank losses stemming from the collapse of the US subprime mortgage market beginning in 2007 totalled about US$1.78 billion globally, according to Bloomberg data. Goldman Sachs already is being investigated for its role in the sale of some mortgage securities.

In late trading, the Dow Jones Industrial Average fell 0.87%, the Standard & Poor’s 500 Index declined 0.98% and the Nasdaq Composite dropped 1.19%.

Among the most active were Citigroup Inc, Deutsche Bank AG and Cisco Systems Inc.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, rose 3.02% to 26.29.

The Stoxx Europe 600 Index rose 0.3% to 257.24, the highest close since May 3.

The UK’s FTSE 100 rose 0.93%, and Germany’s DAX gained 1.11%. In France, the CAC 40 slipped 0.06%

Among the most actives were J Sainsbury Plc, BT Group Plc, Vallourec SA and EFG Eurobank Ergasias SA.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.52% to 85.28.

The euro slid against the US dollar on Thursday amid concern plans to stem Europe’s debt crisis would hamper economic growth.

Portuguese leaders agreed to tough new austerity measures overnight, including higher taxes and wage cuts for civil servants. In Spain, unions threatened a general strike to protest austerity measures there.

"Europe basically looks like a zombie economy and on top of it, you're seeing a massive retrenchment in government spending," Jessica Hoversen, fixed income and currency analyst at MF Global in Chicago, told Reuters.

In midday New York trading, the euro fell 0.41% to US$1.2569, after earlier falling to a low of US$1.2540.

Against the yen, the US dollar was down 0.55% at 92.66.

In a speech in London, former US Federal Reserve chairman Paul Volcker said he’s concerned that the euro area might break up after the Greek fiscal crisis that sparked an unprecedented bailout by the region’s members.

US Treasury 30-year bonds declined after a US$16 billion sale of the long bonds attracted lower demand than forecast.

The 30-year securities at the auction drew a yield of 4.49%, compared with a forecast of 4.471% in a Bloomberg survey of 11 of the Federal Reserve’s 18 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.6, compared with an average of 2.56 for the past 10 sales.

The yield on the current 30-year bond rose 1 basis point to 4.49% at 1.42pm in New York, according to BGCantor Market Data. The yield on the benchmark 10-year note increased 1 basis point to 3.58%.

Indirect bidders, an investor class that includes foreign central banks, purchased 32.5% of the notes, compared with an average of 39.3% for the past 10 sales. At the last sale, on April 8, the securities attracted a yield of 4.77%.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 21.8% of the last sale, less than the April auction’s 25.5%. The average for the past 10 offerings is 12.5%.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, slipped 0.39% to 265.78.

Gold remained near record highs as doubts about whether the US$1 trillion European rescue plan would solve the crisis supported prices for the safe-haven commodity.

Silver and platinum group metals were also unchanged as volatile currency and equity markets showed signs of stabilising.

Gold's rally in dollar terms now stands at 7% from a week ago. Worries about the European rescue plan sent gold priced in euros and sterling to record highs.

Gold was at US$1,236.55 an ounce at midday, from US$1,236.35 an ounce late in New York yesterday.

Spot silver was unchanged at US$19.48 an ounce. Platinum dipped to $1,724.50 from $1,736.50. Palladium rose $540.50 from $540.

US crude futures dropped on high inventory levels, especially at the NYMEX delivery point in Cushing, Oklahoma, which were at a record.

The US Energy Information Administration's weekly oil inventory report on Wednesday showed total crude stocks rose more than expected.

On the New York Mercantile Exchange at 10.25am EDT US crude for delivery in June fell US$1.58, or 2.09%, to US$74.07 a barrel.

Brent crude for delivery in June fell 64 cents, or 0.79%, to US$80.56 a barrel. The Brent June contract expires on Friday.

US copper futures rose. Copper for July delivery rose 4.20 cents to US$3.23 per pound by 10.40am EDT on the New York Mercantile Exchange's COMEX division.

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