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While you were sleeping: Bears not hibernating yet

Tuesday 5th October 2010

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The trading week started on a gloomy note, sending shares on Wall Street and in Europe lower again, as economic data kept alive concern the global recovery wasn’t guaranteed yet.

Main US share markets declined, with the Nasdaq Composite Index 1.28% lower in early afternoon trading.

Microsoft weighed on both the Dow Jones Industrial Average and Nasdaq 100 after Goldman Sachs downgraded the software maker.

Investors were also discouraged by a report showing manufacturing orders in the US dropped a larger-than-expected 0.5% in August, after a 0.1% gain the prior month.

"We don't think things are going to get any worse, but they are not going to get better very quickly," Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts, told Reuters.

It wasn’t all bad news today but a more upbeat report on the US housing market wasn’t enough to dispel the bears. Contracts to purchase previously owned homes rose 4.3%, climbing for a second month, according to National Association of Realtors data.

For the first time in more than a year analysts are cutting their forecasts for Standard & Poor’s 500 Index earnings, jeopardising gains from the biggest September rally since World War II, according to Bloomberg News.

Estimates for S&P 500 companies’ combined 2011 profit fell as low as US$95.17 last month from an August high of US$96.16 and posted the first quarterly reduction since the three months ended June 2009, according to more than 8,500 analyst forecasts tracked by Bloomberg.

The S&P 500 recently finished its best quarter in a year, posting a gain of nearly 9% in September, although the index has been struggling to break out of the 1,130-1,150 range, Reuters reported.

So investors piled into the relative safety of US Treasuries, sending two-year yields to a record low, amid speculation the Federal Reserve would accelerate asset purchases.

The Fed is set to buy Treasuries tomorrow and the next day as part of its plan to keep borrowing costs low.

Ten-year note yields fell 3 basis points to 2.48% at 12.28pm in New York, according to BGCantor Market Data.

In Europe, investors lacked optimism too. The Stoxx Europe 600 Index declined 0.5% to 257.74, falling for a sixth consecutive session.

A decline in German car sales hurt stocks including Volkswagen AG and Daimler AG.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.42% to 78.42. It regained some lost ground as troubling reports from Ireland, Portugal and Greece renewed concerns about the financial stability and hurt the euro.

Key US non-farm payrolls data due on Friday will provide an important gauge for the direction of the greenback.

"Continued deterioration in US economic data would reinforce the already negative sentiment surrounding the [US] dollar," CMC Markets analyst Michael Hewson said in a note.

Spot gold slipped 0.2% to US$1,313.60 an ounce at 12.24pm EDT, after reaching a record US$1,320.80 an ounce on Friday.

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