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While you were sleeping: Stocks fall, USD rises

Wednesday 13th January 2010

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Disappointing results from Alcoa and a profit warning from Chevron took the wind out of the sails of equity investors who earlier placed bets on higher earnings and optimistm about the outlook for U.S. companies.

At midday, the Dow Jones Industrial Average fell 0.5% and the Standard & Poor’s 500 declined 0.79%. The Nasdaq Composite fell 1.11%. Oil fell for a second day.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ rose 5.7% to 18.55.

Among the decliners were Alcoa, down 9.2%, JPMorgan, down 2.6%, Chevron, down 1.1% and KB Homes, down 4.5%. On the updside were American Express, Kraft Foods and IBM.

While Alcoa reported a narrower loss after the market closed yesterday, the loss was more than analysts had forecast. The aluminum producer also said demand was not expected to increase soon.

In Europe overnight, the Dow Jones Stoxx 600 Index fell 0.9% to 256.38. Every major national benchmark index in Europe dropped, except Iceland.

Greece’s ASE tumbled 5% amid renewed concerns about the country's fiscal outlook. The FTSE 100 edged 0.7% lower, Germany's DAX fell 1.6% and France's CAC 40 slid 1.1%.

National Bank of Greece fell 6.3% after the European Commission said there were “severe irregularities” in Greece's statistical data, leaving the accuracy of the budget deficit in doubt.

Some of the biggest movers in European trading included BHP Billiton, Norsk Hydro and Beiersdorf. EADS and Alstom also fell.

The outlook for global equities remains positive despite overnight losses.

BofA Merrill Lynch Global Research increased the allocation of equities in its monthly investment strategy report today to 65% of total assets, from 60%, Bloomberg News reported. Strategist Michael Hartnett said investors should cut investments in bonds to 30%, from 35% previously, and hold 5% in cash.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.13% to 76.91.

As the U.S. dollar advanced, the Kiwi, Aussie and Canadian dollars fell. The moves came after the Chinese government told banks to increase the proportion of deposits set aside as reserves. The U.S. currency also got a boost from a Chinese official said he believed the greenback had reached a floor.

Peng Junming, who works in the asset allocation and strategic research department at China Investment Corp, said China now had a voice in influencing the dollar's exchange rate.

“I think the dollar is at its bottom now. There will be very limited space for the dollar to drop further,” he told an academic forum, as reported by Reuters. “The yen is what, I think, has the worst outlook. The yen will continue to drop, unlike the dollar, which will not serve for long as a source of funding carry trades."

Three-month euro Libor rates edged down to a new low at 0.63500%. Equivalent three-month dollar Libor rates were unchanged at 0.25125%.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, fell 1.6% to 284.77.

Platinum for immediate delivery advanced as much as 2.3% to US$1627.38 an ounce, the highest since August 2008. Palladium added as much as 2.1% to US$443.38 an ounce, the highest since July 2008.

U.S. crude for February delivery fell US$1.08 to US$81.44 a barrel, after hitting US$83.95 on Monday. In London, Brent crude fell US$1.08 to US$79.89.

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