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While you were sleeping: Takeover talk lifts stocks

Thursday 19th August 2010

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US stocks gained amid takeover speculation for raw material producers and homebuilders following BHP Billiton’s hostile bid for Canada’s Potash of Saskatchewan.

Potash’s immediate rejection of BHP’s bid, announced yesterday, has fuelled speculation BHP will raise its offer for the fertilising company.  

Among the most active stocks on Wall Street were US Steel, Ryland Group and Meritage Homes.

In late trading, the Dow Jones Industrial Average gained 0.41%, the Standard & Poor's 500 Index rose 0.48% while the Nasdaq Composite Index climbed 0.67%.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, declined 2.96% to 23.61 in New York. The index measures the cost of using options as insurance against declines in the Standard & Poor’s 500 Index.

The Stoxx Europe 600 Index fell 0.3% to 257.6.

The UK’s FTSE 100 dropped 0.89%, Germany’s DAX fell 0.32% and France’s CAC 40 shed 0.41%.

Among the most active stocks in Europe were BHP Billiton, Vestas Wind Systems A/S, Henderson Group.

US Treasuries rose amid talk the weakening economic recovery might prompt the Federal Reserve to boost debt purchases.

The Fed plans to buy Treasuries due from August 2016 to August 2020 tomorrow, after purchasing US$2.551 billion of securities yesterday, to hold borrowing costs down. The central bank announced the purchases on August 10, saying it would buy securities for the first time since October using funds from principal payments of its holdings of mortgage-backed debt.

The 30-year bond fell 5 basis points, or 0.05 percentage point, to 3.72% at 2.11pm in New York, according to BGCantor Market Data.

The 10-year note yield fell 1 basis point to 2.62%. Two-year yields were unchanged at 0.5 %, near the record low of 0.48 percent% yesterday.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.07% to 82.17.

The euro slipped against the greenback. Earlier, the euro had risen after a German government bond auction attracted solid demand, easing concerns about fiscal instability in the European Union.

A 5 billion euro sale of German 10-year debt produced a record-low average yield of 2.37%. An auction of Portuguese T-bills also went well. In afternoon trading, the euro was down slightly at US$1.2875.

"We haven't been able to trade clearly above that US$1.29 mark in just over a week or so. What you're seeing is once it does break above US$1.29, people are taking the opportunity to sell the currency and take a little profit," John Doyle, senior currency strategist at Tempus Consulting, told Reuters.

"We're still pretty bearish on the euro."

The US dollar declined against the yen, moving toward recent 15-year lows on growing speculation Japanese authorities were unlikely to intervene to counter their currency's recent strong run.

The US dollar shed 0.2% to 85.34 yen, not far from a 15-year low of 84.72 yen hit on trading platform EBS last week.

In a sign of how tough it is to make money at the moment, Stanley Druckenmiller has announced  his plans to close his hedge fund after three decades.

Druckenmiller is widely known as the man who forced a devaluation in the British pound - and put US$1 billion in George Soros’ pocket as a result of that bet.

Druckenmiller’s firm, Duquesne Capital Management, oversees US$12 billion and has never had a losing year. The firm had annual average returns of 30% for most of the time it has been open, though it’s down 5% so far this year.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, slipped 0.11% to 269.90.

US crude oil futures dipped 27 cents to US$75.50 a barrel by 1.39pm EDT, having earlier dropped to US$73.83, the lowest price since July 7.

ICE Brent fell 39 cents to US$76.54.

The positive tone on equity markets helped oil rebound from earlier losses. Crude had slumped earlier today after data from the US Energy Information Administration showed combined inventories of crude and refined products, excluding the Strategic Petroleum Reserve, reached 1.130 billion barrels last week, topping the 1.127 billion barrels struck in September 1990. On a monthly basis, inventories peaked at 1.37 billion barrels in 1980.

Gold rose to a 1-1/2 month high, rallying for a fifth day. Prices for the precious metal have risen this week on safe-haven buying along with US Treasuries prices.

COMEX floor trader Jonathan Jossen told Reuters gold futures' rise was "purely technical" as prices began to rally after the metal found support at US$1,223 an ounce, where a series of successive highs were made in mid-July.

"There are a lot of big options trade, and the funds are getting back in. The funds will put their bets on when they think technically it is going to make a move," Jossen said.

Spot gold was at US$1,230.90 per ounce by 12.50pm EDT, up from US$1,222.90 late in New York on Tuesday. US gold futures for December delivery were up US$5.20 to US$1,233.50 per ounce.

Copper for September delivery rose 1.10 cents to end the day at US$3.3495 per pound on the COMEX metals division of the New York Mercantile Exchange.

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