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While you were sleeping: Stocks extend their slide

Thursday 28th January 2010

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Concerns about stimulus measures being unwound around the globe and whether stock prices have risen too fast given the profit outlook took a bit more wind out of investors’ sails overnight.

In addition, two more voices were added to the widening chorus of market watchers wary of a stock market correction. Marc Faber told Bloomberg that he is forecasting a 20% drop in the Standard & Poor’s 500 Index.

At midday, the Dow Jones Industrial Average had slid 0.17% and the S&P 500 was down 0.15%. The Nasdaq Composite had added 0.1%.

Earnings continued to drive the value of stocks. Shares in Caterpillar slumped 7.6% after it reported a 65% drop in fourth-quarter profits. Among other decliners were Toyota Motor and U.S. Steel.

Shares in Apple slid ahead of an expected unveiling of the company’s latest product, a tablet computer.

U.S. stocks also took the latest report on home sales as a sign that the recovery was continuing to be uneven. Sales of new homes fell 7.6% in December, the Commerce Deparment said. For all of 2009, sales fell 23%, the lowest since record began in 1963.

Among the advancers were Yahoo!, Moody’s, Boeing and Amazon. Shares in Warren Buffett’s Bershire Hathaway surged 4.9% after the company was chosen to join the S&P500.

“The market has become overbought,” Faber told Bloomberg. “There isn’t a meaningful improvement in the economy taking place. The economy may disappoint somewhat in the next few months.”

Faber, who publishes the Gloom, Boom and Doom report, had recommended buying stocks in March, ahead of the market rally.

If the benchmark gauge for U.S. equities breaches the level at 1087 to 1091, the next support was at 1040, 4.8% below yesterday’s close, Geoff Wilkinson, the head of technical analysis at Mint Equities told Bloomberg. 

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ fell 0.12% to 24.52.

In Europe, the Dow Jones Stoxx 600 declined 0.9% to 247.24. The FTSE 100 fell 1.13%, Germany’s DAX shed 0.45% and France’s CAC 40 lost 1.24%.

European stocks were hit by renewed concerns about Greece’s financial outlook after the European Commission said the country’s hadn’t done enough yet.

As in the U.S., poor earnings also hit European markets. Banco Bilbao’s earnings fell short of analysts’ targets.

The market activity also came ahead of today’s statement from the Federal Reserve, which will conclude a regular two-day policy meeting in the next few hours. The focus is on what the Fed has to say about its efforts to bolster market liquidity.

That point was hammered home by Axel Weber, a member of the European Central Bank’s council. He told Bloomberg that the bank might take further steps to reduce liquidity in the first half of this year.

Central banks and governments around the world are starting to rein in liquidity after flooding markets with cheap money to bolster confidence in financial firms and the banking sector.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.13% to 78.61.

At midday, the euro was down 0.2% to US$1.4048. The euro zone single currency has lost 6.9% since the beginning of December, according to Reuters.

Eurogroup head Jean-Claude Juncker told French business daily Les Echos he was unhappy with imbalances that have produced an overvalued euro and an undervalued U.S. dollar.

The dollar was down 0.3% at 89.36 yen. The euro fell 0.4% to 125.60 yen.

China’s decision to keep the yuan from appreciating was the target of more criticism at the World Economic Forum in Davos. George Soros said the case for revaluing the renminbi was “getting stronger and stronger”.

The continuing slide in the euro, and rise of the greenback, is taking its toll on gold prices.

Gold was bid at US$1092.60 an ounce by 1530 GMT, against US$1097.25 an ounce in New York late on Tuesday. U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange fell US$5.00 to US$1093.30.

The outlook for gold remained positive. Peter Munk, the chairman of the world's biggest gold miner, Barrick Gold told Reuters Television that while gold prices might be volatile, the rise was not over.

Demand woes pressured oil yet again. U.S. oil for March delivery fell 1 cent to US$74.70 a barrel by 1613 GMT, after touching an intraday low of $73.90. London ICE Brent for March rose 11 cents to US$73.40.

U.S. crude oil stockpiles fell unexpectedly by 3.9 million barrels last week while distillates showed a surprise gain, Energy Information Agency data showed.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, fell 1.14% to 270.77.

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